New pálinka tax rules take effect

Banking

In order to harmonize Hungarian law on pálinka tax with European Union rules, a recent amendment was approved by the parliament eliminating the tax exemption for home distillation of spirits as of this January, Hungarian news agency reported today.

In the spring, the European Court of Justice ruled that Hungary's tax exemption for pálinka, the country's national eau de vie, was not in line with EU rules. Legislation in force since the autumn of 2010 allowed Hungarian households to distill for personal consumption the equivalent of 50 liters of pálinka containing 86% alcohol tax-free every year. An EU directive allows only a 50% reduction on the normal excise rate for such distillates.

The amendment approved by Parliament in October 2014 replaced the tax exemption with the 50% reduction on the normal excise tax rate. Accordingly, households that use a contract distiller to make their own pálinka must pay HUF 835 per liter on spirits containing 50% alcohol up to the allowed limit which was tax exempt earlier, and double that amount over the limit.

Home distillers must pay a flat tax of HUF 1,000 per year. Revenue from this tax will be collected by the local council in the community where the distiller resides.

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