The Government is preparing to reform the local business tax (HIPA)

The Hungarian Government has decided to launch the Competitive Districts Programme from 1 January 2025, under which all 174 Hungarian districts will receive guaranteed aids each year for development. In Hungary, districts are subdivisions of counties: a county is made up of 6-18 districts. Revenues of municipalities from the local tax on economic activities (in Hungarian: “HIPA”) are growing dynamically, almost tripling since 2010 and this trend is just continuing. According to the Government, the growing revenues should be used partially to develop the district’s agglomeration and small towns.

Under the Competitive Districts Programme, in each district, the expected surplus amount of HIPA to be paid in 2025 (i.e. the difference between the HIPA paid in 2024 and 2025) will be allocated to a district development fund. Municipalities of a district will have the opportunity to apply for grants from their district development fund. If the surplus in a given district does not reach HUF 250 million per year, the amount in the fund will be supplemented from the central governmental budget up to this minimum level. For districts with a county capital, the minimum level will be HUF 500 million. According to the calculations of the Ministry of Finance, the total amount of HIPA that would be redirected back into district development funds will be about HUF 65 billion at the state level.

The objectives to be financed will be set by the Government by the autumn of the year before the current year. District Development Forums will be set up to develop the Programme and manage the tendering process. Such a District Development Forum will be headed by the district capital’s mayor, and its members will be the mayors of the district’s municipalities. Decisions will have to be taken by a two-thirds majority, to reduce the possibility of conflicts between cities and their surroundings.