Hungarian tax collection–zero tolerance?

For some time now the Hungarian equivalent of Internal Revenue Service (Adó- Pénzügyi Ellenőrzési Hivatal or APEH) has been waging war against tax evasion. Tax evasion exists everywhere in the world but–as  Finance Minister János Veress said this morning at his press conference–while in other developed countries the black market constitutes about 5 percent of the GDP, in Hungary it is estimated to be 17-18 percent. Too few people pay too much tax, while too many people don’t pay anything or very little.

Given the large budget deficit and the necessity to decrease that deficit within three or four years below 3 percent of the GDP (the magic number to be able to introduce the euro), it is not surprising that the government has at last decided to do something drastic. Because, let’s face it, until now the collection of taxes was a laissez faire affair just as it was when it came to collecting health insurance dues, or giving out certificates for local farmers selling their own products. Basically, no one checked anything and if they did and found infractions there were really no serious consequences. The fines were so low–averaging about $100–that it was certainly worth a little or not so little cheating to save a lot on taxes.

The APEH first hired thousands of new inspectors and in the Transdanubian area (that is the territory west of the Danube) they checked 816 businesses to see whether the owners gave receipts for purchases. More than half (413) didn’t. From here on, the tax cheaters will get the maximum fine of 100,000 ft. ($5,000) in the case of an individual or twice as much in the case of a company. If the person is caught the second time within a year, over and above the fines his business will have to be locked up for twelve days, but if the person is caught the fourth time his business will be under lock for two months. Moreover, the government, realizing that to play this game two people are needed–the one who doesn’t give a receipt and the other who doesn’t insist on getting one, the APEH warned the person receiving goods and services that it might be a good idea to keep the receipts for a while.

The people’s reaction, as usual, was mixed this morning on my favorite call-in show. Some complained that if the small retail shop’s owner gave receipts and paid taxes legitimately then he would most likely go bankrupt. Others grumbled about the fact that the rich and the powerful get away with murder while the little man is the victim again. However, an equal number of people considered tax evasion one of the chief problems in Hungary.

The problem goes deeper than tax evasion. We have a society where cheating, getting out of obligations is a game. Something that is not contemptible, but instead the sign of a superior intellect. The cheaters are the "clever ones." A Hungarian businessman who had spent more than a decade in the United States wrote an excellent economic analysis of the Hungarian situation in which he presented his theory that all this starts with cheating in school. It is a game that is played between the teacher and the student. I tend to agree with him.

Lately, one piece of news follows the next that gives food for thought. In the last week or so I read an article detailing how many phony language exam certificates are obtained. Because nowadays one cannot really get a decent job without passing a language examination, the business in phony certificates is booming. Then I read that better off Hungarians had purchased apartments on the Island of Vir (Croatia) without a building permit, and they were very upset when the Croatian authorities began demolishing their houses. Some of the apartments remained, but the owners don’t want to pay taxes on their rental income. So the people who rent must lie to the authorities that they are "relatives" who are not paying a penny to the dear cousin for the two weeks they are spending there. Or, there are the cheaters on long-distance buses, where the drivers are selling used tickets for half price and pocketing the proceeds. A clever driver thus can double his salary. There is a story of an inspector who was too zealous, but he paid for his eagerness dearly. The drivers hired a muscle man who beat him to a pulp and as a result he lost sight in one eye.

And the final story for today that shows in addition to the total disregard of rules and regulations another negative aspect of Hungarian life, especially noticeable for someone who has not been living there for a long time. The coarseness of discourse, often displayed in road rage. Here there is no class distinction: the "intellectual" and the bicyclist messenger speak and behave exactly the same way. The bicyclist bicycles where he is not supposed to, the driver of a car honks at him, the bicyclist gets angry and hits the top of the car with such force that there is dent. The two "gentlemen" use unspeakably foul language and at the end the gentleman driver pulls out a pistol. According to him it was just a toy, others think that it was for real. When questioned, the messenger admitted that there is a separate lane for bicyclists but it is faster to zig-zag among the cars. In any case, there is no sign that would forbid him to use the lanes for cars. When someone reminded him that the traffic rules do actually forbid what he did, he just shrugged his shoulders and said that if the messengers used the bicycle lane they would never arrive on time. Rules, regulations, what are they? Nothing!

So, I think Mr. Gyurcsány is trying the nearly impossible. I wish him, of course, the best of luck.