The Government has been committed to correcting mistaken decisions of the past, and is therefore continuing with its policy of keeping fiscal deficit under 3 percent and reducing general government debt.

In accordance with the Government decision, earlier today the Audit and Budget Committee submitted its amendment proposals on the Bill regarding certain tax regulations and other related provisions. The National Assembly will vote on the proposed amendments on Monday of next week.

The Hungarian Government has managed to put the Hungarian economy on the proper track., In 2011, the Hungarian state budget deficit was below 3 percent for the first time Since its EU accession, and the Government is determined to adhere to this achievement in the future.

According to Commission projections, state budget deficit is expected to be 2.5 percent in 2012 and 2.9 percent for 2013, both below the 3 percent threshold.

Amidst European economic uncertainties, the greatest success for most member states was if fiscal balance could be improved. The Autumn Forecast of the Commission is proof of the effectiveness of Hungarian economic policy which paves the way for the abrogation of the excessive deficit procedure against Hungary, an act that may be initiated by Ecofin at its next session in 2013.

The Government has fulfilled the requirements which had been formulated as a precondition for a positive assessment. The first and second fiscal adjustment packages announced in October (totaling 397bn HUF and 367bn HUF, respectively), have been acknowledged by the EU, and Hungarian calculations and estimates aimed at shoring up the fiscal balance next year have, in general, been welcomed.

Thus the Government has proven its commitment to sustaining the fiscal deficit-to-GDP ratio below 3 percent and safeguarding a downward trend in general government debt-to-GDP ratio. In order to establish the proper regulatory background of formerly announced measures, the amendments which the Government has submitted to Parliament are as follows:

Bank tax
Financial institutions continue to be subject to paying this surtax in 2013, and the extra tax on credit institutions shall also remain in force.

Financial transaction levy
·    Having taken into consideration the recommendations of the European Commission, the National Bank of Hungary will not be liable to paying this levy.
·    The levy will be applicable to foreign currency exchange transactions, loan repayment, cash withdrawals by credit cards at ATMs, as well as to commissions and fees charged by the financial service provider.
·    Transfers from special purpose accounts or those between the same account holder(s) or joint account holder(s) will be tax-exempt.
·    The general rate of the transaction levy will be 0.2 percent, while it will be higher at 0.3 percent on cash withdrawals.
·    In accordance with proposals concerning the Hungarian National Treasury, certain payments will not be subject to the levy (payments of Treasury accounts related to EU subsidies and transfers, settlement accounts for transactions with international organizations as well as foreign currency debt service accounts related to foreign currency payments resulting from the servicing of state debt).
·    For each transaction at the Treasury involving the sale of government securities, the payable levy will be capped at 6 000HUF.
·    It will be possible for the Treasury to charge its account holders with the expenses incurred from the levy.
·    As of 1 January 2014, in line with the relevant recommendation of the Commission, the scope of the transaction levy will be extended to securities transactions including derivatives. The rate of payable levy will be 0.01 percent on the asset value of each transaction involving derivative instruments and 0.1 percent for other securities transactions.

Reverse charge taxation in the pig sector
·    In order to combat tax fraud, the Government introduced reverse charge taxation for the trade of live pigs and pig half carcasses, as well as for the trade of certain fodder products. The amendment is expected to enter into effect on 1 April 2013.

Electronic connection of cash machines to the tax authority
·    Taxpayers issuing invoices from cash register will be obliged to provide data on both cash register invoices and from the cash register.
·    The amendment proposes that the Minister for National Economy be assigned to work out the details of a decree of implementation regarding data reporting in connection with linking cash registers electronically to the tax authority. This regulation is to enter into force on 1 April 2013.
Public utility tax 
·    The amendment proposes that a public utility tax should be applicable to cables (electricity, telephone, television, internet) and pipelines (gas, water, sewage, heating) underneath or above areas within municipal boundaries and, in certain cases, private property (pipelines or cables within municipal areas or private property which exclusively serve the consumers of that particular area will, however, not be liable to paying the tax.)
·    The amendment also proposes that tax liability shall commence with the first day of the year after utilization and conclude with the year-end of terminating the utility service contract.
·    The payable tax can be calculated by local governments in the countryside and by the Municipal Council in Budapest at a maximum of HUF100 per meter based on the length of the relevant cable or pipeline.
·    The taxpayer shall be the owner of the utility cable or pipelines as stipulated by the Civil Code.
·    In case the owner has several cables or pipelines on the same line for identical purposes, the tax is applicable to only one of them.

The taxation of public utility cables and pipelines is expected to generate extra revenues of HUF30bn per year, if every local government introduces it.

Local business tax
·    In order to ensure that small taxpayers shoulder proportionately smaller burdens, the Government proposes that deductions should be based on income brackets, depending on revenues; this means that the larger sales revenues, the smaller the total deductible amount of the cost of goods sold and mediated services.
·    The income brackets are as follows:
-    Up to 500 million HUF net sales revenues: 100 percent of cost of goods sold and mediated services will be deductible from net revenues;
-    Between 500 million HUF and 20bn HUF net sales revenues: 85 percent of the cost of goods sold and  mediated services will be deductible from net revenues;
-    Between 20bn HUF and 80bn HUF net sales revenues: 75 percent of the cost of goods sold and mediated services will be deductible from net revenues;
-    Above 80bn HUF of net sales revenues: 70 percent of the cost of goods sold and mediated services will be deductible from net revenues.
·    This measure will mainly impact trade enterprises and energy services providers.
·    No limit will be set on deductions for enterprises with annual net sales revenues below 500 million HUF.

The Pension contribution ceiling will be abolished
·    The amendment proposes the abolition of the pension contribution ceiling of employees.

Cafeteria
·    With regard to the preferential taxation of fringe benefits, the Government has consulted with advocacy organizations and representative groups of employers and as a consequence the rate of healthcare contribution payable for fringe benefits will increase to 14 percent instead of the previously indicated 27 percent.

(Ministry for National Economy)