Hungarian Government Reaches Compromise Tax Deal With Country’s Banks

by Ulrika Lomas, Tax-News.com, Brussels

27 September 2004

The Hungarian banking industry has reached an agreement with the government that will see the banks contribute an additional 30 billion forints (US$149.1 million) in taxes per year over 2005 and 2006, reports revealed last week.

Whilst the specifics of the tax hike have yet to be worked out, Prime Minister-in-waiting Ferenc Gyurcsany has indicated that the increase will come either through higher corporate tax payments or a tax on the banks’ interest margin.

"We expect those who have more to take a bigger responsibility and pay more ... The government will not back down, cannot back down and does not want to back down," Gyurcsany told reporters after meeting top bankers.

The new deal means plans for a top 24% corporate tax bracket intended for firms in the banking and finance industry have been shelved after the proposal provoked fierce opposition from the banks. The standard rate of corporate tax in Hungary is currently 16%.

Opposition from the industry also forced the government to phase out the tax hike in 2006 after initially proposing to leave it in place for an indefinite period.

"This compromise makes the tax hike bearable. The earlier proposal would have created too much hardship for the sector," Sandor Csanyi, chief executive of Hungary’s largest bank, OTP, was quoted by Reuters as observing.

Plans by the bank to relocate operations to jurisdictions with lower rates of tax are now off the agenda, Csanyi revealed.

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