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Constitutional Court rules „expected tax” unconstitutional

Hungary's Constitutional Court in a ruling on Tuesday declared the recently introduced „expected tax”, which taxes even loss-making companies and self-employed, unconstitutional.

Unprofitable companies were required to pay the „expected tax” if their revenue minus the cost of purchases and foreign revenue, if any, was less than 2% of total revenue. The 16% tax - level with the corporate tax - was levied on at least 2% of total revenue. Finance Minister János Veres declined to estimate the budget shortfall because of the court's decision when asked at a press conference in Brussels on Tuesday.

However, he said the cabinet would look at measures necessary because of the decision in the coming week. He added that the government would ensure the convergence program is implemented. The government said earlier it expected the tax to generate budget revenue of Ft 55 billion in 2007. In its ruling, the court argued that the tax was not directly related to taxpayers' actual income or wealth.

Taxpayers were also offered no right of appeal. The court noted that it had not ruled against the government's right to tax economic activity, but against the way in which tax was levied. The tax was nullified immediately following the court's ruling. (Bloomberg)