Thanks to the work of Hungarian people and enterprises, and a suitable economic policy, the Hungarian economy is performing better than ever before within the fields of economic growth, increasing employment, reducing unemployment and increasing wages alike.
These results must be protected, however, in view of the fact that signs of a slowdown are apparent with relation to the growth prospects of both the eurozone and the global economy. The goal of the Economy Protection Action Plan adopted by the Government is to enable us to protect the results of recent years and ensure that the performance of the Hungarian economy remains at least 2 percentage points above the EU average in the long term.
1. The 2 percentage point reduction in social contributions tax
The number of people in employment in Hungary has increased by 800 thousand since 2010, and the Government would like to continue the process of job creation. In harmony with this, the taxes on work are continuing to decrease: from 1 July 2019, the rate of social contributions tax will be decreasing from 19.5% to 17.5%. The 2%-age point reduction will leave 144 billion forints (EUR 442.5 million) in the pockets of Hungarian enterprises in 2019 and 156 billion (EUR 480 million) in 2020.
2. The 1 percentage point reduction in small enterprise tax (KIVA)
As a measure to help small businesses, from 1 January 2020 the rate of small enterprise tax (KIVA) will be reduced from 13% to 12%. The tax cut will affect over 40 thousand Hungarian small businesses and will leave 5 billion forints (EUR 15.3 million) with enterprises.
3. The merging and abolition of taxes
In addition to reducing taxes, it is also the Government’s goal to simplify the tax system. In recent years, the Government has introduced preferential forms of tax (KATA and KIVA) for small enterprises. In view of the fact that these new tax types represent a more favourable solution, the demand for simplified entrepreneurial tax (EVA) has fallen significantly, and as a result the Government is initiating the abolition of the EVA. The fragmentation of the tax system will also be reduced within the framework of the Economy Protection Action Plan, and instead of pension contributions, healthcare insurance contributions in kind, healthcare insurance contributions in cash and job market contributions, a unified contribution will be appearing in the tax system from next year.
4. The abolition of advance tax payments
In the interests of reducing the administrative burdens of enterprises and improving their liquidity, the Government is abolishing the requirement to pay corporation tax in advance in the case of enterprises that realise an annual turnover in excess of 100 million forints. This means that the affected businesses must settle their tax payments together with their 20 May tax returns, instead of on 20 December of the previous year. This will significantly facilitate the functioning of enterprises in view of the fact that they will be able to use the previous year’s taxes for an additional five months, amongst others for job creation and development projects.
5. The deferral of advertising tax
The deferral of advertising tax from 1 January 2020 to 31 December 2022 will facilitate the further expansion of the market.
6. Tourism: The reduction of VAT on accommodation services
One of the priority sectors of the Hungarian economy is tourism, and accordingly the Government would like to further reinforce this sector. For this reason, within the framework of the Economy Protection Action Plan the Government is proposing that the rate of consumption tax (VAT) on accommodation services be reduced from 18% to 5% from next year. Parallel to this, it will also be proposing that the 4% tourism contribution tax also include these services, thanks to which further development projects can be financed within the sector.
7. Up to 5-million-forint VAT refunds for people constructing homes in small settlements
From 1 January 2020, the Government will be affording a tax refund subsidy up to a limit of 5 million forints (EUR 15,400) for people constructing new homes or extending or renovating used properties in small settlements. In addition to facilitating the further growth of the construction industry, the measure will also contribute to the renewal of housing stock and to increasing the population retention capacity of small settlements.
8. Enterprises to also receive funding for the establishment of workers’ accommodations
It is in the interests of the Hungarian economy for the workforce requirements of enterprises to be met, and accordingly the Government has been funding workforce mobility for years now. Until now, local governments or local government partnerships have been able to apply for funding towards the construction or refurbishment of workers’ accommodations, but within the framework of the Economy Protection Action Plan this opportunity will also be open to Hungarian enterprises from this autumn.
9. The expansion of the development tax discount
Over 8500 billion forints (EUR 26.13bn) in investment was realised in Hungary last year, more than ever before. The Government wishes to continue the introduction of investment promotion measures, and accordingly it will be gradually reducing the value limit of the development tax discount available to small and medium-sized enterprises from 500 million forints in three steps: In 2020, to 300 million forints in the case of small enterprises and 400 million forints in the case of medium-sized enterprises; in 2021, to 100 million forints in the case of small enterprises and 200 million forints in the case of medium-sized enterprises, and from 2023 to 50 million forints in the case of small enterprises and 100 million forints in the case of medium-sized enterprises. The tax cut will affect some 7 thousand enterprises.
10. Increased capital for Garantiqa Creditguarantee Co. Ltd.
The 10-billion-forint (EUR 30.1 million) increase in the capital of Garantiqa Creditguarantee Co. Ltd. will facilitate the credit and development of enterprises. It will become easier for businesses to access loans thanks to the reinforcement of guarantee instruments.
11. Increased capital for the Agricultural Credit Guarantee Fund
The 5-billion-forint (EUR 15 million) increase in the capital of the Agricultural Credit Guarantee Fund will facilitate the development of the agriculture sector.
12. The development of the agricultural irrigation system
In the interests of the more efficient and secure exploitation of potential opportunities in Hungarian agriculture, the Government has decided to expand the irrigation opportunities available to farmers. Between 2020 and 2030, the Government will be providing 17 billion forints (EUR 52.2 million) to enable an increase in the area of irrigated farmland and an increase in the number of farmers involved in irrigation, and consequently an increase in the efficiency of agricultural production.
13. An increase in research & development funding
The Government’s goal is for more successful research to be realised in Hungary, and for this reason and additional 32 billion forints (EUR 98 million) in funding will be available for research & development in next year’s budget compared to this year, as a result of which the total level of funding will exceed 150 billion forints (EUR 461 million).
+1 The introduction of a new retail government bond: Hungarian Government Bond Plus
Hungary’s vulnerability has fallen significantly in recent years, in which an important role has been played by the fact that the public is undertaking an increasing share in financing sovereign debt. Through the introduction of the Hungarian Government Bond Plus on 3 June 2019, the Government would like the total value of government bonds possessed by the public to double. Accordingly, the new construction offers a high yield and a tax-free savings opportunity, in addition to which it will be extremely easily available. Via the interest paid, the government bond will increase the income of the Hungarians, while from the state’s perspective it will reinforce balanced financing.
(Ministry of Finance)
