Since its introduction in 1988, the Hungarian taxation system is an evergreen subject of debates. Those who criticise it, first blamed it for not implementing the principles of equitability and fairness, then for making the subsisting social inequalities even larger and discriminating against SMEs, still, they could not come to a consensus even on whether the withdrawal levels in the three schemes (personal income tax, corporate tax and turnover tax) are low or high. One of the main objectives of the economic policy ever since the crisis that accompanied economic transformation was to reduce the state deficit, to increase the state revenues through tax increase in a way that in the competition for investments Hungary should not lose its position attained by the beginning of the 1990's. Although the changes of the taxation system reflected these expectations, considerable differences evolved in the last nearly thirty years both in the original ideas and in the international trends. The costs of labour increased tremendously and the VAT rates are also high in international comparison. The corporate tax system shows opposite changes. Hungary thus has become an eminent in the competition for international investments, while its corporate tax rate is one of the lowest in the EU.

 

One of the most crucial problems of the Hungarian personal income tax system is that the entrepreneurs react remarkably flexibly even to seemingly insignificant changes and those, who are better off, evade tax payment – even legally – very successfully. The tax load is the biggest on state employees who react of all concerned the least flexibly. Every increase increases only the state expenditure while the competition sphere uses tax evasion techniques very successfully. The self-employed are the most flexible: if the legal or illegal channels or loopholes of tax evasion are shut down, they respond to it by hiding their incomes. The two groups adapt themselves to the changes differently, but between 2002 and 2006 the number of those who actually paid income tax decreased by 800,000. Although it would be simple to define the burdens of which groups should be increased and decreased - the responses of the population to previous steps of this nature show that the changes in the social security contributions motivate the behaviours of taxpayers much more intensely, than one would have suspected.