Annotation of the workshop:
The workshop – dissemination event on Tax law amendments in times of crises to limit public debts aimed to present the most frequent tools for how governments in the Czech Republic, Slovakia, and Hungary draft their tax law in times of crises to limit public debts. The most significant tax law amendments adopted by national Parliaments, more or less connected with crises to limit public debts, will be analyzed regarding their potential to influence negative aspects of crises for both taxpayers and public budgets. All presenters are respected experts in the European region in taxation and public revenues.
Ecological Tools in Tax Law
In the last three years, the whole world has been struck by several crises: the COVID-19 pandemic, the war in Ukraine, and the energy and economic crises closely connected with the Russian invasion. These extraordinary circumstances made many governments intervene much more in the economy. Usually, they used different types of subsidies for natural persons and business legal entities. To cover the costs, one would expect that taxes must be increased. However, many countries, including V4 countries (the Czech Republic, Poland, Hungary, and Slovakia), decreased several taxes or even abolished some as a kind of subsidy. This has resulted in a sharp rise in the national debt. Nowadays, unfortunately still not after the crises, the total debts of many states are at an all-time high level, and in many countries (again, including all V4 Countries), the structural deficits of public budgets are enormous. There are only two ways to balance public budgets and not leave debts to future generations: cut public spending or raise taxes. Or better, to find a reasonable balance between these two extreme approaches. In every case, all ways are highly unpopular with the electorate.
The workshop took place on Friday, 20 October 2023. Four leading tax law experts in their countries were asked to present their contributions. Twenty-seven students from all V4 Countries accepted the invitation for the event. The section started with the opening note by Michal Radvan, presenting the topic from broader perspectives and the speakers.
The first presenter, Anna Vartašová, representing P. J. Safarik University in Košice, Slovakia, summarized the public debt in Slovakia. She pointed out several acts dealing with these issues, namely, Act on some extraordinary measures in the financial area in connection with COVID-19 and Act on the solidarity contribution from activities in the oil, natural gas, coal, and refinery sectors. She presented the list of potential measures from the tax sphere (higher taxation of negative externalities, higher taxation of property and consumption + lower of work, and increasing the efficiency, fairness, and simplicity of the tax and social-contribution system) and other areas (downsizing of employment and remuneration in public administration, streamlining operations in public administration, higher targeting of social spending on dependent groups, reduction of inefficient subsidies, adjustments to the pension system). She analyzed possible new tax instruments (taxation of tobacco-free products, consumption tax on sweetened beverages, taxation of producers of non-recycled packaging, tax on primary building, reintroduction of tax license, reintroduction of inheritance and gift tax, tax on interest surplus profits of banks, tax for outdoor advertising) and possible increase of existing taxes.
Gabor Hulkó from Széchenyi István University in Győr, Hungary, was not able to participate in the workshop. He apologized shortly before the beginning of the event because of the injury in his family and the need to visit the hospital. Nevertheless, he was able to deliver his presentation, and participants had a chance to read the most important information about the situation in Hungary concerning the issues covered. Gabor Hulkó talked about the state debt of Hungary. He analyzed the Act on airline contributions and amending certain tax laws, the Act on the specific tax for small taxable entities, and the Government Decree on extra-profit taxes. He highlighted that public debt cannot be balanced by tax measures alone; it requires a complex approach by the state. He also talked about specific tax types, such as extra tax on the energy sector, excise duty rates, additional taxation on retail trade, and special tax for small taxable enterprises. He also summarized that there are other risks, such as inflation, EUR/HUF conversion rates, and consumption levels.
Michał Mariański was representing the Faculty of Law, UWM in Olsztyn, Poland. At the beginning of his presentation, he also presented the French legal system as it is characterized not only by a quite original catalog of sources of law, which strongly emphasizes the role of the courts but also by a quite specific system of tax law and financial market law. The authors’ choice of French law as a comparative element of the analysis resulted from a number of historical and methodological factors. In the past, the Polish legal system was often inspired by French regulations, mainly in the fields of civil regulations and capital market law.
Concerning the Polish system, Michał Mariański was talking about Polish Order 2.0 from July 2022, mainly about 12% PIT in the first tax scale, new amount of tax reduction, no relief for the middle class, no obligation to double-calculate PIT advances, etc. He concluded that there were different approaches chosen in France and Poland in the 2008 crisis and the COVID + war in Ukraine crisis. He agrees that some solutions were quite good; however, he still has mixed feelings: there were no amendments simplifying complicated tax procedures, and he does not believe that the Polish Tax system was simplified at all.
Michal Radvan (Faculty of Law, Masaryk University, Czech Republic) opened the question of whether it would be better to leave tax systems untouched in times of economic and other crises. He stated that abolishment of the super gross wage in combination with the increase of the basic taxpayer relief was unfortunate from the point of view of public funds without affecting the tax rate (with the note that the tax rate is the most visible to the public).
He highlighted loss carryback and new regulation of asset depreciation as good tools for companies whose incomes were affected by economic crises (fiscally neutral and an effective tool to ensure adequate and necessary cash flow during a crisis or any other economic downturn). He was critical of the lump sum tax, abolishment of the property transfer tax, reduction of the road tax, termination of the electronic revenue registry, etc. The increased annual turnover limit for value-added tax liability is (according to his opinion) a good step. However, the argument that it is connected with encouraging small enterprises with limited economic activity during the crises is false: it was already planned in the Government Programme Statement. He concluded that most of the amendments adopted in the last three years, more or less connected with the pandemic and economic crises, have a negative impact on public budgets and most of the amendments were adopted with the false argument of crises.
He believes that only two suitable categories of tax instruments are helpful in times of crises: 1. tax tools serving generally those negatively affected by the crises for a more extended period without any long-term effects on public budgets (budgetary neutral instruments); these tools only postpone the tax liability and enhance cash flow (loss carryback, changes in asset depreciation, tax postponements, etc.). 2. one-time traditional institutes and instruments in tax law – the collective waiver of tax or tax accessories; however, the application of these tools in practice has a negative impact on public budgets.
Michal Radvan believes that it would be better to leave tax systems untouched in times of economic and other crises and to follow the laissez-faire principle. De lege ferenda, he suggested:
- future regulation should follow the principles of predictability and long-term sustainability
- it should also aim to decrease the public debt or at least keep it at the same level
- limit the number of correction components
- adopt an inflation clause to ensure an annual increase of all fixed amounts
- PIT: increase the tax by higher tax rates, limit lump-sum expenses
- property taxation: increase a recurrent property tax
- electronic revenue registry should be renewed.
Many of these conclusions are also applicable to other V4 Counties.
