Hungary Announces Five Year Tax Reform Plan

by Ulrika Lomas, Tax-News.com, Brussels

21 September 2005

The Hungarian government announced on Monday a five-year programme of tax reforms designed to reduce the total burden of taxation as a percentage of the country's economy and to create a higher degree of stability in the tax system.

Announcing the plan, Prime Minister Ferenc Gyurcsany stated that the reforms would result in a fall in state tax revenues to just below 35% of gross domestic product by 2010, down from the present level of 38% of GDP, and provide "security in the tax system" by ensuring that tax laws were predictable for the next five years.

Other key changes include a 5% cut in the highest bracket of value added tax to 20% and a new lower system of taxation for artists, writers and those employed in the media in an attempt to boost the number of people legally employed in these sectors. Meanwhile, workers earning more than 1,550,000 forints a year ($7,680) would see their taxes lowered from 38% to 36%. Those earning less would pay only 18%. The government aims to see the 18% tax bracket widened by 2010 to include those earning up to 3 million forints.

However, a new capital gains tax will be introduced from 2007 on income from stock exchange gains, dividend income paid to individuals by publicly traded companies, and interest earnings at a rate of 10%.

Finance Minister Janos Veres has also indicated that there will be higher 'sin' taxes on tobacco and certain alcoholic beverages. In addition, lawmakers are considering a new tax on luxury homes worth more than 100 million forints ($500,000).

According to Veres, the five year plan reflects the government's intention to create "an equitable and proportional tax system".

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