1. Hungarian experience with the percentage mechanism
Research initiated and funded by the ERSTE Stiftung to assess the impact of the percentage tax designation on civil society based on experience from Hungary, Lithuania, Poland, Slovakia and Romania
International Conference Percentage Tax Designations: Past, Present, Future
Hungarian experience with the percentage mechanism
by István Sebestény Phd
Bratislava, Slovakia
September 8–9, 2016

2. „When the germ of the 1% idea appeared in 1991, it emerged as part of the parliamentary debate on how to finance the churches, the liberal party suggested that taxpayers should be authorized to transfer 1 percent of their personal income tax either to churches or to voluntary organizations. The intention behind the motion was to reform the system of financing churches and not to create an additional source of support for NPOs. Finally the law adopted in 1996 identified only the social organizations as potential beneficiaries. In 1997, it was amended by Law CXXIX/1997, which provided that, upon the taxpayers’ decision, another – so called “second” – 1% of the personal income tax could be transferred to the churches.” (1%, 2000)

3. Origins of the 1% idea
The new method of supporting civil society organizations was born almost accidentally.
The original objective: a solution for church funding
Initiators: politicians and government officials
No organized civil lobby, only some expert influence in the first phase

4. The most important laws referring to 1 percent system
1997 – law on „second” 1% to churches
2007 – amendment 1% law (technical changes)
2011 – a comprehensive law on civil sector (Civil Act)
2013 – amendment of 1% (registration, anonymity)

5. Eligibility
A long list of fields of activity (until 2014 no list of eligible organizations)
Having been in existence for some years
Independence from political parties
Not in arrears with tax and duties
From 2015 to be registered at tax office

6. Procedure The 1% designation is part of the tax declaration
The taxpayers are allowed to designate only one beneficiary
Obligatory elements of the designation declaration: tax identity number and name of the taxpayer, tax identity number of the recipient organization
Designators are unknown for the organizations (until 2015 except his/her approval – potential future donors ?)

7. ”What are we talking about?”
In 1997: 8,400 organizations received 1 percent, 1,058 designations,
7 million €;
In 2014: 24,000 organizations received 1 percent,
1,931 designations,
22 million €;
In 2015: 25,000 organizations received 1 percent, 2,055 designations,
26 million €;
In 2016: 27,000 organizations registered at NTCA

8. Figure 1 First impact of the introduction of the 1% system

9. Figure 2 Redistribution impact

10. Changes of 1+1% designations in Hungary, 2005–2014
Figure 3
Changes of 1+1% designations in Hungary, 2005–2014
Sources: NTCA

11. Distribution of designators by their designation in Hungary, 2005–2014
Figure 4
Distribution of designators by their designation in Hungary, 2005–2014
Sources: NTCA

12. Composition of possible sum of civil 1%, 2005–2014
Figure 5
Composition of possible sum of civil 1%, 2005–2014 35 28 23 26
2015
Sources: NTCA

13. Figure 6
Changes in the distribution of the 1% support by field of activity of recipients,
1997, 2006, 2014, 2015
Source: NTCA and HCSO

14. received by field of activity, 2015
Figure 7
Composition of designations, beneficiaries and the amount of 1% support
received by field of activity, 2015
Source: NTCA

15. received by type of organizations, 2015
Figure 8
Composition of designations, beneficiaries and the amount of 1% support
received by type of organizations, 2015
Source: NTCA

16. Figure 9
Number of recipients by percentage of 1% inside their total income, 2014
3 106
1 614
213 94 59 %
Source: HCSO

17. Figure 10
Composition of amount of 1% received, all state support and total income
by type of community, 2014
Source: HCSO

18. Figure 11
Number of NGOs that received 1% designations and/or private donations,
Source: HCSO

19. Figure 12
Breakdown of NGOs by receipt of 1% designations and/or private donations in 2014
Source: HCSO

20. Growth of 1% designations, individual donations in Hungary, 1996–2014
Figure 13
Growth of 1% designations, individual donations in Hungary, 1996–2014
Sources: HCSO

21. „Constant” challenges I.
The objective: Convincing the rest of taxpayers that they should designate a 1% recipient
The „situation”: lower tax rate*, less 1%
As a preparation:
Finding out why almost half of the taxpayers are not willing to do so – serious and sophisticated research is needed
Developing a strategy of sector-wide efforts
* From 2011 transformation of the dual-key system into flat tax

22. „Constant” challenges II.
Raising public awareness of the 1% system through direct actions and campaigns
Involving local governments in promoting 1%
Developing coherent fund raising and 1% strategy
Improving accountability, trustworthiness, and legitimacy among possible recipients

23. Possibilities
Analyze the „subsector” of registered organizations and the recipients
Mapping and analyze the hidden and the open designators
Processing the available data on tax designation (i.e. number and demographic composition of designators, attitudes etc.)
Make use of the 20th anniversary of 1% law (conferences, impact analysis etc.)

24. Thank you for your attention!