Central Europe Review: politics, society and culture in Central and Eastern Europe
Vol 0, No 18
26 January 1999

C S A R D A S:
Overtaxing the Country's Patience?
Orban, APEH and civil rights

Gusztav Kosztolanyi

According to estimates, some 2,500 to 3,500 billion forints (USD 11.5 to 16.2 billion) a year that should be subject to taxation escape the Inland Revenue's attention every year, putting the "black" economy's share of the GDP at somewhere in the region of 25 to 30%, a worryingly high figure. Prompted by these statistics and the need to optimise budgetary resources for purposes of implementing plans to improve the lot of families and pensioners, the coalition government in the shape of Zsigmond Jarai, the Minister of Finance, presented a bill to Parliament to reform the Inland Revenue service, by creating a special unit, the Criminal Directorate, within the Tax and Financial Affairs Monitoring Office, or APEH which would carry out investigative tasks previously within the sphere of competence of the Customs and Excise Authority. It was to be treated as a matter of urgency and pushed through as quickly as possible, but the government misjudged its sensitivity.

"Tax-police: there are few compound nouns to be found in the Hungarian language capable of arousing such deep-seated aversion within us. The Inland Revenue has thus far only rummaged around in our pockets, but that, henceforward, they should also start rummaging around in our flats, amongst our papers and that they can start searching in our pillowcases as well is truly alarming" (Gyula Jambor in Magyar Nemzet, November 1998).

"...the bill concerning APEH's activities as an investigative authority contains the crudest encroachment on constitutional rights, in particular on the freedom of the private life, and on the safety of citizens as well. At the same time, the special policemen, who are entitled to employ physical force and carry firearms, do not fall within the regulatory framework governing the forces of law and order, but belong instead to the ranks of traditional civil servants, who would also be granted the right to gather information using secret means..." (Gabor Halmai, constitutional law expert, quoted in HVG, 28/11/98).

Even the government's wish to pass the legislation on the basis of a simple majority rather than on that of a two third's majority (which is the procedure for changing the law on the ordinary police force) was enough to arouse suspicion amongst the population at large. Result: it has been buried in committee. Nevertheless, the whole intricate tale is illustrative of how vigilant Hungarians are when it comes to meddling by the state in their everyday dealings and how determined they are to protect the rights they have acquired since the end of "soft dictatorship" and the dawning of the era of capitalism run riot.

Tax fraud, condemned by the Fidesz party as "white collar crime," attacks the principles of solidarity and good citizenhood at the heart of the party's ideology. It is eleven years since individual tax returns and VAT were introduced into the country, and tax-dodging is a national sport, a trade-off against the high cost of living and low wage levels, a venial sin that was not taken too seriously. Until now. Whereas the ordinary Hungarian can hardly eke out a decent existence, the nouveau riche cruise decadently through the streets of the capital in their luxury cars, shouting into their mobile phones above the din of their CD players. With the Mafia flourishing, it is difficult to determine whether the income funding such conspicuous consumption emanates from legitimate or illegitimate sources. My Hungarian friends shrug, presuming the latter, lamenting that honesty does not pay. Indeed, such dubious figures as the man clinching property deals as he stands in the queue to pick up his dole money, hurtling off in the latest Mercedes have been invoked to drum up popular support for the proposals. To no avail: the spectre of the police state violating the sanctity of the home, prying using new technology, intercepting letters, tapping telephones, has proven too powerful.

Fidesz announced the coalition's plans in the most sober possible terms: shifting responsibility for investigating tax fraud and economic crimes to APEH was dubbed the epitome of rationalisation, would enhance efficiency, improve co-ordination, would place the responsibility for nipping in the bud such deeds as would jeopardise the future of public administration by bleeding it of essential resources would be placed in the hands of qualified experts. Existing rules would become more transparent and would be simplified: small businesses with an annual revenue below 3 million forints would only have to submit a VAT declaration once a year. Banks would be prevented from alerting their customers to an impending swoop by APEH collection officials, which would stop the perpetrators of fraud from simply transferring their money out of reach into another account in a different institution. It was to be mandatory for companies to declare cash payments to other firms where these payments totalled more than 5 million forints, enabling comparisons to be made between available information on a firms' revenue and their spending on buying in equipment.

