Hungary's Businesses And Consumers Braced For Tax Hikes

by Ulrika Lomas, Tax-News.com, Brussels

12 July 2006

Hungarian lawmakers have approved a package of tax hikes which will increase the rate of value added tax and impose higher taxes on business, in order to help pave the way for the country's entry into the European single currency.

Parliamentarians voted 196 to 153 on Monday to raise the middle tier of VAT from 15% to 20% and introduce a 4% 'solidarity tax' on business profits and personal incomes above HUF6 million (US$27,500). A 20% tax will also be introduced on interest rate and foreign exchange gains.

According to Finance Minister Janos Veres, these measures will be sufficient to ensure that no further tax hikes will need to be proposed in 2007. However, he hinted that government was mulling the introduction of a new property tax in 2008.

The government intends under its fiscal stabilisation plan - which also includes cuts in expenditure - to reduce its budget deficit to 3% of gross domestic product by 2008 from this year's estimated 8% of GDP; one of the highest in the European Union. Hungary then hopes to be in a position to adopt the euro by 2010.

Hungary had initially targeted 2008 as the date when it would switch to the euro, but deteriorating public finances have forced the government to temper its ambitions.

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