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Veres: government committed to broadening tax base

Hungary’s government is committed to using every means allowed under the constitution to broaden the country’s tax base, Finance Minister János Veres said at a conference organized by tax office APEH on Thursday.

Veres blamed Hungary’s high tax rates on the fact that the majority of companies and individual taxpayers pay little tax. He noted that more than one-third of Hungary’s tax revenue comes from just a small number of corporate taxpayers, and he acknowledged these taxpayers’ honest cooperation and budget contributions. (The group includes the 637 largest taxpayers, paying at least Ft 2.2 billion in various taxes a year.) Of the 320,000 companies who file tax returns, just 125,000 pay taxes, Veres said. Of the 4.3 million Hungarians filing, just 3 million pay taxes. And of the 10 million residents of Hungary who have a health insurance card, just 4 million pay contributions, which is hardly enough to cover the cost of medical services.

Veres said that talks with interest groups on restructuring Hungary’s tax system had already started. The restructuring will boost Hungary’s competitiveness by simplifying the tax system. Payroll taxes, consumption-based taxes and environmental taxes must all be reassessed. Asset-based taxes must be raised and taxpayers should be offered less opportunity to make write-offs, further simplifying the system. The group of the largest corporate taxpayers produced 52% of all pre-tax corporate profits, Veres said, noting that 95% of all tax discounts are enjoyed by the same group.

These companies generate 42% of combined domestic sales, almost two-thirds of Hungary’s exports and make 44% of investments. These companies pay 40% of all corporate profit tax and VAT, a third of personal income taxes and one-quarter of social security taxes. With the fiscal adjustment, taxation levels will rise temporarily, and companies on average are expected to pay 8.3% of their profits as tax in 2007, up from 7.5% in 2005, but still well under the 16% corporate profit tax rate. Individuals are expected to pay average 18.7% of their incomes in tax this year, slightly under 18.9% in 2005.

Hungary’s personal income tax rates are 18% and 36%, depending on income. Veres said increased budget revenue and expenditure cuts had had an equal effect on a reduction of the fiscal deficit in 2006, but this year expenditure cuts would account for two-thirds of the reduction. Veres conceded that the government had not cut public sector staff in 2002, as it should have, when it raised wages in the sector 50%. He also said the government had made too many tax cuts without reducing expenditures in the past years, causing the deficit to widen. (Bg)