Hungary May Cut Payroll Tax In 2009

by Ulrika Lomas, Tax-News.com, Brussels

17 November 2008

Hungarian Prime Minister Ferenc Gyurcsány is seeking to implement a reduction in payroll tax in 2009 as part of a plan to head off a prolonged recession.

The payroll tax cut forms part of proposals circulated to participants at an economic council meeting last week. The document also mentioned proposals to deal with Hungary's shrinking export markets and measures to help small businesses which continue to be starved of credit.

Plans for a long-term cut in payroll tax were announced in mid-September as part of a comprehensive EUR5bn tax cut package. However, the minority Socialist government was forced to scrap the plans as the financial crisis worsened and the fiscal situation deteriorated.

Under the former plans, the government sought to implement a 5% cut in employers' social security contributions (payroll tax) from next year, coupled with an additional 2% reduction in the levy in 2010. In the long-term, the government had aimed to cut payroll tax by a total 10%.

The previous tax reform proposals also included the removal of the 4% solidarity tax on corporate income and top rate individual taxpayers, and an overall corporate tax rate of 18%.

The government noted in the memo to the economic council that they believe the worst effects of the global financial crisis are over, although it expects a lengthy recession. To help combat this, the government has talked about an HUF800bn (EUR3bn) support package for small- and medium-sized companies, including loans and loan guarantees.

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