The tax package bill scheduled to be submitted by the Ministry of Finance to the parliament on Tuesday has the highest number of simplified regulations ever.

Provided the bill is approved by the National Assembly, tax reductions will leave several hundreds of billions of forints at families and enterprises and cut the administrative burden, Minister of Finance Mihály Varga said.

For next year, the Government keeps one of the EU’s lowest personal income tax rates of 15 percent and the EU’s lowest corporate income tax rate of 9 percent, he noted.

Family tax incentives continue to be broadened. Next year, the amount of tax allowance for families with two children is to rise by HUF 5000 per month, to HUF 40 thousand per month in all, which will leave as a whole HUF 20bn at 380 thousand families. The so-called social contribution tax payable by employers is to be reduced once again from the current 19.5 percent to 17.5 percent in 2019. This 1 percentage point reduction leaves HUF 130bn in the economy over the course of one year, Mihály Varga pointed out.

In accordance with the Government’s aims to levy the lowest possible rate of tax on basic foods and following the tax reduction on poultry, pork, fresh milk and eggs, the rate of VAT of another food is set to be cut: the rate of VAT on UHT and ESL milk will fall to 5 percent. Families will thus save HUF 20bn, he added.

Working pensioners and entrepreneurs who employ them will both be better off next year: in 2019, only 15 percent income tax will be payable from the gross income of employees who also receive old age pensions. Currently, there are some 70 thousand pensioners who have a job, and this number is set to increase as a result of the favourable tax rate next year, the Minister stressed.

Five kinds of taxes will be removed from the system next year. As of 2019, nobody will have to pay the 75 percent surcharge, the special banking charge or cultural tax any more. The accident surcharge and the healthcare contribution tax will cease to exist, as the former will be integrated into the insurance tax and the latter into social contribution tax, he said.

The limit when social contribution tax is payable on dividends will also be raised: entrepreneurs who earn double the amount of minimum wage will no longer pay social contribution tax on the dividend they take from their business.

Next year, there will be some tax policy measures to protect the health of citizens: the rate of the public health product tax levied on foods and beverages which pose health risks (e.g.: sugared beverages, chips, chocolates, alcoholic beverages, etc.) will be raised by 20 percent.

In addition, the registration tax of motorbikes will also be reduced, and bank transfers of up to HUF 20 thousand will also be exempted from the financial transaction duty.

Due to the fact that the tax office will prepare the VAT refund draft for sole proprietors using payment data, the time which enterprises spend on taxation issues will also decrease.

The fringe benefit system has been often criticized for its complexity. As the current system requires a lot of administrative work, smaller enterprises often choose not to pay fringe benefits at all for their employees. Therefore, in line with the demand of enterprises, the Széchenyi Recreation Card will remain the only element upon which a preferential tax rate is levied.  Besides simplification, the other principle of the Government is that work must be awarded with wages and this cannot be replaced by any other benefit, Mihály Varga stated.

As a new element, jobseekers who are career-starters, long-time unemployed, returning from childcare or who have been formerly inactive will also be given a tax allowance. As of next year, the current procedure will be reversed: the tax office will inform employers for which employees they can receive tax benefits.

Due to the fact that the new employment-boosting scheme supports career-starters, the current automatic tax benefit which employers can use for hiring people under the age of 25 years will also be eliminated.

Another major change is the removal of tax benefits for employees above the age of 55 years, as the employment of jobseekers who receive an old age pension becomes cheaper next year: employers will no longer have to pay social contribution tax, the Minister said.

(Ministry of Finance)