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Economy Ministry clarifies minister's tax ideas

Banking

"György Matolcsy only talked about how much healthier a five-rate VAT system would be", the National Economy Ministry said in response to a query from MTI on Friday, implying that there are no plans to introduce such a system.

National Economy Minister György Matolcsy said in an article published in the weekly Heti Válasz on Thursday that he is in favor of introducing a financial-transaction tax and five VAT rates. "Five VAT rates, of 5%, 15%, 20%, 25% and 30%, would be better, however, the (European) Union does not yet allow (such VAT rates)", he wrote.

Hungary's main VAT rate was raised from 25% to 27% from the start of this year.

The minister also wrote that "we are moving towards a five-rate tax system imposed on labour costs, which recognizes the inequalities of the Hungarian workforce in terms of demand and supply". "Besides the general 100% rate, there is already a 50% rate (for one year for those leaving the public sector and for part-time employment of women) and a zero per cent rate (for workers with a rehabilitation card and "start-workers"), but we will also need a 25% and a 75% rate," Matolcsy wrote.

In its written response to MTI, the Ministry explained that the lower rates are to be compared to the standard, or "100% rate", that is the 27% employers' contribution - i.e. payroll tax -, so a "50% rate" here means 13.5% on the gross wage of an employee concerned.

The Ministry did, however, not say after which groups of employees would employers pay "25%" or "75%" of the standard payroll tax, which would thus amount to 6.75% and 20.25% of the gross wage of the employees concerned.

The Ministry said that "tax relief helping particular groups of employees find jobs should be targeted, and the government wants to widen the range of targeted tax relief in order to put these people into jobs, while groups of employees on fictive minimal wage contracts could also be better strained out of the system.

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