The Current Personal Income Tax Regime in Hungary
The Current Personal Income Tax Regime in Hungary

Summary/Abstract: This paper analyses the recent trends and experiences of the Personal Income Tax system in Hungary, where a flat tax regime has been introduced for the declared purpose of making the system more effective by reducing the tax burden, and of simplifying taxation in general, but especially the areas of tax obligations and assessment. Accordingly, the various types of income and some of the most important related matters (e.g. the tax base, tax rates and tax credits) are reviewed quite basically, mainly from a perspective of fairness and efficiency. The issue of ‘just taxation’ and a ‘just tax system’ is, however, complex and needs to be examined by taking into account all types of tax and the relevant fiscal consequences. This, clearly, cannot be dealt with in any detail in this paper due to space limitations. Consequently, the study focuses on the question of a personal income tax regime which may achieve a higher level of fairness; it also, evaluates the argumentation and practice of the personal income tax regulation currently in force and, finally, it points to a number of closely related issues. ‘Just taxation’ and an appropriate personal income tax regime are based on the ‘ability to pay’ principle - and on proportionality, both of which are laid down in Hungarian legislation. The key issue of this approach – according to the current Hungarian provisions - is the difference between progressive and flat tax regimes, in respect of which there is intense debate, due to budgetary issues and operative matters. The paper, therefore, looks at the advantages and disadvantages of the operation of the new system, highlighting its impact on public revenues and tax complying issues.

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