It was to be an integral part of a general tightening up of arrangements, which also included transferring management of sickness insurance contributions from the National Health Insurance Fund to APEH (in practice, this involved very little by way of change, as the same staff would continue to do what they had always done, there would merely be a change of supervisors and the logo at the top of the relevant forms would be that of APEH. Moreover, according to the Data Protection Commissioner, Mr Laszlo Matenyi, the sickness insurance data base could not be combined with its APEH counterpart due to constitutional constraints) and a ban on private individuals or entrepreneurs with tax debts in excess of 10 million forints from leaving the country which entered into force on the first of September last year and which allows for the courts to withdraw these individuals' passports.

In short: the Criminal Directorate within APEH was to include 240 tax investigators who would be empowered to examine cases where grounds for suspicion of wrongdoing existed, thus setting up a fifth authority alongside the police force, the public prosecutor's office, the frontier police force and the customs and excise police. The head of the Directorate was to be appointed by the President of APEH and its officials by director (the total cost of wages would be at around 1.3 billion forints and the material costs around 1.5 billion). These officials were to have previous experience of investigative work, to have an unblemished tax record themselves and would be entitled to intervene if the public purse had been cheated of 50,000 forints (USD 230) or more (which rather belies the government's claim that they are only interested in tracking down and punishing big time operators).

Nine areas of criminal activity were identified for APEH's particular scrutiny: acquiring unfair economic advantages; breaches of accounting discipline; concealing assets to avoid paying back debts incurred through liquidation or bankruptcy; tax and/or sickness insurance fraud by means of concealing information pertaining to taxable assets which could influence the results of means-testing to determine levels of entitlement; failure to pay employer's and worker's contributions to the solidarity fund for the unemployed; failure to pay social security, sickness insurance or pension contributions; fraud by means of deceit; forgery of public documents and aiding and abetting at use of said documents and the forgery of private documents. Investigations may be launched without a court order, in which case the word of an informant provides sufficient justification for surveillance measures to be taken, and a front to be set up to conceal the investigative activities. With the courts' permission, more far-reaching measures become possible, with search warrants issued and communications monitored.

Moreover, APEH officials were to be regaled in all the trappings of the regular police force without being subject to any of the controls that normally apply to the police: this includes the right to physically restrain suspects (even children and pregnant women), the right to use dogs, to carry firearms and to use tear gas and other chemicals as well as electric cattle-prods in the interests of self-defence. It does not take a huge leap of the imagination to envisage a worst-case scenario in the event of an abuse of power.

In practice, APEH tax investigators could patrol in plain clothes at railway stations, ports and airports, stop cars and lorries to inspect their consignments, and halt individuals on the street and require them to produce proof of identity. If a suspect is caught red-handed, the APEH officials could march them to the nearest police station or take them into custody for a maximum period of six hours before handing them on. In all instances, however, the official must show ID himself.

No matter how laudable the aim of clamping down on crime may be, the means of achieving it have not been made subject to sufficient safeguards. Assurances that the new APEH unit's powers would be more clearly circumscribed once the bill was adopted did little to allay fears. The definition of an apparently innocuous concept such as "suspicion" can be cast very wide. Despite all of its claims to be democratic (with APEH's vice-president, Dr Tibor Kantor declaration in Magyar Nemzet that APEH only sees two categories of citizens, honest tax payers and fraudsters and is unintimidated by either scale or international prestige), stalemate was the outcome of deliberations in Parliament.

In a recent interview on Hungarian radio, the Prime Minister, Mr Orban, took great pains to set his voters' minds at ease: "I trust the new institution: what I expect from it is that it will wind up the complex cases that involve huge sums of money. This will not affect small and medium sized enterprises," he stated, adding, "Paying a moderate, proportionate amount in taxes and to sleep peacefully at night in return is a good deal". Ironically, so far the only loss of sleep has been over his proposals.

Gusztav Kosztolanyi, 26 January 1999


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