“500 billion forints (EUR 1.53 billion) in tax cuts will be realised over the next one and a half years, which will make the lives of entrepreneurs and private individuals significantly easier”, State Secretary for Tax Affairs Norbert Izer from the Ministry of Finance said at a press conference in Budapest on Monday.

The State Secretary recalled: “Tax policy was significantly transformed in 2010, and since then taxes have been continuously falling”. “The level of tax burdens fell from 39.3 percent to 38.4 percent from 2016 to 2017 in a period during which the average tax burden increased within the European Union, as a result of which Hungary became the EU’s greatest reducer of taxes”, he said.

“500 billion forints in tax cuts will be realised over the next one and a half years. Thanks to the tax cuts, some 290 billion forints (EUR 886 million) stayed in the pockets of businesses and the public last year. The reduction of social contributions tax will leave 145 billion forints (EUR 443 million) with businesses this year and 300 billion forints (EUR 916 million) next year, while the remaining elements will mean a reduction of some 50 billion forints (EUR 153 million) over a period of 18 months”, the State Secretary explained.

“Two of the measures adopted by Parliament on Tuesday have already come into force. Thanks to the abolition of tax prepayments, businesses will be able to use some 170 billion forints (EUR 519 million) for an extra five months. The other measure is the expansion of the development tax benefit, which it is hoped will significantly increase the willingness of small and medium-sized businesses (SMEs) to invest”, he continued.

With relation to other changes in the taxation system, Mr. Izer explained that the rate of social contributions tax will was reduced by 2 percentage points from 19.5 percent to 17.5 percent from 1 July, while the rate of advertising tax has been temporarily reduced from 7.5 percent to 0 percent between 1 July of this year and 31 December 2022. The rate of small business tax (KIVA) will be falling from 13 percent to 12 percent from 1 January 2020 and the rate of VAT on accommodation services will be reduced to 5 percent from its current rate of 18 percent, in addition to which the lifelong exemption from the payment of personal income tax for mothers with four or more children will also come into force from January next year.

With relation to the reduction in the rate of social contributions tax, the State Secretary highlighted the fact that the some 450 billion forints (EUR 1.37 billion) that will remain with enterprises as a result will most probably be spent by businesses on increasing wages and salaries, and possibly on increasing their competitiveness.

Mr. Izer also spoke about the fact that Hungary is doing well with relation to reducing taxes on labour: Hungarian taxes fell by the greatest extent in the 2017-2018 period among the OECD countries, by 3.2 percentage points in two years, finishing ahead of Estonia and the United States.

He highlighted the fact that the reduction in the social contributions tax will also have a favourable effect on other taxes. Entrepreneurs who choose to pay simplified business tax (KATA) will have the base sum for receiving cash benefits increase from 94.400 forints to 98,100 forints, while those who pay the higher rate of itemised tax of 75,000 forints/month will see an increase from 158,000 forints to 164,000 forints.

The rate of small business tax (KIVA) will also be falling with relation to the cut in social contributions tax; the 1 percent reduction will affect over 40 thousand businesses. According to the State Secretary, this is one of the most dynamically increasing forms of tax. The Ministry of Finance will again be helping with the transition this year, and in cooperation with the tax authority will be holding a campaign this autumn and contacting enterprises that are eligible for the transition and would be in a more favourable financial position if they chose the KIVA tax.

22-25 billion forints (EUR 67-76 million) will remain within the sector thanks to the reduction in the rate of VAT on accommodation services. The 5 percent rate of VAT will be the lowest among the countries in the region, and according to the State Secretary, in combination with the 4 percent tourism development contribution it will be extremely competitive. He added that the introduction of the National Tourism Data Provision Centre will lead to the further whitening of the sector, which will contribute to enabling it to receive increasing levels of funding and achieve a higher level of competitiveness.

The temporary reduction in the rate of advertising tax to zero percent is affecting some 500 companies, and the measure is expected to facilitate the expansion of the sector, in addition to promoting the increased proliferation of digitalisation.

Some 40 thousand women will be able to make use of the lifelong exemption from the payment of personal income tax for mothers with four or more children, meaning total annual savings of 22-23 billion forints (EUR 67-70 million) for those affected, which covers income realised through work. A total of 380 billion forints (EUR 1.16 billion) will be remaining in the pockets of families every year thanks to the family tax benefit, the tax benefit for young couples who are getting married for the first time, and the tax benefit for mothers with four children.

With relation to the simplified entrepreneurial tax (EVA), which is being phased out, Mr. Izer said a campaign will be launched in autumn to help make the choice easier for taxpayers, in which the advantages of the various simplified forms of tax will be explained, in addition to which tax rate calculators will also be made available on the Ministry of Finance’s website.

(Ministry of Finance/MTI)