The “Hungarian law of 1%” and whether it is applicable in Macedonia?

Implementation of the Hungarian law is possible and expected

 

We asked Mr. Slavko Lazovski from the Tax and Tax Policy Sector from the Ministry Finance what the so-called “Hungarian law of 1%” is and whether it is applicable in Macedonia?

This is his answer:

“All countries from the region of Central and Eastern Europe project certain privileges, usually in a form of tax decreases, to donors who contribute to civic organisations’ benefit. In that direction, Hungary, recently followed by Slovakia and Lithuania, has passed such law, according to which 1% of the taxpayers’ taxes should be paid to certain NGOs. In Hungary, since 1996, the legal persons – taxpayers, have been denoted that 1% of their tax should be directed towards some civic organisation which best realises the expected objectives and interests of the taxpayers. As soon as the tax administration receives the taxpayer’s tax declaration – application, it records that the taxpayer has paid the tax debt of 100% (a payment should be made for that amount), it directs 99% in the budget, and transfers 1% to the account of some civic organisation, which the taxpayer has chosen. Of course, there are also rules for the civic organisations, for example: which civic organisations can be qualified for this objective, and so that this would be technically easily feasible, each organisation of this kind receives its number and the taxpayer only writes that number in the tax return.

By this law, in 1997 the civic organisations were paid 1.77 billion HFU (about $9 million) when 30% of the Hungarian taxpayers used this right.

Slovakia and Lithuania have already accepted and enriched this experience, and many other countries prepare in that direction. Macedonia needs to show that it has capacity to join them and that it is not predetermined constantly to fall behind in the tax reforms. On the basis of this positive experience, apart from the other necessary changes in the tax frame for civic organisations in the Republic of Macedonia, it is necessary to offer solutions in a special law or as an amendment of the existing regulations, which are same or adequate to the so-called “Hungarian law of 1%”.

Essentially, it is not about implementing the new law, nor new tax burdening by increasing the existing taxes, but it is about giving a right for tax direction, to the one who pays the tax. To a great extent this increases the acceptance of this solution by those who pay the taxes – citizens and enterprises. The experts’ public in our country has also supported this solution. On the other hand, the assessment that our tax policy is on such level dominates, so without any expensive preparations and investments, it will successfully process the “Hungarian law of 1%”.

What would this be like in “Macedonian way” and what would the acquisitions be? Without demands of some profound evaluations and effects calculation, it is necessary to point out to some certain things. The most important gain would be that our tax and budget system would get some new characteristics. For the first time, the one who pays taxes would be enabled to create the budget he fills, really on a very small part, but enough to announce the directions of further changes. The questions of consistency in realising the long time ago proclaimed budget principle in public come naturally, also the right spending of the budget assets (or at least strong and on time reaction against misuses). The taxes also gain – the relations of the taxpayers towards taxes changes, and this is supported by the tax authorities and it will result in increasing the payment of the public expenditures.

On the other hand, the civic organisations’ expectations should also be realistic, because the “Macedonian” 1% of the personal tax can be maximum about 75 to 100 billion denars a year. In the Republic of Macedonia the tax incomes from the personal tax in the last three years were the following: in 2000 – 10.789 million denars, in 2001 – 7.248 million denars and in 2002 –7.514 million denars. We have to mention that this “1%” can be “1% + 1%” etc. But, what is very promising, are the good future performances of the personal tax, its incomes will increase by increasing the employment in the country (because about 83% of these incomes are connected with the salaries), as well as by long-term increasing the salaries). Generally viewed in relative relations, as the country rises in its development, the incomes from the direct taxes will increase, and the incomes from the consumption tax in the future long-term development will decrease.

Generally speaking, implementing the “Hungarian law of 1%” in our country is realistically possible and expected, as a relevant issue in the process of improving the tax frame for NGOs, and where introducing the institute “organization of public interest” should have central place as a mainstay to which the NGO tax initiatives would tie to in our country.”