Hungary Postpones Major Tax Reforms

by Ulrika Lomas, Tax-News.com, Brussels

22 June 2005

A radical tax overhaul originally planned for 2006 is to be postponed as the political will does not exist to drive through the reforms, according to Hungarian Finance Minister Janos Veres.

"A drastic tax reform will not take place next year as the social and political consensus necessary for a radical budgetary reform are missing in Hungary," Veres told a meeting organised by the American Chamber of Commerce in Hungary.

In April, a study by a government-appointed tax committee 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%.

However, Veres stated that tax rates would only be cut once Hungary had met the economic criteria needed to join the eurozone. The government is currently grappling with a soaring budget deficit which needs to be reduced to below 3% of gross domestic product before the EU will consider admiting Hungary into the eurozone.

Hungary is hoping to adopt the single European currency by 2010.

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