Country Study, Hungary — страница 3

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feature that is unique is that all Hungarians are taxed separately. In other words, unlike the American Tax system where a family can jointly file the Hungarians prefer (for ideological reasons) to file individually. However, this system is not with out it's flaws. The problem that tax administers run into is when one spouse stays at home to look after the children. The reason for this difficulty is the one wage earner is subject to heavier taxation than two wage earners making the same total. Tax administrators however are reluctant to change the current system because of the administrative simplicity. A second feature of the Hungarian Personal Income Tax (PIT) that draws attention to itself is the fact that any income earned through deposits and securities are tax free if the

interest rates are lower than that of the National Bank of Hungary. According to D&T the National Bank of Hungary's interest rate in January was 25%. This means that all bank deposits that pay lower than 25% are tax free. However, If an individual were to make 28% on investment he/she would be subject to a 20% tax on the additional 3% (as shown in figure 1.2). fig. 1.2 Initial Investment 100,000 HUF Interest Paid on Investment in Bank X (28%) 128,000 HUF Interest Paid on Investment National Bank (25%) 125,000 HUF Taxable Interest Income 3,000 HUF Taxes Due 600 HUF This aspect of this tax allows for fair treatment to those who would otherwise lose their money putting it in accounts that could not stay up with the tremendous inflation that several countries in eastern Europe

face due to their recent transition to a market economy (Newbery, 6). As was true with the Value Added Taxes (VAT) the Personal Income Tax (PIT) also has exemptions. The following is a list of examples of items exempt from tax (Okno 2). ·         Social Security allowances ·         Gains of up to HUF 100,000 from the non commercial sale of moveable property ·         Retirement gifts of up to HUF 10,000 ·         Compensation of defined working clothes In addition as of January 1995 tax credits against taxes owed were offered in several areas such as social security contributions by the employee, for individuals

making under 500,000 HUF, for installments on loans for dwellings, charitable contributions, and for special savings accounts. Corporate Income Tax The corporate tax is levied on all businesses, no matter how large or small, the same way. As of January of 1995 the corporate income tax has been reduced from 36% to 18% on undistributed profits before tax. this is called either the additional tax or the calculated tax. After this tax has been levied the profits are then distributed among the shareholders and an additional 23% is taxed to the shareholders. To illustrate this tax figure 1.3 demonstrates how the tax is calculated. fig 1.3 Calculation of Additional Tax HUF Income before tax 100.00 Calculated at 18% (18.00) Income after tax to be distributed 82.00 Amount available for

distribution after payment of additional tax (82/1.23) 66.67 Total Tax Paid 33.33 Effective Rate of the additional tax (% of income before tax 15.33% Source Deloitte & Touche LLP In addition to the corporate tax employers must also make Social Security contributions. Typically, employers must make a contribution at a rate of 44% of their gross salary. Employees are required to make a 10% contribution, however, it not unlikely to see individuals putting more than 10% away of retirement. Another tax that employers are subject to is the Unemployment Fund Contribution. This is to continue to support the unemployed between work. Employers must pay 4.2% of their employees gross salary and wages to the Unemployment Fund. Employees are required to pay 1.5% of their salary. However,

employees' contribution is tax deductible. Training Fund Contributions is yet another tax that corporations are subject to. This tax is to provide for the cost of training employees. This contribution is currently paid by the employer at 1.5% of the total payroll. This tax is for corporate income tax purposes. As with other Hungarian taxes exemptions are offered to certain kinds of business. Hungary grants exemptions on a case by case basis and either dose not grant an exemption or grants a 100%, or 60% exemption. The figure below shows how companies are allowed to use their exemptions. fig. 1.4 Percentage of Taxes due under specific exemption 18% subject to Corporations 23% subject to Shareholders 100% Exemption 100% reduction No Reduction 60% Exemption 20% reduction No