Hungary's Minister Of State For Taxation: Lower, Simple, More Transparent

I think that business players will now be involved in the process very differently from last year, when we had to make very rapid decisions,” says Ádám Balog, Deputy State Secretary for Taxation Affairs at the Ministry for National Economy. “We will still make the decisions, but they will be involved in determining the exact details,” He is referring to a controversial series of sector-specific taxes introduced in 2010 that targeted banks, energy, retailers and telecoms.

But Balog is unapologetic of the way the taxes were introduced, saying immediate steps were required to shore up state finances and meet internationally agreed budget deficit targets. “Speaking as someone who was involved in the process, I don’t think we could have done it in a different way,” he says. And he rubbishes the idea that they somehow targeted multinational companies. “That was never in the mind of the government. There are a lot of multinationals in these sectors, but the state of the general Hungarian economy is dual and in most sectors multinationals are over represented at the top level. But in the banking sector, who will pay the biggest amount in taxes?

OTP, a Hungarian bank; in the energy sector, Hungarian gas and oil company MOL will pay most.” Balog is not some dusty academic taxation theologian. Prior to joining the government he worked for seven years as a tax analyst, and says he has some sympathy with the degree of uncertainty the special taxes prompted. “I understand the view that this does not support stability, these measures were very strong.”

Put the controversy over the special taxes to one side, Balog says, and he believes the government has made “a good start” in long over-due reforms aimed at reducing direct taxation and improving competitiveness. Doing so has affected one of his priority areas – stability – but that is inevitable in any reform, he argues. Referring to a World Bank study that placed Hungary around 140th in the world in terms of tax competitiveness, he says there is “a lot of room to develop.” Hungary’s Visegrád peers (Czech Republic, Poland and Slovakia) have recently been better placed than Hungary, not significantly, but enough to make a difference in a decision of where to invest if all other factors are equal.

“And it is not just how much tax you pay, but the complexity of the administration. It is, therefore, very important to make the system more simple, more transparent.” Within a couple of years, much should have changed; the move to a corporate tax rate of 10%, a personal income tax rate of 16% and a cap on social security contributions will greatly improve Hungary’s position (though on the latter Balog says “there are still things to do”).

A period of consolidation is required, he suggests. “It is more important to have stability, and this is what we have to focus on from now…. Being more stable, simpler, less trouble for taxpayers is very important for me in the long-term. In my head, competition is very important, but there are always other important factors, like the budget, that you have to take into consideration.”

Source: AmCham's Voice Magazin