Hungary to innovate with inflation-linked taxation

The Hungarian Government has proposed automatic tax increases on several taxes. Under the bill submitted to the Parliament, the excise duty on spirits, tobacco products and fuels, as well as motor vehicle tax and registration tax would automatically increase by the rate of inflation every year from 2025.

The so-called autumn tax package – unlike in previous years – was made available for public consultation by the Ministry of Finance in the middle of October 2024 (open for remarks until 24 October). The Ministry has already submitted the official proposal to the Parliament as well for the changes in tax regulation for the next year(s) on 29 October, including brand new concepts (absent from the first draft).

Hungary has been exposed to significant inflation in recent years, and that has not only devalued taxpayers' revenues considerably but also the taxes that are determined in a specific amount in forints rather than in percentages. By introducing inflation-linked tax increases, the Ministry of Finance aims to solve this challenge without the regular legislative amendments to these taxes if it wants to follow the effect of inflation on budget revenues.

According to the new wording of the autumn tax package, as of 2025, several taxes and duties would automatically increase each year in line with inflation, without the need to amend the law again.

Under the automatic tax increase system, after 2024, the rate of the taxes and duties in question would be the amount of the tax rate (or amount) for the year before the tax year in question, valorized (i.e. increased) by the change in the consumer price index for July of the year before the tax year in question compared to the same period of the previous year, published by the Central Statistical Office (KSH). The specific new tax rate should be published by the Hungarian tax authority by 31 October of the year preceding the year in question (by 15 December this year, for the tax year of 2025).

For reference, in July 2024, the annual inflation rate as calculated by the Central Statistical Office was 4.1 percent, thus, under the proposed amendment, taxes that will become inflation-linked should be automatically increased accordingly.

There are three main areas where the new system is expected to be introduced already next year:

(1)           motor vehicle-related taxes and duty, including registration tax (payable on cars and motorcycles), car tax, company car tax (from 2026) and transfer duty on the transfer of motor vehicles and trailers;

(2)           energy products, including tax on petrol, diesel and LPG; and

(3)           the specific excise duty on alcohol products - beer, wine, spirits - and tobacco products.