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Possible introduction of a special local tax in Budapest

Economic recovery in Budapest (and Hungary) is predicted to follow an elongated L-shape curve, meaning that the effects of the pandemic are to be present and felt until at least 2023. As a kind of crisis management contribution by the sectors that were less affected by the pandemic, companies operating in these sectors would be expected to be temporarily more involved in public burden-bearing to alleviate the negative economic effects of COVID-19 in Budapest.

Although this concept is only a proposition as of the writing of this article and many details are unclear, the so called “restart tax” would affect companies with a business tax base exceeding HUF 5 billion, in the following sectors: manufacturing; electricity, gas, steam supply and air conditioning; water supply, wastewater collection, treatment, waste management, decontamination; automobile trade and repair; transportation, warehousing, information, communication; financial and insurance activities; professional, scientific and technical activities; and administration and supporting service activities. These companies would have to pay a special 0.5% tax until Budapest emerges from the economic crisis caused by pandemic. The special tax would be introduced only temporarily until full employment is achieved.

There are many questions relating to this proposal, including which annual turnover (business tax base) should be taken into account or whether group-level tax bases would matter. Additionally, based on the available information, the proposed special tax would be similar to the local business tax, which is already being paid by companies. Since only one type of tax can be introduced for the same tax subject, this seems to be a burdening factor when considering the rules limiting tax duplication and overtaxation.

According to calculations, in proportion Budapest loses three times more tax revenues than the central budget does due to the pandemic. A very high amount, 70% of the capital's revenues come from business tax, which is expected to be only HUF 139 billion in 2020 after last year’s HUF 165 billion. To make matters worse, the operating budget of Budapest for 2020 has a HUF 69 billion deficit, that is another reason why a solution in the form of a special tax or some other measure should be found as soon as possible.