Expected Changes on Local Business Tax

Expected Changes on Local Business Tax

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The National Competitiveness Council held a meeting on 4 February 2020 about the possible future changes of the local business tax.

Mihály Varga, Minister of Finance outlined that there is a strong need for simplification and reduction of local business tax, which has not changed significantly since its introduction in the early 1990’s. According to the Council’s proposal, the amendments could result in an increased number of investments and on the long term it could lead to the decrease of territorial inequality. This is expected to be achieved though decreasing the tax rate of the local business tax, thus the overall tax burden, while implementing incentives for further research and development measures.

Mihály Varga stated that there is no decision on this specific topic yet, however, one of the biggest possible change would be from January 2021 the abolishment of the obligation of the advance payment in the last month of the tax year. This measure solely could result in the expansion of investments and would strengthen efficient businesses, as it would help the cash-flow status of these organizations. A possible further change would be that five times of the amount spent on research and development would be deductible from the tax base, as well as depreciation.

The proposed changes would affect at least 850,000 Hungarian businesses positively and at least one third of the municipalities negatively. The latter are concerned, since the primary income of municipalities is local business tax. According to the proposal, the Ministry of Finance will initiate consultations with the larger local municipalities to discuss the details.

By Gabriella Galik, Partner, KCG Partners Law Firm