Part II

Developments in the Member States

Environmental taxes represented 2.6 % of GDP. This share is equal to the EU average and has remained roughly
stable between 2003 and 2010. Taxes on energy, especially transport fuels, account for the largest part of
environmental tax revenues.

H
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Current topics and prospects; policy orientation

After the general elections in April 2010 the new government made encompassing changes in economic policy,
including the tax system, with the declared goal of increased growth, reduction of public debt and administrative
simplification. These include the reform of the PIT system, with changes introduced both in 2011 and 2012 (see
below), a lower CIT burden and sector specific surtaxes. To further simplify the tax system minor taxes, such as the
community tax on entrepreneurs, the tourism tax on buildings and water management shareholding contributions
were abolished. However, some new taxes have been introduced, like a tax on unhealthy food in September 2011, an
accident tax, and a "cultural tax" (on pornographic material) in January 2012.
The European Court of Justice stated in its judgement of 28 July 2011 that Hungarys VAT regulations are
incompatible with EU law as it limited the right of companies to reclaim VAT, even permanently. The judgement
obliged the government to pay out close to 1 % of GDP in VAT refunds.

Main features of the tax system

Personal income tax
On 1 January 2011 the progressive personal income tax (PIT) system was replaced by a 16 % flat rate system. It
applies not only to salaries but also to all categories of income subject to PIT such as sale of real estate, dividends
and interests. Since 2010, the so called super-grossing had been in effect, meaning that the tax base included the
employers' social security contributions (27 %). This yielded a de facto 20.3 % rate (16 % * 1.27) in 2011. In 2012,
however, the 27 % base increasing component was removed for the part of monthly earnings below HUF 202 000
( 653), roughly the average wage, in fact leading to a two rate system with rates 16 % and 20.3 %.
As of 1 January 2011 a new family tax credit system has been introduced. The government has significantly
increased children's allowances. Families with one or two children can reduce their PIT payment by HUF 10 000
( 32) and those with three or more children by HUF 33 000 ( 110) a month for each child, provided that their tax
base is sufficient (no negative tax is possible). An employment tax credit which until 2010 decreased the PIT
obligation of low earners by HUF 15 000 ( 48), making the minimum wage PIT-free, and, thanks to a gradual
phase-out, reduced taxes even for average earners was cut back by 20 % in 2011 and entirely removed in 2012.
Corporate taxation
In recent years there has been a strong tendency to reduce corporate tax rates, particularly in new Member States.
In this context Hungary has an established position as a low tax country, given that it introduced a corporate tax
rate of 18 % already in 1995, further reduced to 16 % in 2004. Although on 1 January 2010 a broader tax base was
introduced and the tax rate was increased to 19 %, at the same time the 4 % solidarity surcharge was discontinued
with the result that the effective tax burden was lowered further by approximately one percentage point. A tax rate
of 10 % is still applicable to for the part of the tax base below HUF 500 million ( 1.62 million) (the threshold was
increased tenfold in July 2010 from HUF 50 million).
Small enterprises with less then HUF 30 million ( 97 000) annual turnover may choose the simplified corporate
income tax regime (EVA) with an overall 37 % tax rate. Besides the corporate income tax, municipalities may levy
a local business tax (up to 2 % of a broad corporate tax base which roughly corresponds to business value added).
In 2010 a surtax on financial institutions was introduced. In 2011 the amount is 0.15 % and 0.53 % of the adjusted
amount of balance sheet of 31 December 2009 up to and over HUF 50 billion ( 162 million) respectively. For
insurance companies progressive tax rates apply with a minimum of 1.5 % for income below HUF 1 billion
( 3.2 million) and a maximum of 6.4 % if the adjusted income exceeds HUF 8 billion ( 26 million). Credit
institutions also pay 30 % surtax on their pre-tax profit but the total amount to be paid cannot exceed the amount

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Taxation trends in the European Union