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Possible Introduction of a Special Local Tax in Budapest

Possible Introduction of a Special Local Tax in Budapest

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Economic recovery in Budapest (and Hungary) is predicted to follow an elongated L-shape curve, meaning that the effects of the pandemic are to be present and felt until at least 2023. As a kind of crisis management contribution by the sectors that were less affected by the pandemic, companies operating in these sectors would be expected to be temporarily more involved in public burden-bearing to alleviate the negative economic effects of COVID-19 in Budapest.

Although this concept is only a proposition as of the writing of this article and many details are unclear, the so called “restart tax” would affect companies with a business tax base greater than HUF 5 billion, in the following sectors: manufacturing; electricity, gas, steam supply and air conditioning; water supply, wastewater collection, treatment, waste management, decontamination; automobile trade and repair; transportation, warehousing, information, communication; financial and insurance activities; professional, scientific and technical activities; and administration and supporting service activities.

These companies would have to pay the special 0.5% tax until Budapest emerges from the economic crisis caused by pandemic. The special tax would be introduced only temporarily until full employment is achieved.

There are many questions relating to this proposal, including which annual turnover (business tax base) should be taken into account or whether group-level tax bases would matter. Additionally, based on the available information, the proposed special tax would be similar to the local business tax, which is already being payed by companies. Since only one type of tax can be introduced for the same tax subject, this seems to be a burdening factor when considering the rules limiting tax duplication and overtaxation.

According to calculations, in proportion Budapest loses three times more tax revenues than the central budget does due to the pandemic. A very high amount, 70% of the capital's revenues come from business tax, which is expected to be only HUF 139 billion in 2020 after last year's HUF 165 billion. To make matters worse, the operating budget of Budapest for 2020 has a HUF 69 billion deficit, that is another reason why a solution in the form of a special tax or some other measure is have to be found as soon as possible.

By Eszter Kamocsay-Berta, Managing partner, KCG Partners Law Firm

KCG Partners at a Glance

KCG Partners is a Hungarian business law firm providing a comprehensive range of legal services to international and local clients seeking local knowledge and global perspective. The firm comprises business-minded lawyers with sector-specific expertise, creating value for clients by applying a problem-solving approach and delivering innovative solutions.

The firm has a wealth of knowledge in corporate law, M&A, projects and construction, energy, real estate, tax, employment, litigation, privacy and forensics, securitization, estate planning and capital markets.

To address clients’ regional and international concerns, the firm maintains active working relationships with other outstanding independent law firms in Central and Eastern Europe, whilst senior counsel Mr. Blaise Pásztory brings over 40 years’ of US capital market and fund management experience.

KCG Partners Law Firm is the result of the teamwork of passionate and talented lawyers guided by the same principles and sharing the same values: 

  • Our most valuable asset is our people. They are the engine of our business and the key to our success.
  • We push boundaries by looking for innovative solutions that can empower our clients to achieve greater results.
  • We place our experience, commitment and professionalism to your service.
  • We are driven by our vision to shape and lead the Hungarian legal market and become a first choice law firm in our practice areas.

Firm's website: http://www.kcgpartners.com