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On Tension and Taxation

Analysis

Photo by Konstantin Chagin / Shutterstock.com

The good news is that in the two weeks since our last edition, Europe has not slipped into a war, at least not at the time of writing. But the recognition of the two breakaway rebel-held areas by Russia and the dispatch of its troops there to act as “peacekeepers,” has ratcheted up the tension even more. This feels unsustainable. Either one side will have to back down, or someone, nerves stretched to breaking point, will make a mistake and trigger the conflict no one says they want.

Hungary is politically closer to Russia than any other European Union state. Indeed, as we pointed out in our last issue, Prime Minister Viktor Orbán is not long returned from a visit to Vladimir Putin in Moscow, although his was a scheduled trip, rather than a round of the shuttle diplomacy that has seen a string of world leaders beat a path to the Kremlin in response to the Ukraine crisis.

It was instructive, therefore, to hear Minister of Foreign Affairs and Trade Péter Szijjártó speaking about another batch of 120 ventilators Hungary is donating to Ukraine. Half of the ventilators are to go to hospitals in Transcarpathia, an area of Ukraine with a large ethnic Hungarian population. Szijjártó acknowledged “tensions” between Hungary and Ukraine over what he called “violations of the Hungarian ethnic minority’s rights” in the country. Despite that, he said, “Hungary has always backed the territorial integrity and sovereignty of Ukraine.”

Importantly, that message was confirmed on Tuesday when Orbán spoke with Ukrainian President Volodymyr Zelenskyy by phone. As a neighbor of Ukraine, Hungary is following developments there with concern, the PM said. He told Zelenskyy that the country supports joint European Union efforts aimed at resolving the situation.

“In this framework, the government is continuously consulting with its Western allies,” Orbán was quoted as saying by state news agency MTI. He insisted that Hungary has supported, and continues to do so, the sovereignty and territorial integrity of Ukraine.

* * * * *

I had forgotten how different Hungary’s taxation system is until conversations with economic experts at our recent Expat CEO Boardroom event and for the Market Talk piece in this issue forced me to refocus.

As is made clear on the pages inside, Hungary is something of an outlier with its emphasis on indirect and consumption taxes. Much less focus is placed on income tax and especially corporate tax; indeed, the country’s 9% for the latter is the lowest in the European Union and the fourth-lowest in the world. (One assumes there are not many readers of the Budapest Business Journal who are unhappy with that.) The good news is that Hungary has taken enormous strides in its digitization journey and can (and should) be congratulated for that.

Less welcome, however, is the sheer number of taxes in existence. One of our expert witnesses puts it at almost 50, although 90% of all revenues come from just eight. The 40 or so others might be insignificant in terms of what they generate, but they still cause an administrative burden, both to the authorities and the poor benighted taxpayer. How nice it would be to see a more straightforward, slimmed-down version. We can but hope.

Robin Marshall

Editor-in-chief

This article was first published in the Budapest Business Journal print issue of February 25, 2022.

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