Plan Mooted To Reform Hungary's Unpopular Local Business Tax

by Ulrika Lomas, Tax-News.com, Brussels

25 July 2003

Hungary's state secretary at the ministry of economics and transport, Gyula Gaal, has been quoted in press reports as suggesting that the unpopular local business tax may be phased out from next year.

Under Hungarian tax law, municipalities enjoy the right to tax firms at a rate of up to 2% of their revenues, as opposed to their profits - a situation which has received criticism from many quarters, as it seen as a deterrent to foreign investment. There are also compatibility issues with EU taxation law.

Speaking to the Hungarian newspaper, Vilaggazdasag, Gaal explained that many firms will no longer be required to pay local business tax if a new proposal currently being developed is given approval. Under the new system, local business tax would still be calculated using the revenue method, but would then be deducted from the amount of corporate tax paid. Therefore, according to Gaal, it is possible that no local tax will be paid unless corporate tax contributions are not sufficient to cover the total.

The secretary also rejected calls from the business community to cut corporate taxes, arguing that the country's rate of 18% is low in international terms.

It has also come to light following the government's recent announcement that it will put tax cuts intended for next year on hold, that social security tax will remain unchanged at 29%. Additionally, a proposal to eliminate a fixed health contribution of HUF 3,450 is being dropped from the proposed tax cuts, according to Hungarian daily Napi Gazdasag.

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