The Big Four Auditors Question The Tax Package

It will come as a relief to many that there is no talk of abolishing the status of lone trader, for example. 

The status of lone trader remains, despite the protests of the Big Four, as well as other individual corporation structures. But other minor taxes will remain, as will the industrial tax. VAT reamins at 20 per cent.

Gyurcsany justifies this by referring to impact studies, which concluded that increasing VAT to 23 per cent would have raised inflation over the next 18 months and have disproportionately affected people on low incomes.

But the Big Four maintain that VAT is the tax which has the least impact on competitiveness, meaning that it can be raised without harming economic actors. The increased tax burden that would result would be counterbalanced by lowering the cost of employing people - meaning that the active population would not see its spending power fall.

Ferenc Robert Vancgyi, vice-president of Moklasz, does not support the abolition of minor taxes, and nor does he support increasing VAT. He argues that the minor taxes could only be abolished if educational institutions were to receive less budgetary support and if less money were spelt on culture and building renovation. This would only be possible if the lost income could be replaced from another source.
Instead of increasing VAT, he would like to see a single property tax introduced which would be payable not just on eral estate but on all other assets - cars, boats, aeroplanes, paintings, gold, etc.

He sees more positives than negatives in the Big Four's proposals, however. He gave the example of the United States, where tax packages have had boosting employment as their primary aim, with investment promotion being a secondary goal.

The 4 per cent special tax which was introduced in 2006 is to be abolished, as the Big Four proposed. The 18 per cent income tax band is now the main tax band, with no taxes paid below Ft750,000, and with a third band of 36 per cent for those earning more than Ft3m a year.

The first step will be to raise the income requirement for the 18 per cent income tax band from Ft1.7m to Ft2m.This will happen at the beginning of 2009. In 2010, the government will raise this band further to Ft2.5m.

Adjusting the income tax bands is about tracking inflation, according to Jozsef Angyal, a tax consultant. Under the new system, there will be four tax bands: 0, 18, 36 and 40 per cent. There is no mention in the plan of one key feature of a flat tax system - the abolition of tax allowances. On the contrary, the system is to be made even more complicated with the introduction further benefits and allownaces.

Angyal says this is a claer message that no flat tax system will be introduced."

by Andrea Salgo

Source: HVG