According to accountancy firm KPMG Hungária Kft, Hungary has the highest rate of VAT amongst the eight nations set to accede to the European Union in May 2004, although rates of other taxes tended to vary widely between the countries in question.
The survey, which was conducted on behalf of the Budapest Business Journal by KPMG, found that at 25% Hungary's rate of VAT was the highest of all the acceding countries. Hungary's rate of VAT was due to be cut to 23% next year as part of a package of tax cuts, but that cut has now been sacrificed to finance reductions in rates of personal income tax. Elsewhere in the region, rates of VAT vary from 18% to 25%, and excluding Poland, preferential rates are as low as 5% in compliance with EU tax rules.
Meanwhile, a comparison of personal income tax rates was harder to achieve due to quite wide differences in marginal rates and income brackets, although the survey found that Hungary was again one of the more highly taxed nations. This was because the current top rate of 40% kicked in at the relatively low salary level of 5,200 euros, compared to 10,400 euros in the Czech Republic where the top rate of tax is 32%, and 16,400 euros in Poland where the top rate is 40%. However, Hungary is due to go ahead with cuts in personal income tax next year. Under the proposals rates will be cut from 40% to 38% in the top bracket, from 30% to 26% in the middle tier and from 20% to 18% in the lower band.
Along with Lithuania, Hungary also stands out from most of the other accession nations in charging a local turnover tax on businesses at rates of up to 2%. This has been cited by many observers as a disincentive to foreign investment.
However, Hungary's rates of corporate tax are due to be cut to 16% next year, which is one of the most competitive rates in Europe; currently only the Republic of Ireland has a lower rate. Whilst other governments in the region are following suit and lowering their rates of corporate tax, they remain substantially higher than in Hungary. The Czech Republic, for example is planning to cut its corporate tax rate to 24% by January 2006 from its present rate of 31%, currently the highest in the region.
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