In our previous articles, we have already written several times about the special surtaxes introduced during the state of emergency. A new amendment to Government Decree 197 of 2022 on extra-profit taxes, effective from 24 December 2022, extended the range of taxpayers obliged to pay special surtaxes to include pharmaceutical manufacturers, and increased the amount of the insurance surtax.
Special surtax of pharmaceutical companies
According to the changes announced by Government Decree 582 of 2022, pharmaceutical manufacturers must pay a special surtax for tax years 2022 and 2023. Pharmaceutical manufacturers are companies that are engaged in the manufacturing of pharmaceutical products (TEÁOR/NACE Rev.2 2120) and of basic pharmaceutical products (TEÁOR/NACE Rev.2 2110).
The tax base is the net sales revenue defined by Act C of 1990 on Local Taxes, which must be determined on the basis of the annual report for the tax year, i.e. the special surtax must be paid on turnover and not on the profit achieved.
The tax rate was determined in brackets as follows:
- 1 percent for the part of net sales revenue not exceeding HUF 50 billion,
- 3 percent for the part of net sales revenue exceeding HUF 50 billion but not exceeding HUF 150 billion,
- 8 percent for the part of net sales revenue exceeding HUF 150 billion.
The surtax payable for tax year 2022 must be declared and paid in a lump sum by the 20th day of the fifth month of the 2023 tax year, i.e. by 20 May 2023 for calendar year taxpayers. With regard to the surtax payable for tax year 2023, a tax advance must be declared and paid by the 20th day of the 11th month of the 2023 tax year (i.e. by 20 November 2023 for calendar year taxpayers) on the basis of the estimated annual 2023 surtax liability. A declaration of the actual (final) tax liability for 2023 must be submitted by the 20th of the fifth month following the tax year (by 20 May 2024 for calendar year taxpayers), and if the final tax liability exceeds the tax advance paid, the difference must also be paid by this date.
The government decree raises several questions of interpretation.
On the one hand, although the legislation defines the activities subject to the surtax by referring to TEÁOR (NACE Rev.2) codes, it does not refer to the fact that the company is liable for paying tax only on that part of its net sales revenue that it assigns to these activities. Thus, the total sales revenue of the pharmaceutical companies may be subject to the surtax. On the other hand, it is also unclear whether an enterprise whose scope of activity includes the two relevant TEÁOR (NACE Rev2.0) numbers, but that is currently not engaged in the manufacturing of either pharmaceutical raw materials or pharmaceutical products, is liable for the surtax or not. Furthermore, there is also the question of whether becoming liable to pay the surtax is influenced by the type of licenses under which a business carries out its activities, and how the exact range of taxable activities should be interpreted in the TEÁOR (NACE Rev2.0) system.
Answering these questions as soon as possible would be important if only because the companies concerned must determine their new surtax liability for 2022 at 2022 year-end closing and account for it as an item reducing profit.
Insurance surtax rate increase
For the surtax base created between 1 January 2023 and 31 December 2023, the surtax rate of the top tax bracket was also increased. For that part of the premium income that exceeds HUF 36 billion, the additional tax rate will be 5 percent instead of 3 percent for life insurance incomes, and 12 percent instead of 7 percent for non-life insurance incomes.
The basis of the insurance surtax is still the same as the basis of the insurance tax (that is, the insurance premium from motor vehicle insurance, property and liability insurance, and compulsory motor vehicle liability insurance), supplemented by the insurance premium revenues from life insurance. The surtax for the period between 1 January 2023 and 31 December 2023 must be determined, paid and declared by 31 January 2024 in accordance with the previously announced rules.