Committee Sets Two Paths For Tax Reform

Version “A” of the tax reform committee’s two proposals aims to serve the enhancement of employment and righteousness. In this version, a 3% surcharge tax would be imposed on top of the current 16% corporate profit tax as of 2006, an additional HUF 134 billion burden on companies. In 2008, the original 16% rate of corporate profit tax would resume. As far as personal income tax is concerned, version “A” proposes to raise the bottom limit of the upper tax bracket to HUF 1.7 million as of 2006, with an outlook to up the limit to HUF 2.5 million in 2007.

Version “B”, which proposes to foster competitiveness, likewise suggests a 3% surcharge tax on top of the current 16% corporate profit tax in 2006 and 2007. However, as of 2008 the rate of corporate profit tax would be reduced to 14%. This proposal envisages a three-bracket personal income tax system as of next year instead of the current two-bracket one, introducing a middle bracket at 25% for those making annual wages between HUF 1.5 million and HUF 2 million.

The two versions include some mutual points. Both propose to abolish the flat healthcare tax in the fourth quarter of 2006, while employee healthcare tax would be hiked by 5 basis points in the coming three years. Small companies making less revenues than HUF 5 million will be paying a preferential 10% profit tax, on the condition that some of the revenues are paid into wages and the company does not take advantage of other waivers.