The parliament has adopted a package of payroll tax amendments designed to facilitate the realization of a six-year wage agreement signed by the Government and wage negotiation partners on 24 November. In coming years, massive wage hikes can be introduced, while – thanks to the good performance of the Hungarian economy – substantial tax cuts can also be implemented and thus economic efficiency and competitiveness can be boosted, Minister for National Economy Mihály Varga said at a press conference in Budapest.

Under the wage deal, the Government undertakes to reduce the rate of corporate income tax to a flat rate of 9 percent from the current 19 percent (for turnover above HUF 500 million per year) and 10 percent (below the 500 million mark). This, according to Ministry calculations, will reduce liabilities of some 400 thousand enterprises by HUF 145bn. The Ministry is also expecting enterprises to spend more on investment and development and/or hike wages. These, on the consumption side, may generate extra state revenues. With the 9 percent tax rate, the Minister added, Hungary will also become more tax competitive. As a result of this measure, economic growth is seen to exceed the prior estimate of 3.1 percent in 2017. The headline figures of the 2017 Budget, however, are not expected to be modified, he noted.

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The rate of small business tax (KIVA) is set to be cut from the current 16 percent to 14 percent next year and by another 1 percentage point in 2018, to 13 percent. This will assist small enterprises whose wage costs exceed revenues.

The fixed-rate tax of small businesses (KATA) will be applicable for enterprises with revenues of up to HUF 12 million per year, instead of the current amount of HUF 6 million. Some 160 thousand enterprises currently pay KATA, and their number may rise by as much as 30-40 thousand by 2017.

Social contributions payable by employers will be reduced from 27 percent to 22 percent in 2017, and by another 2 percentage points to 20 percent in 2018.

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Among tax amendments Mihály Varga highlighted the measure that makes the sale of properties tax-free after five years of ownership.

In addition, the Government has committed itself to decrease payroll taxes by another 0.5 percentage points provided gross wages will have risen at least 11 percent by 2017. Accordingly, the rate of employer contributions might fall by 2018 from the current 27 percent to 19.5 percent. As of 2019, the rate of contributions may decline by another 2 percentage points in each of the four years after that, provided wages will have risen by at least 6 percent. Thus, this levy may eventually fall, as a whole, from 27 percent to 15.5 percent, the Minister said.

(Ministry for National Economy)