Gyurcsany Outlines Hungarian Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

27 August 2008

As expected, Hungarian Prime Minister Ferenc Gyurcsany has announced further details of the government's plan to cut taxes by HUF1.2 trillion (EUR5.1 billion) over the next three years, which will entail tax relief for both businesses and individuals.

Writing in the Hungarian daily Nepszabadsag on Wednesday, Gyurcsany disclosed that two-thirds of the planned tax cuts would benefit companies, to include an effective 2% cut in corporate tax from 2009 when the 4% 'solidarity tax,' a surtax on company profits and top earners, will be removed. However, at the same time the main rate of corporate tax will be increased by 2%, giving Hungary a base corporate tax rate of 18%.

In addition, there will be a 5% cut in employers' social security contributions (payroll tax) from next year, coupled with an additional 2% reduction in the levy in 2010. In the long-term, the government is aiming to cut payroll tax by a combined 10%, which equates to one-third its current level.

Meanwhile, for individual taxpayers, the government is planning to increase the level of income at which the top rate of 36% kicks in from HUF1.7mn to HUF2mn in 2009, and to HUF2.5mn in 2010. Eventually, this will increase in stages to HUF3mn, meaning more taxpayers will pay the lower 18% tax. Meanwhile, the first HUF750,000 of income would remain tax free.

Gyurcsany wrote that one of the ideas behind the plan was so that income taxes would settle around the 18% mark, effectively giving Hungary a 'flat tax' system so popular with its neighbours in Central and Eastern Europe.

The cost of the tax package will reach HUF300bn in the first year, but it will eventually cost well over HUF1 trillion. Gyurcsany announced that the government can achieve this without affecting its deficit reduction goals by adopting a 'zero tolerance' attitude towards tax evasion, and by setting up a special tax cut fund, into which HUF300bn will be deposited next year.

Gyurcsany now has until September 15 to push the tax reforms through parliament, but his minority Socialist Party government will be dependent on the support of coalition partners to achieve this result. He has, however, threatened to resign as Prime Minister should he not succeed.

Recommended