Hungarian Parliament Passes Raft Of Tax Changes

by Ulrika Lomas, Tax-News.com, Brussels

19 November 2002

Tax experts in Hungary have expressed dismay at the raft of changes to the country's corporate taxation and VAT regimes passed by Parliament last week.

Reporting on a seminar organised by KPMG Hungaria Kft on Wednesday, the Budapest Business Journal revealed that in terms of the VAT changes, reduced entertainment expense deductibility, and a provision which only allows for the deduction of 70% of the VAT on company phone bills were the most fiercely opposed by those who attended.

'The 30-70 scheme is unconstitutional and is not in line with EU directives...If lawmakers believe that 30% of the private sector's phone calls are private, I bet the figure would be over 70% at the Finance Ministry and Parliament. This calls for immediate and similarly restrictive action in the public sphere,' the BBJ quoted Ivan Vadasz, the vice president of the National Association of Hungarian Tax Consultants and Accounting Service Providers as observing.

Meanwhile, concerns were also expressed with regard to the uncertainty surrounding certain tax breaks which was created by the new legislation. Speaking at last week's seminar, Gabriella Erdos, senior partner in the tax and legal services division of PricewaterhouseCoopers Kft explained that:

'The problem is not the abolition of such benefits, because it is an EU norm, but the section of the law that creates legal uncertainty by saying that such benefits can be taken away at the time of EU accession if necessary.'

Also with an eye to EU harmonisation, Parliament passed measures stipulating that from 2003, companies will not be allowed to register themselves as offshore ventures in Hungary, and will be subject to an 18% corporate profits tax and a 2% local business tax based on net revenues.

According to the BBJ report, existing offshore companies located in Hungary will only be allowed to operate in that form until 2005.

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