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Planned gov't tax changes leave overall tax burden unchanged

Planned tax changes outlined by the Hungary’s prime minister reduce taxes on income while raising taxes on assets and consumption, leaving the overall tax burden practically unchanged, Gabriella Erdős, a tax expert at consultancy PricewaterhouseCoopers (PwC) said.

Under the government plan unveiled by Prime Minister Ferenc Gyurcsány on Monday, the corporate tax rate would be effectively lowered from 20% to 19% and payroll taxes would be cut from 32% to 27%. The main VAT rate would rise from 20% to 23% and the excise tax on cigarettes, alcohol and vehicle fuel would be raised 3%-7%.

The changes will have only a limited effect on the country's competitiveness, Erdős said. A real competitive advantage could only be achieved if the entire tax burden was reduced, she added.

The tax burden in Hungary is equivalent to 44.9% of GDP, compared to 39.9% in the Czech Republic and 31.7% in Slovakia.

PwC tax department head Beáta Szabó Horváth called the tax reforms conservative, noting that the loosening measures are slated to be introduced only from the start of 2010, while the tightening steps are to take place on July 1, 2009.

Horváth welcomed the planned cut in payroll taxes, noting that this had been long advocated by experts.

There are still many question related to the package of changes, she said. (MTI – Econews)