"Hungary’s Constitutional Court has revoked with retroactive effect the tax on residential property the Socialist minority government introduced on 1 January 2010.Tax...
The Hungarian Parliament passed a bill at the end of June on the taxation of high-value property into law. The bill concerned the taxation of high-value residential and recreational property, high-performance passenger cars, watercraft and aircraft.
Residential property occupied by the owner and valued at HUF 30 million or less was to be exempted from taxation. A second residence owned by the same owner and valued at HUF 15 million or less was also to be tax-exempt.
Any additional residential properties in the ownership of the same owner would have been subject to taxation based on the value of the residential properties concerned.
The tax rates were to be as follows: 0.25% from HUF 0 to HUF 30 million; 0.35% from HUF 30 million to HUF 50 million; and 0.5% for residential properties valued at over HUF 50 million.
The deadline for the first tax declarations was set to 20 May 2010.
...no tax
The Constitutional Court ruled on Tuesday that the institution of property tax and setting the amount of the payable tax via self assessment were unconstitutional.
It also objected to the fact that the part of high-value property tax regulations applicable on residential property were not based on a Constitutional Court ruling on the luxury tax law, but instead the policymakers simply applied modified property tax regulations.
Under the new law, the owners were to self-assess the value of their property that was to serve as the tax base, but the tax authority (APEH) had the right to impose a fine if it found a larger-than-10% difference between the self-assessed value and its own estimate.
Such a scenario could have materialised within five years from the tax declaration, but the Constitutional Court said the value of a property is an extremely volatile factor that often shows 30-40% fluctuation.
The court also criticised (and eventually nullified) the law for it unilaterally places the responsibility on the taxpayer by applying the self-assessment method. This way the taxpayer bears all the risks stemming from uncertainties surrounding the estimate of the property’s market value.
Proposals to cancel the tax on high-performance passenger cars (125 kW rated engine output or above, in successive performance bands), watercraft and aircraft were rejected by the Constitutional Court.
The court reached a unanimous decision.
Budget impact
The government pencilled in HUF 50 bn revenues from property tax in 2010. Without this, the 2010 budget deficit would come in about 0.2 percentage point higher than planned. The cabinet targets 3.8% of GDP shortfall for this year.
The taxes on high-value property were introduced parallel with the scrapping of the flat-rate supplementary healthcare contribution (EHO), a move estimated to shorten budget revenues by HUF 60-70 bn.
The tricky part here is that, in theory, the EHO was cancelled in exchange for the introduction of the property tax. As the Constitutional Court has not nullified all newly introduced property taxes, only the one on residential property, there should be no argument for bringing back the EHO. But, as the tax on residential property would have generated virtually the whole HUF 50 bn revenue, the government could have every reason to re-introduce the EHO."
Source: Portfolio Online Financial Journal
27.01.2010