The plans, presented over the summer as part of prime minister Ferenc Gyurcsany's "100 steps" reform program, provide for HUF 1 trln (USD 5 bln) in tax cuts over the next five years. As the government points out, this amounts to over 5% of Hungary's annual GDP.
From 2006, the top rate of VAT will be reduced from 25% to 20%. The top rate of income tax will fall from 38% to 36%, while the bracket separating this and the unchanged 20% rate for lower incomes will be increased from HUF 1.5 mln to HUF 1.55 mln. A 10% tax on stock market and exchange rate gains will also be introduced as of 2007.
Elsewhere, companies will be able to write off 100% of the controversial local business tax against the corporate tax base, while corporate tax will fall to 10% for the first HUF 5 mln of profits for companies paying at least twice the minimum wage. The local business tax will be phased out altogether by 2008, as will the fixed local health contribution by late 2006.
