Whistle blower accuses tax authority of corruption

November 11, 2013

Former tax inspector Andras Horvath accuses tax authorities of corruption.

A tax inspector has reported the National Tax and Duty Authority (NAV) to the state prosecutor’s office for deliberately allowing multinational companies with powerful friends to cheat the Hungarian tax system of over HUF 1 trillion (USD 4.5 billion) annually.

At a press conference on Friday Andras Horvath, a “tax inspector technical coordinator”, stated NAV repeatedly took inspectors off projects after they detected serious tax violations, prompting Horvath to resign. “The greatest crime of the system changeover are the rules in force whose observance results in the immediate bankruptcy of honest entrepreneurs and which opens the way for cheaters,” said Horvath in his introductory remarks. ” This has serious moral and group psychological consequences.”

Horvath claism NAV is “incapable of fulfilling its inspection function” claiming resources are wasted investigating “phantom” and “disappearing” companies from which it is almost impossible to collect tax arrears.  Instead, NAV should focus its attention on large companies that are illegally decreasing the amount of tax they are required to pay.  Horvath claims VAT tax avoidance is behind much of the international freight forwarding originating in Hungary.

According to Horvath and other experts many goods exported abroad from Hungary are later reimported without any VAT being paid.  Hungarian retailers purchasing Hungarian goods in this way can earn extra profit by pocketing VAT charged customers.   Horvath speculates that some of the unpaid tax finds its way into the coffers of political parties.

Shortly after Friday’s press conference NAV issued a statement calling Mr. Horvath’s claims “baseless.”  In response to this Horvath told ATV’s Olga Kalman Friday evening that in order to properly respond to his claims the agency would have had to familiarize itself with documents filed with the state prosecutor’s office. According to Horvath, Budapest prosecutors must review “many hundreds of pages” of evidence he submitted before deciding whether or not to launch a formal investigation of NAV.

Horvath told Kalman he had been contemplating “whistle-blowing” since he and fellow inspectors were taken off a case last year after uncovering major tax liabilities in the case of a large Hungarian company. Horvath declined to name any companies or executives “because the names of the involved parties are likely to be revealed over the course of investigations”.

Horvath claims the magnitude of this problem is much greater than meets the eye and that economic interests “behind the politicians” are interceding with tax authorities on behalf of some of Hungary’s biggest companies.

Hungary’s 27 per cent value added tax is the highest in Europe. Wide-scale tax evasion and fraud has been a major problem since the tax was first introduced a quarter of a century ago, in part because it has always exceeded the 17 per cent considered optimal.  In May of 2013 it was revealed that Hungarian retailers had stocked billions of forints worth of Hungarian goods purchased through foreign intermediaries without any VAT being paid.

In September 2011 Prime Minister Viktor Orban called on the newly formed National Tax and Duty Authority to step up efforts to combat tax fraud.  According to Horvath this has not happened and the situation has actually gotten worse.

Referenced in this article:

Kitálalt egy adóellenőr: engedik csalni a nagyokat, Index.hu, 8 November 2013

Horváth András, ATV Egyenes Beszéd, 9 November 2013