Minister of National Economy, György Matolcsy tabled the bill of new tax regulations. The Parliament will be put to vote on Monday. The final version introduces the flat tax system with significant allowances for children. It also includes regulations for the taxation of the cafeteria system and gives full insight to the „crisis tax” which has been increased to 2.5% in the last moment.

As it has been foreseen, from the beginning of next year flat tax system will be in effect.The tax base for the 16% single rate will be composed of not only wages but all other incomes from capital such as interest, dividend, exchange rate gain and sale of real estate. The new system will maintain minimum wage which is provided through the tax credit system, however the current 15.100 forint (appr. 55 EUR) monthly tax credit will be decreased to 12.100 forint (appr. 44 EUR) per month. The limits for entitlement will also be modified: up to 2,750 thousand forint (appr. 10.000 EUR) (265 thousand forint (appr. 964 EUR) per month) the total amount, above it up to 3.960 thousand forint (appr. 14.400 EUR) (390 thousand forint (appr. 1.418 EUR) per month) gradually decreasing portion can be deducted.

The so-called super-gross rule will be gradually withdrawn. The current 1.27 multiplier will be cut to half in 2012 and will be eliminated from 2013.

The tax allowances for children will be available for families with one or two children as well instead of the current „three-children priority” system. According to the new rules, approximately 10.000 forint (appr 36 EUR) is the monthly entitlement per child. 

Tax allowances for farmers will be maintained and eased by removing the income limit for the entitlement.

The amending legislation introduces the „crisis tax” of retail chains. The tax rate will be spred from 0.1% to 2.5% and will be based on the annual net sales of the retail chains. The tax rate will be progressive. The tax base below 30 billion HUF (appr. 109 million EUR) will be taxed by 0.1%, up to 100 billion HUF (364 million EUR) by 0.4%, above this by 2.5%.

Companies with a total net sales below 500 million forint (appr. 1.82 million EUR) are exempted from the tax. However, companies who will be subject to the tax could pay in even more than 20% of their margin.

According to the net sales data of 2009, the biggest taxpayer will be the TESCO retail chain which has to cover almost half of the total tax income with its 570 billion HUF (appr. 2.07 billion EUR) annual net sales as a tax base. 

Clearly the winners will be the relatively small retail chains such as CBA which will give them a perfect opportunity to obtain a competitive edge and cut on the advantage of the „big fishes” on the market.

The announcement triggered immediate indignation not only domestically but also abroad. With such a decision the government jeopardizes existing jobs and further investment plans. The government emphasized that fear of increasing prices is fictitious, however many stakeholders are sure that it will force up the market prices. And the customers will end up paying the tax.

The approval of the new rules is almost guaranteed bearing the governing parties more than two-third majority in the Parliament.