Hungarian Business Group Criticises Tax System

by Ulrika Lomas, Tax-News.com, Brussels

03 November 2003

The head of Hungary’s National Alliance of Entrepreneurs (VOSZ) has attacked the country’s tax system and argued that planned reforms will not go far enough towards encouraging infrastructure investment or improving the nation’s competitiveness.

The organization’s president Sandor Demjan told a business forum last week that according to VOSZ calculations, the tax proposals scheduled for next year will cost the business sector HUF100 billion ($446.9 million) and cost households HUF400 billion to HUF500 billion. "This would not be a problem in itself, had the extra revenues gone to financing infrastructure developments; however, they will instead finance an expensive state bureaucracy," he observed.

The VOSZ president also complained that the decision to lower corporate tax from 18% to 16% will be largely ineffectual as long as the existing local business tax structure remains in place and personal income taxes stay so high. Demjan noted that with a 5% profit margin, a business will actually pay an effective corporate tax rate of 40% when the local tax, which is levied on revenues, is factored on to the balance sheet.

Demjan also criticized the personal taxation system which allows salaries reaching 80% of the national average wage to fall into the top tax bracket, a situation that he argued acts as a disincentive to foreign firms because it deters top managers from working in Hungary.

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