Levies on business are seriously harming the country’s competitiveness, KPMG finds

Hungary’s tax system is threatening its attractiveness for foreign investment amongst its neighbors, and is hurting the competitiveness of local companies, according to the findings of a recent tax survey compiled for the BBJ by international advisory powerhouse KPMG. In the survey, KPMG compared the tax systems of Bulgaria, Croatia, Romania, and Turkey and the ten countries that joined the EU in May – including Hungary. “The local business tax, the high VAT rate and the employer’s contribution burdens related to social security are the biggest threats to Hungary’s competitiveness,” said Tamбs Mlinбrik, tax manager at KPMG’s Budapest office. Mlinбrik coordinated the cross-country survey. “Cutting the corporate tax level is on the agenda in most countries of the Central and East European region. In some countries they went down from the beginning of this year,” he said. “Hungary is gradually losing its competitive edge in this field, while several negative attributes of its tax system are getting more visible.” According to the report, corporate tax rates are under 30% in all the surveyed countries except for Malta and Turkey. The lowest rates are in the Baltic states, Cyprus (10%) and Hungary (16%). The highest rates are in place in Malta (35%), Turkey (33%) and Slovenia. Cyprus, in fact, makes state enterprises pay a corporate tax 10 percentage points higher than private ones, a unique example of enterprise-friendly taxing, the report found. According to Mlinбrik, Hungary is the only one of the surveyed countries that maintains a revenue-based local business tax. A local business tax that resembles the Hungarian regime is in place in Lithuania, but its rate – between 0.3% and 0.48% – is a fraction of the Hungarian one.