Background information

Under a government decree published on 22 December 2020 (639/2020) small and medium-sized firms and micro-companies will receive a reduction in their local business tax. This tax is collected by the municipality where the company is registered. The Act 100/1990 on local government taxes defines the local tax as a percentage of net revenue, often with a limit up to which no tax is paid.

Content of measure

Under the measure, companies will pay 50% of their local business tax on revenue in the tax year 2021. The tax will also be capped at 1% for companies defined as small (revenue below HUF 4 billion (€11.1 million) per year). For municipalities with fewer than 25,000 residents, the government will order a compensation of the tax revenue shortfall, and for larger cities, financial needs will be examined on a case-by-case basis, according to press reports, but no specifics of this compensation have been made public. All SMEs and micro-companies are eligible, regardless of the sector they work in.

To be eligible businesses must:

• file a statement regarding their revenue-based status (micro-, small or medium-sized business) to their local authority by 25 February 2021,
• make a declaration regarding not qualifying as a "failing company" on 31 December 2019 as defined by EU competition law (and govt decree 37/2011) or if qualified as such, it is not under any legal procedures for that reason.

Use of measure

Average tax revenues from the local business tax in 2020 (estimates):

• Microbusinesses HUF 0.324m (€900)
• Small businesses HUF 3m (€8,300)
• Medium-sized businesses HUF 18m (€50,000)

Local tax revenues total about HUF 800 billion (€2.22 million) a year, the shortfall from the current measure is estimated at HUF 150-200 billion (€417-556 million).

Target groups

Workers	Businesses	Citizens
Does not apply to workers	SMEs	Does not apply to citizens

Actors and funding

Actors	Funding
National government Local / regional government	No special funding required

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	No involvement	No involvement
Form	Not applicable	Not applicable

Social partners' role in the implementation, monitoring and assessment phase:

• No involvement
• Main level of involvement: N/A

Involvement

No involvement.

Views and reactions

The measure is considered to be politically-motivated by opposition-leaning cities. Mayors of the Alliance of Free Cities said the move would be a “final blow” to local councils and called for protests to remind citizens of the importance of public services offered by councils.

The Hungarian National Association of Local Authorities TÖOSZ, an organisation representing more than half of Hungary’s 3155 municipalities, said in a statement that it is regrettable that the government had not consulted them prior to taking this measure. TOOSZ said COVID-19 support should go to targeted vulnerable sectors only and that company and payroll tax cuts would be a better way to go forward. MÖSZ (Hungarian Association of Local Governments) added that the government should immediately reveal the compensation plan it had promised to cities. The trade union confederation MASZSZ said the measure will not help those in need and has warned that it could even lead to the loss of local council jobs that are financed from the local business tax revenue (interview, MASZSZ dep. leader)

Sources

• 21 December 2020: TÖOSZ opinion on halving local business tax (töosz.hu)
• 21 December 2020: Mayors call on govt to withdraw halving local business tax (hungarytoday.hu)
• 22 December 2020: Govt decrees 637-645
• 22 December 2020: Orbans pre-Christmas economic package unveiled
• 18 December 2021: Act 131/2021