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Gov't to make personal income tax threshold rise retroactive

The Hungarian government will raise the threshold between Hungary's two personal income taxes retroactively from January 1, 2009, rather than from July 1, as earlier planned, Prime Minister Ferenc Gyurcsány said.

The threshold between the lower (18%) and upper (36%) tax rates will rise from HUF 1.7 million to HUF 1.9 million from January 1, 2009, Gyurcsány said. With this simple solution, employees can save as much money as originally proposed by the cabinet, he added.

Taxpayers will receive tax refunds retroactively from the second half, he said.

The government's earlier plan would have raised the threshold from HUF 1.7 million to HUF 2.2 million from July 1. At the same time, the rate for the lower bracket would have been raised from 18% to 19%.

Gyurcsány said the rate for the lower bracket would be raised from 18% to 19% only from January 1, 2010. At the same time, the threshold for the bracket will rise to HUF 3 million.

The changes will have the same effect, but taxpayers will not have to fill out two tax returns, he said.

Gyurcsány reiterated a government plan to make half of the value of non-wage compensation, such as food vouchers, liable to tax.

The government will submit its package of tax changes to Parliament in days, he said.

Asked by MTI how much more should be saved in budget expenditures, Gyurcsány said the state's ability to operate must be guarded.

Finance Ministry state secretary László Keller said the system of tax benefits as well as the 4% “solidarity tax” on individuals would remain in place this year, but be eliminated in 2010. The main VAT rate will rise from 20% to 23% from July 1, 2009, he added.

The solidarity tax on companies will be scrapped from 2010 as well. The payroll tax on wages up to twice the minimum wage will be lowered by five percentage points to 27% from July 1, 2009. From 2010, the reduction will apply to wages over that amount too.

The rehabilitation contribution will triple to over HUF 578,000 a year.

The excise tax on petrol will rise by 5.3% and the tax on diesel will increase by 6.5%, Keller said. The increases will bring the excise tax to HUF 109 per liter of petrol and HUF 90.5 per liter of diesel. This translates as a 2.2%-2.3% price rise at the pump, he added.

The excise tax will rise 6%-7% for alcohol, 5% for cigarettes and 10.7% for loose tobacco. The increases will raise the price of a half-liter beer by HUF 2 and the price of a popular brand of cigarettes by HUF 36 per pack.

From 2010, tax preferences on annual income up to HUF 1.5 million will be limited to 19%. For income up to HUF 3.55 million, the cap will be 7%.

Family subsidies will become part of taxable income from September 1, 2009, with both parents able to share the amount 50-50. Single parents will be required to add just 50% of the subsidies to their income.

Most tax preferences will be eliminated, with the exception of those for families and for long-term savings, Keller said. (MTI – Econews)