The devil is in the detail
As in my last column, I thought I'd share just one more example where tax officials had insisted on going by the book and taking a literal approach to rules and regulations, thus creating bizarre and ridiculous scenarios.
A colleague in our Budapest office shared a gem with me about the "I'm so sorry, you were absolutely right" official. Without a doubt, the Hungarians top the bill with a tale of an admitted mistake. It seems that tax advisers there can countersign tax returns they prepare. In such cases, any penalties for late or incorrect filings should be imposed upon the tax adviser.
One particular tax adviser, who was engaged by a company to handle all its tax affairs on a regular basis, had several problems with the national tax authority. However, the literal interpretation of the wording of the legislation referred to wholly independent authorised advisers.
As a result, the tax returns countersigned by him all failed to get through the system, and all, with no exception, were declared to be incorrect for a number of years in a row. After his serious and repeated complaints, an audit procedure started for the years concerned, at the end of which he received the following letter from the tax authority in July 2002:
Dear Sir,
Upon your request, I have reviewed the tax returns you countersigned previously classified as incorrect and subject to penalties. The results are rather appalling for me. I was not able to find a return with at least one small mistake in it. Please accept my honest apologies. We will take your recommendations into consideration for the improvement of our future work.
Best regards,
Head of Department
Hungarian Tax Authority
I wonder whether this individual would consider a long-term assignment at one of the Warsaw tax offices. It would certainly stir things up!
But enough of this lighthearted banter. I start to get withdrawal symptoms if I don't get at least a little technical, so let's talk about tax.
A number of interesting tax scenarios have been appearing in the press in relation to planned tax reforms in the (hopefully) not-too-distant future. The ones closest to our hearts, or do I mean pockets, are those relating to personal income tax.
The PIT scenarios which have been mooted in the press vary from linear taxation (most unlikely in the current climate), through introducing another one or two tax rates (from 0% to 50%), to introducing a single payroll tax of 15%. What prevails in all scenarios is the liquidation of all current reliefs and exemptions. The Council of Ministers met last week to discuss the reform of public finances to include tax reforms in more specific detail, and came up with a 13-point plan which potentially could be made public sometime in March. Rumour has it that the discussions did not favour the 50% tax; however, we will only find out more when finance minister Grzegorz Kołodko is ready to disclose the final decision.
Whatever the decision, based on the amount of the current budget deficit and the deficit estimated for the end of the fiscal year as well as the most recent PIT reform trends, it appears likely that we can look forward to the loss of most, if not all, exemptions and reliefs at some time in the future.
There is also talk of increasing the tax on dividends from its current level of 15%. Although it has been strongly denied that there will be an increase of this tax to 25%, it seems likely that we can expect at the very least a suggestion that it be returned to its historical level of 20%. The argument behind this proposal is that if the dividend tax is high, companies will think twice before paying a dividend, thus leaving more funds available for further investments and aiding the economy through a more indirect though potentially more far-reaching and longer-term route.
Another suggestion is lowering the corporate income tax to 15%, but simultaneously decreasing the number of articles currently subject to lower rates of VAT. The idea behind this is that if we have all articles covered by a single VAT rate, that rate could potentially even be lowered from the current top rate of 22% to perhaps 15% since, in conjunction with a lower income tax rate, businesses would be encouraged to spend more (paying the VAT on these purchases), ultimately bringing in more tax income and increasing sales. This would aid the economy on two fronts.
In short, I know only as much as you about what the tax reforms will ultimately look like. However, I can promise that I will keep my ear to the ground and keep you updated on any progress.
A colleague in our Budapest office shared a gem with me about the "I'm so sorry, you were absolutely right" official. Without a doubt, the Hungarians top the bill with a tale of an admitted mistake. It seems that tax advisers there can countersign tax returns they prepare. In such cases, any penalties for late or incorrect filings should be imposed upon the tax adviser.
One particular tax adviser, who was engaged by a company to handle all its tax affairs on a regular basis, had several problems with the national tax authority. However, the literal interpretation of the wording of the legislation referred to wholly independent authorised advisers.
As a result, the tax returns countersigned by him all failed to get through the system, and all, with no exception, were declared to be incorrect for a number of years in a row. After his serious and repeated complaints, an audit procedure started for the years concerned, at the end of which he received the following letter from the tax authority in July 2002:
Dear Sir,
Upon your request, I have reviewed the tax returns you countersigned previously classified as incorrect and subject to penalties. The results are rather appalling for me. I was not able to find a return with at least one small mistake in it. Please accept my honest apologies. We will take your recommendations into consideration for the improvement of our future work.
Best regards,
Head of Department
Hungarian Tax Authority
I wonder whether this individual would consider a long-term assignment at one of the Warsaw tax offices. It would certainly stir things up!
But enough of this lighthearted banter. I start to get withdrawal symptoms if I don't get at least a little technical, so let's talk about tax.
A number of interesting tax scenarios have been appearing in the press in relation to planned tax reforms in the (hopefully) not-too-distant future. The ones closest to our hearts, or do I mean pockets, are those relating to personal income tax.
The PIT scenarios which have been mooted in the press vary from linear taxation (most unlikely in the current climate), through introducing another one or two tax rates (from 0% to 50%), to introducing a single payroll tax of 15%. What prevails in all scenarios is the liquidation of all current reliefs and exemptions. The Council of Ministers met last week to discuss the reform of public finances to include tax reforms in more specific detail, and came up with a 13-point plan which potentially could be made public sometime in March. Rumour has it that the discussions did not favour the 50% tax; however, we will only find out more when finance minister Grzegorz Kołodko is ready to disclose the final decision.
Whatever the decision, based on the amount of the current budget deficit and the deficit estimated for the end of the fiscal year as well as the most recent PIT reform trends, it appears likely that we can look forward to the loss of most, if not all, exemptions and reliefs at some time in the future.
There is also talk of increasing the tax on dividends from its current level of 15%. Although it has been strongly denied that there will be an increase of this tax to 25%, it seems likely that we can expect at the very least a suggestion that it be returned to its historical level of 20%. The argument behind this proposal is that if the dividend tax is high, companies will think twice before paying a dividend, thus leaving more funds available for further investments and aiding the economy through a more indirect though potentially more far-reaching and longer-term route.
Another suggestion is lowering the corporate income tax to 15%, but simultaneously decreasing the number of articles currently subject to lower rates of VAT. The idea behind this is that if we have all articles covered by a single VAT rate, that rate could potentially even be lowered from the current top rate of 22% to perhaps 15% since, in conjunction with a lower income tax rate, businesses would be encouraged to spend more (paying the VAT on these purchases), ultimately bringing in more tax income and increasing sales. This would aid the economy on two fronts.
In short, I know only as much as you about what the tax reforms will ultimately look like. However, I can promise that I will keep my ear to the ground and keep you updated on any progress.
