Hungary Delays Five-Year Tax Cut Plan

by Ulrika Lomas, Tax-News.com, Brussels

30 May 2006

Hungary's five-year tax reduction programme will be delayed and some tax cuts may be reversed, as the government attempts to bring its fiscal situation in line with European Union rules for adopting the Euro currency.

According to the Hungarian business daily Vilaggazdasag, the left-wing coalition government of Prime Minister Ferenc Gyurcsany is considering raising income tax from the current rate of 16% to 18%. Each 1% increase in the corporate tax rate is expected to raise HUF30 billion (US$147 million) in revenues.

The government is being compelled to take such a step in order to reduce its budget deficit to 3% of gross domestic product by 2008, in readiness for adopting the euro in 2010. The budget deficit in 2005 was equal to 6.1% of GDP.

The government might also introduce a temporary "development tax", the paper reported.

Announced by Gyurcsany last June, the tax reforms were desiged to decrease state tax revenues to just below 35% of gross domestic product by 2010, down from 38% of GDP, and provide "security in the tax system" by ensuring that tax laws are predictable for the next five years.

Value added tax has already been cut to 20% from 25% under the plans, as has the top rate of income tax, to 36% from 38%.

The government has calculated that the programme will relieve the overall tax burden on individuals and business by HUF1,000 billion by 2010.

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