Veres added that the current form of local industrial tax, a revenue-based tax whose proceeds go directly to local municipalities, will be terminated by 2008, by when a new financial model that ensures the financing of local municipalities will have to be developed.

The Finance Minister designate said a proposal by the government’s informal tax committee suggests that a chunk of personal income taxes could serve as the main source of municipal financing. To that end, the current brackets will have to be modified. Another proposal advocates that corporate tax rate should be increased as local taxes are abolished and that corporate use of real estate will be taxed more severely as of 2007.

“Also there are some recommendations that VAT brackets should be amended before the end of the year, but the idea needs further calculations as evidence,” Veres added.

Veres said Hungary is in a different situation today than it was in 1995 when halving the corporate profit tax resulted in increased revenues. “It is unreal that we can halve any tax in anticipation that indeed more taxes will be collected as a result,” Veres said.