TAX NEWS - June 2010

Hungary tax: Hungary bank tax plan "carved in stone" - minister

BUDAPEST, 2010 June 16 -- The Hungarian government's plan to collect 200 billion forints in bank taxes this year is a "number carved in stone" and a key condition for the stability of state finances, Economy Minister Gyorgy Matolcsy was quoted as saying.

Hungary's government announced an economic plan last week in a bid to reassure investors that it was committed to meeting this year's budget deficit target of 3.8 percent of GDP, part of a 2008 aid deal with the IMF and European Union.

The plan includes some spending cuts in the state sector along with the bank tax, a flat personal income tax of 16 percent from next year and a reduction in corporate taxes for small and medium sized firms.

Analysts have raised questionmarks over the scale of the proposed taxation of banks, which could reduce profits sharply and potentially hamper lending.

"This (200 billion) is a number carved in stone," Matolcsy told business weekly Figyelo in an interview to be published on Thursday.

"Stemming from the financial situation of the country and (the need) to meet the agreement with international organisations this revenue is the condition for the country to stay stable in 2010 from a financial and budget point of view."

Hungary's biggest bank with roughly a quarter of the market is domestically owned OTP.

The next six banks in the pecking order are units of KBC , Erste Group Bank, Intesa Sanpaolo, Raiffeisen International, BayernLB and UniCredit.

Matolcsy also said that there was no room in Hungary's 2010 budget for a consolidation of indebted state railways MAV, or the debts of hospitals or local governments.

These and similar items were worth around 2.7 percent of gross domestic product (GDP), he said.

"About consolidation needs, the government will have to decide one by one. The budget is not able to bear the burden of a significant consolidation in 2010," Matolcsy said.

"Anyhow, I am against any (consolidation) without structural changes in any field."

He said the National Development Ministry had started to work on reform plans for railways firm MAV.

For a June 14 Reuters interview with Development Minister Tamas Fellegi please click on

Matolcsy said a cut in corporate tax to 10 percent from 19 percent for companies with annual pre-tax profits of less than 500 million forints would take effect from July 1 and would cost 70 billion forints to the budget this year.

He also said talks with the bank sector had been tough, but he saw chance for an agreement about the planned tariff on the financial sector.

He said the government would take into consideration the profits as well as revenues when deciding on the distribution of this new burden.