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Hungary Defends Decision To Pursue Low Direct Taxes

Friday, April 5, 2019

The Hungarian Government has issued a statement in defense of recent tax cuts in response to what it described as "attacks" on its tax policies by the European Union.

In an article published on the economy ministry's website, the Minister of State for Parliamentary Affairs, Andras Tallai, told the state news agency MTI that Hungary has experienced some of the largest tax cuts in the EU in recent years, and that this has helped to boost investment and create employment.

Summarizing the content of the interview, the ministry said: "The fact that the Hungary has been among the top-ten investment destinations proves the competitiveness of Hungary's taxation regime."

"Brussels, however, instead of seeing Hungary's competitive taxation regime as a good example, appears to be rather interested in tax hikes and the elimination of tax incentives and exemptions, and the transformation of the current business-friendly system."

According to the EU's statistical agency Eurostat, Hungary recorded the largest tax-to-GDP ratio decrease in the EU in 2017, with the ratio falling from 39.3 percent in 2016 to 38.4 percent in 2017.

Hungary also reduced its corporate tax rate from 19 to nine percent on January 1, 2017. This is the lowest corporate tax rate in the EU.

Furthermore, in February 2019, Hungary's Prime Minister announced plans to ensure that women who have four or more children do not have to pay income tax.

Tallai's comments echoed those made by Norbert Izer, Hungary's State Secretary for Tax Affairs, who told local media in January 2019 that the Government is committed to establishing a tax system with low direct tax rates, funded by high taxes on consumption, such as VAT.

He told Hungarian daily Vilaggazdasag that the Government is focused on reducing the tax burden on capital- and work-related income, funded by increases in value-added tax-type taxes. He rejected calls for a reduction in the value-added tax burden, with Hungary featuring Europe's highest VAT rate at 27 percent, noting that the country having a very low corporate tax burden attracts significant investment.