Hungary: proposed tax changes for 2012

VAT. The standard value added tax (VAT) rate in Hungary will be increased from 25% to 27% as of 1 January 2012, while the lower VAT rates of 5% and 18% will remain unchanged.

VAT refund. Following a judgment of the European Court of Justice, at the end of September Parliament repealed the domestic VAT provisions incompatible with the EU VAT Directive and introduced an extraordinary refund mechanism.
Taxpayers, whose input VAT in relation to unpaid invoices could not be refunded but only carried forward for use in subsequent tax periods, may file a refund request with the tax authority by 20 October 2011. Alternatively, the amount can be reclaimed in the regular VAT return.

The tax authority is obliged to complete the refund within 30 days (or within 45 days in the event of refunds in excess of HUF 1 million). Furthermore, under a transitional rule, taxpayers may initiate a special procedure aimed at the revision of the tax penalties and late payment interest imposed before 27 September 2011.

The new legislation ensures that the repealed provisions may not be applied in ongoing audits and procedures.

Measures to combat evasion. With regard to certain tax violations, the government is considering a system allowing for tax numbers to be revoked quickly if a taxable person cannot be contacted or if they fail to comply with certain major obligations. Another measure regards the possibility to not limit the period of an investigation that could be extended if deemed necessary for any reason. Finally in the agricultural sector the application of a reverse charge method similar to the regime already existing in the construction industry and the recycling business is proposed.

Personal income tax. The envisaged personal income taxation on “super gross income” will be abolished as of 2012. At the same time, the system of tax credits will also disappear. These measures will mean that the effective personal income tax burden will be 16% at all income levels.

Excise duties. Parliament introduced various increases to the rates of excise duties in all product categories. With effect from 1 November 2011, excise duty rates applicable to petrol (13%), spirits, beer and certain other alcoholic drinks (generally 5%) , as well as cigarettes (8%) and other tobacco products, will increase. In addition, with effect from 1 May 2012 and 1 November 2012, cigarettes and tobacco products, respectively, will be subject to further gradual excise duty rate increases.

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