Hungary Proposes Two-Tier Corporate Tax System

by Ulrika Lomas, Tax-News.com, Brussels

20 September 2004

The Hungarian government has accepted a plan to introduce a two-tier corporate tax system, Finance Minister Tibor Draskovics announced last week.

Under the plans, most firms will continue to pay corporate tax at a rate of 16%. However, institutions in the financial sector, such as banks and brokerages, will be included in a higher tax bracket and pay tax at 24%.

Justifying the move, Draskovics explained that banks are already benefiting significantly from the public purse through the selling of state-subsidised loans and from the high interest rates paid by central bank MNB.

However, Draskovics added that the government would review the situation if interest rates dropped.

“In that case, the government will re-think the issue of higher corporate tax rates for the sector," he stated.

Hungary’s two largest banks listed on the Budapest Stock Exchange, OTP and FHB, fell significantly immediately after the announcement, losing 5.9% and 7.4% respectively.

The proposal will be submitted to parliament this week.

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