Economy
Hungary EconMin makes hodgepodge tax motion
This assortment of proposed new tax measures forms the core of an action plan outlined a few weeks ago by Hungary’s new Economy Minister György Matolcsy. The proposals have by now been formulated in detail and submitted to Parliament for a debate.
Mixed bag of proposals
For a smooth legislative process and greater clarity, the Economy Ministry may have been better advised to prepare five or six separate proposals. However the ministry has chosen to address many different taxation issues in a single legislative motion, including a modification to the Central Bank Act, a new 98% tax on “golden handshakes" in the public sector, the controversial banking tax, the legal and tax status of in-home help workers, a new supervisory structure that will replace the treasurer system, voiding the status law on government finances (with a few chapters retained as part of another act of parliament), a conclusion to the “homemade brandy" debate, and the dissolution and relaunch of the National Holiday Vouchers Foundation.
Hurdles
Several of the new tax proposals may attract objections on constitutional grounds or due to a conflict with EU regulations. One of these is the proposed taxation of severance packages, which is essentially a surtax with the aim of recovering state funds from senior officials of the previous government who have been “prompted to leave" and are looking to receive hefty “golden handshakes".
The new proposal is to impose a 98% surtax on severance packages of over HUF 2 million awarded to discharged civil servants, regardless of whether this compensation is to be received for less than 60 days or longer. In addition, the recipient is required to pay 27% healthcare contribution. As a result, the government is seeking to garner 125% state revenue on severance payments, even if this is divided between the state tax coffers and the healthcare fund. This is a critical issue for the new regulation, which remains controversial despite a government proposal for a constitutional change to circumvent this problem made last Friday. The other problem is that the 98% tax rule would have retroactive effect on severance payments received earlier in 2010.
Mixed bag of proposals
For a smooth legislative process and greater clarity, the Economy Ministry may have been better advised to prepare five or six separate proposals. However the ministry has chosen to address many different taxation issues in a single legislative motion, including a modification to the Central Bank Act, a new 98% tax on “golden handshakes" in the public sector, the controversial banking tax, the legal and tax status of in-home help workers, a new supervisory structure that will replace the treasurer system, voiding the status law on government finances (with a few chapters retained as part of another act of parliament), a conclusion to the “homemade brandy" debate, and the dissolution and relaunch of the National Holiday Vouchers Foundation.
Hurdles
Several of the new tax proposals may attract objections on constitutional grounds or due to a conflict with EU regulations. One of these is the proposed taxation of severance packages, which is essentially a surtax with the aim of recovering state funds from senior officials of the previous government who have been “prompted to leave" and are looking to receive hefty “golden handshakes".
The new proposal is to impose a 98% surtax on severance packages of over HUF 2 million awarded to discharged civil servants, regardless of whether this compensation is to be received for less than 60 days or longer. In addition, the recipient is required to pay 27% healthcare contribution. As a result, the government is seeking to garner 125% state revenue on severance payments, even if this is divided between the state tax coffers and the healthcare fund. This is a critical issue for the new regulation, which remains controversial despite a government proposal for a constitutional change to circumvent this problem made last Friday. The other problem is that the 98% tax rule would have retroactive effect on severance payments received earlier in 2010.
