A flat income tax rate may replace the current 18% and 36% rates within a few years or as early as next year, as three opposition parties are making recommendations for its introduction, writes Világgazdaság.
MDF is proposing an 18%, flat income tax in it “National Tax Freedom” (“Nemzeti adószabadság“) program, while the Liberals have repeated their recommendation of a 20% income tax. Last week, Fidesz joined those proposing tax reforms, but the party’s proposals are more geared towards supporting families. Details and the exact rate of tax – between 15% and 20% – are expected to be worked out by the fall.
However, even if opposition parties agree that a flat tax system is necessary, fierce debate can be expected on the details. The Liberals, who recently left the governing coalition, want to cut rebates, which is unlikely to be acceptable to Fidesz. Another issue under discussion is whether to cancel rebates on the minimum wage and keep tax credits.
The paper writes that the feasibility of a real flat tax is questionable in Hungary, as most tax packages which would reform personal income tax include raising company tax to 20% as a “side effect” of the abolishment of the 4% “solidarity tax” (különadó). Also, if the government spent its minimal resources on personal income tax reform, the fate of popular plans to reduce contributions paid by companies would come under threat. The finance ministry estimates that the introduction of a 20% flat income tax rate would mean a Ft 500 billion (€1.9 billion) budget shortfall.
Meanwhile, the “National Tax Freedom” plan proposes that VAT on food items is lowered to 12% from the current 20%. For its part, Fidesz would introduce a rate of less than 10% on basic food items.