(AFP) – Hungary is seeking to lower corporate tax to nine percent starting from 2017, the lowest rate in the European Union, Prime Minister Viktor Orban said Thursday.
“Next year, corporate tax will be set at a single, equitable figure of nine percent, for small and medium enterprises, and large corporations alike,” he told reporters in Budapest.
Hungarian companies with a turnover of under 500 million forints (1.6 million euros, $1.7 million) currently pay 10 percent of their earnings in tax.
Larger corporations pay 19 percent.
The decision to lower taxes rates was taken on Thursday after consultations with Economy Minister Mihaly Varga.
“With these taxes, Hungary will offer the European Union’s best fiscal conditions,” Orban said.
To date, Bulgaria, Ireland and Cyprus have had the lowest corporate tax rates in the EU.
Varga said in a statement that the 2017 budget had been designed to accommodate a shortfall of 145 billion forints as a result of the corporate tax reform.
“That means 145 billion (forints) more will remain in the pockets of corporations. The reserve fund of 200 billion will be more than sufficient to cover this gap,” he added.
The Hungarian press said it feared the nation could become a tax haven.
“If the government’s aim is to attract multinationals and investments, everyone knows that these giants pay less attention to corporate tax than to payroll taxes,” the Index.hu website said.
Hungary’s payroll taxes are among the highest in the EU.
Orban meanwhile said he was seeking to raise minimum wage “as much as possible”, though he did not specify by how much.
The minimum wage in Hungary is 111,000 forints (360 euros, $380).
Low wages in Hungary have pushed many citizens to seek work abroad, leading to critical labour shortages in some sectors, economists say.
Economic news daily Portfolio said the corporate tax cut was “spectacular”, but that “the presence of a qualified workforce, and a stable and predictable legal environment would be far more significant”.