TAX NEWS - June 2010

Hungary PM proposes family taxation, flat personal income tax, bank tax, sharp cut to corporate tax

Hungary's Prime Minister Viktor Orbán has unveiled the government's action package in Parliament on Tuesday. He said Hungary needs a new tax regime "not the patching up" of the old one.

The government has approved its first action plan after a three-day emergency session that started on Saturday.

The focus is to "create a new economic system", Orbán said.

He also proposed to overhaul, or more specifically to "radically simplify" the tax system.

"We need a new tax system. I suggest not patching up the old one but to create a new one," Orbán said.

He also said no one trusts the tax system today and "a growing economy cannot be based on a system where 2.5 million taxpayers make a living for 10 million people."

"We want to carry out a major tax reduction and a drastic simplification of the tax regime in several stages," the PM said.

The government is to slash the corporate income tax rate to 10% from 19% for companies with an annual profit under HUF 500 million.

There would also be a flat personal income tax rate for families. The switchover will take two years.

Orbán also suggested "wiping out in a single swoop" ten small taxes.

The cabinet is also to introduce a single-bracket personal income tax with a 16% tax rate.

There will also be a bank tax. The 2010 budget targeted HUF 13 bn from the special surtax, which Orbán proposed to raise to HUF 200 bn. This measure affects banks, insurers and financial leasing companies.


Hungary PM proposes home mortgage loans only in forint

The government would also do away with taxes and duties on inheritance between lineal relatives. "There are areas where the state has no business in," Orbán said.

He noted that "global sentiment is gloomy and even worrying", but the key process is that "the world is turning away from speculative capitalism towards producing

The severance payment at state companies will be limited at two months' salary. Any additional payment, e.g. confidentiality payment or payment on paid leave days saved up will be imposed a 98% tax on.

The gross monthly payment at state companies, including the National Bank of Hungary (NBH) will be capped at HUF 2 million.

A 15% wage cut will be carried out at public institutions that will save the budget HUF 48.2 billion, Orbán said.

The number of Board of Directors at state companies will be slashed to 10 from 100, which means there will be 60 BoD members against 319 currently.

A similar downsizing goes for Supervisory Boards, which will have 450 members vs. 636 currently, the PM added.

The budget support of political parties will be reduced by 15%.

Orbán has once again launched an implicit attack on central bank Governor András Simor, using his previously invented term "offshore knights" - referring to Simor's Cyprus-based company he sold after being slammed for his "offshore dealings" by the then opposition party Fidesz. The PM also said these people not only earn hundreds of millions in offshore companies but also "have the nerve" to take up million forint salaries in Hungary. Simor earns more than HUF 8 m a month.