Hungarian Tax Committee Proposes Major Reform

by Ulrika Lomas, Tax-News.com, Brussels

06 April 2005

A study by a government-appointed tax committee has calculated that Hungary should be able to cut taxes by around 100 billion forints ($520 million) per year through a series of tax reforms, encompassing business and personal taxes and VAT.

Included among the committee’s recommendations was the abolition of the unpopular local tax on businesses; simplifying personal income tax, raising the top rate of tax and eliminating many breaks for the highest earners; and unifying VAT at a single rate of 20%. At present, VAT in Hungary is levied at two rates of 15% and 25%.

Initially, the committee had formulated substantially deeper cut backs in the tax burden in the order of 1,000 billion forints, although committee head Laszlo Akar indicated that the scaled back figure was a more realistic option.

"These (original) proposals have a value worth about five percent of the GDP so just based on its size I would conclude it's a major reform," Akar told the media on Monday.

He added that the revenue loss from the elimination of the local business tax may be offset by an increase in the property tax. However, the committee has calculated that the proposed changes to the VAT system would actually boost revenues by at least 20 billion forints.

Finance Minister Tibor Draskovics has proposed that some of the major reforms put forward in the report will be presented to parliament at various stages during 2005, with a view to the most significant changes being approved by the year’s end.

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