Helplessness induced by Byzantine regulations and hostile authorities game-hunting entrepreneurs and struggling citizens.
In the first part of the post, we have seen how economic helplessness contributes to an appetite for a strongman.
2. Regulatory helplessness
Consider the humble lemonade stand, a miracle of freedom.
As a child, I used to watch American television and a few things struck me as unbelievable. One of them was the lemonade stand. Being 10 years old and with no business experience, my first observation about the concept of kids selling lemonades for pocket money was:
“How is this even allowed?”
Not by their parents – by the authorities.
Nothing about a lemonade stand is technically legal, not to mention I was pretty sure they have not secured the legal status of a company and a tax number so that they can send a cut to the state.
You see, this is how your mind works in captivity. I could name a dozen regulations that kids with a lemonade stand are breaking, but not a single benefit of trying to set up a small business. I could name a dozen authorities that would fine these kids so hard, they would live the rest of their lives in debt and afraid of doing anything again – but not a single idea as to how to make their business better. A fine is a punishment and if you are a good boy, you fear it more than you fear death. You fear it so much, you’d rather forego opportunities because you don’t even know how hard they would fine you for it.
Instead of thinking about the pocket money it could get me, or how much lemon to use for optimal profits, my inherited sense of righteous authoritarianism was preoccupied with indignation and laws that were being broken. (Apparently, in 2019, the US is also sliding down the slippery slope of regulatory stupidity regarding lemonade stands…)
My captive little mind was focusing on health and safety regulations – and the biggest sin of all: trying to make money.
“Just fucking hand it in and you’ll see what happens!”
Later on in life I tried to do business in Hungary. Reading contradicting rules regarding the “simplified entrepreneurial scheme” (Fidesz’ generous help for small time idiots, who are still trying) I have called the tax authority for clarification.
The stakes were high. If I earned above a certain threshold per month, even just a single cent, I would be punished hard. Not just taxed heavier, not just reclassified as “complicated” company, but shut down and fined to an inch to my life. No assumption of innocence there.
And yet, no one could tell me how they convert euros to forints for tax purposes – like it was an exotic currency from Mars and therefore unlikely ever to happen to a Hungarian SME. My call has been transferred from department to department because no one felt like talking to me. At some point the copy room answered the phone and wondered who connected me there and why. In the end, an irritated public servant snapped at me to “just fucking hand in” my tax confession (that’s how we call it) next year and see if they fined me. And then hung up.
That wasn’t good enough so I wanted to request a written guideline. That’s when I learned that everyone in business had tried that before, to no avail. The tax authority will happily send you two written guidelines to the opposite effect, and then fine you anyway, regardless of what they suggested you should do. Their own, written word cannot be used against them. Neither can the law in case it is in your favor. You, on the other hand, are exposed to their moods, their opinions, and even to which rule they choose to apply that day. If you want to contest their decision, you are welcome to. Please pay three times the contested amount into their budget as a non-refundable fee of procedure and then let’s see if the very same entity that decided against you in the first place will change its mind. But don’t hold your breath.
A friend tried to explain how he does it: He just puts aside 30% of his after-tax profits for various fines that will inevitably occur, even if he pays everything and tries to comply with every rule. 30%!!!!
Feels deflating? The length of the tax code is some 80 thousand pages. It is changing multiple times a month, even accountants throw up their hands and suggest you to just pay the fines and be happy to get away with what you have left. They can help you on how to pay those fines – not to avoid them. (Yes, you can pay taxes and fines wrongly and you will be fined again.)
The guidelines to paying taxes in the simplest construction of a company (called the “simplified” company) was 160 pages, riddled with contradictions. The official guide to filing your “simplified” personal income tax confession for 2018 is 285 pages.
And that is just how to pay a cut to the state. I haven’t even started on the various public health, environmental, and other regulations. But to give you an idea, printing a leaflet on paper triggers a ‘paper tax’, unless the amount of paper used is less than 1kg, but even when it is, you need a certificate to that effect from the state that says so. You have to personally collect it, among a million other things, dear entrepreneur.
If you ever wonder why businesses don’t seem to give any attention to clients and even their core business – that’s because they are facing the government, 150% of their attention is engaged in dodging regulatory bullets and compliance.
In the end you just give up and wonder why all that effort just to have a better life. Is that even possible? And you start looking for ways of earning money that are established and allowed. let’s go back to being an employee and let HR do your taxes.
This is how your mind works on regulatory helplessness.
A side hustle? Who can afford that?
Just take this housewife who tried to start a side hustle, selling embroidery online. We are not talking about fortunes, just a few thousands forints, less than a hundred euros a month. But she ran into the well-known problem of taxation. If you are a housewife on Etsy (or a good-for-nothing unemployed man doing the odd jobs), there are 3 ways to pay taxes after your income.
- Register as private person with a tax number for business purposes. The tax office often recommends this option, but that doesn’t mean you should believe them. There are huge differences in the interpretation of what it means to have a not “regular and businesslike” activity. And if the auditor understands it differently than you do, you get fined out of your little mind. In the end, registering just invites abuse and gives you tax-anxiety because there is no way to ensure that you won’t get fined. Paying taxes after your income does not protect you from fines.
- Become a subject of the above “simplified entrepreneurial scheme” (KATA). It looks tempting if you are a full-time freelancer. You have to pay a fix tax every month (approx. 180 euros) regardless of your income and that’s it. But how does that help our housewife with little or no regular income? 180 a month is a fortune for those who need side hustles the most.
- Individual entrepreneur. It comes with fix costs of around 180-360 euros per months (conservatively) and you have to hire an accountant as well to comply with a billion ever-changing regulations. Even a bank account costs a fortune if you try this. The other name Hungarians have for this is “forced entrepreneur” – someone who would much rather be employed.
Not-quite-legal options for such a silly housewife (or unemployed struggler) would include:
- Try to buy invoices from someone else (who is an active entrepreneur) to cover your own ass for the sin of selling embroideries.
- Try to sell embroideries black, keeping a low profile, and if a stranger offers to buy your stuff, say no. And hope that the tax authority is not monitoring every single e-commerce site and social media for hustlers. But they do. Tax auditors are very keen to hunt down small fish because they are not allowed to go after the big ones with political connections. (But they have a target incentive for fines to be issued every year. Seriously.)