Provision would harmonize pálinka tax with EU rules

EU

A provision in a tax bill submitted by the government to Parliament on yesterday would eliminate a tax exemption for distillation of spirits for all households but fruit growers. The changes are intended to harmonize Hungarian law with European Union rules, according to the justification for the provision.

In the spring, the European Court of Justice ruled that Hungary's tax exemption for pálinka, the country's national eau de vie, was not in line with EU rules. Legislation in force since the autumn of 2010 allows Hungarian households to distill for personal consumption the equivalent of 50 liters of pálinka containing 86% alcohol tax-free every year. An EU directive allows only a 50% reduction on the normal excise rate for such distillates. The bill submitted yesterday would replace the tax exemption with the 50% reduction on the normal excise rate. Accordingly, households that use a contract distiller to make their own pálinka would pay HUF 1,670 per liter of spirits containing 50% alcohol. Home distillers would pay a flat tax of HUF 1,000 per year. Revenue from this tax would be collected by the local council in the community where the distiller resides.

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