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Hungary to cut corporate tax rate to lowest in the EU

November 19th, 2016

A conservative economist welcomes PM Orbán’s announcement that Hungarian corporate tax is to be cut to the lowest in the EU. A liberal economist, on the other hand, fears that the tax cut will create disparities in the economy.

On Thursday, Viktor Orbán announced that Hungary will cut the corporate tax rate to 9 per cent from 2017. As a result, Hungary will have the lowest corporate tax rate in the EU. Currently the tax rate is 10 per cent if annual profit is below 500 million Forints, and 19 per cent for profit above 500 million Forints. Hungary is also planning a substantial hike in the minimum wage which will reverberate throughout the wage ladder. The move is necessary to keep the workforce from seeking alternative jobs in western Europe. The tax rate cut is meant to compensate businesses for the ensuing losses.

The “robust and unexpected” corporate tax rate cut will improve Hungary’s competitivity, boost foreign investement and at the same time make it possible for employers to offer significant wage increases, Csaba Szajlai comments in Magyar Hírlap. The conservative economist thinks that the low deficit and decreasing public debt makes it possible for the government to lower the corporate tax rate without jeopardizing growth and economic stability.

In Heti Világgazdaság, Zoltán Farkas thinks that the main beneficiaries of the announced corporate tax cut will be multinational companies rather than Hungarian small and medium sized companies, most of which report annual profits of over 500 million Forints. Farkas also fears that the corporate flat tax will create further disparity in the economy. Companies including banks, telecommunication firms and retail chains that have to pay surplus taxes will have to bear an unfairly large financial burden while other sectors including construction and the industrial sector will be offered the lowest tax rate in the EU.

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