According to our calculations there are presently 60 taxes in force in Hungary. Value added tax accounts for 25% of central tax revenues whereas the personal income tax accounts for 13%. However, most taxes account for less than 1% of these tax revenues. The figure of 60 different taxes seems slightly excessive also in an international context.
How do others do it?
There is a lot of criticism aimed at the fragmented nature of the Hungarian tax system. We did some counting and there are currently 60 different kinds of taxes in Hungary. At first sight this seems to be too much. However, is it too much also compared to other countries?
The example of other countries shows that they are not much better at having an efficient tax system. Although it is difficult to find reliable sources in this respect, it appears that the United States have 97 and Germany has 59 different kinds of taxes. This means that broadly, the number of taxes is similar, but considering the size and administrative complexity of these countries the Hungarian figure of 60 tax types seems to be rather high.
In contrast, if we consider Australia, administratively no less fragmented but only having around 20 million inhabitants, then the Hungarian figures do not seem that far out after all. According to recent calculations, Australia collects its tax revenues from 125 different taxes.
The top taxes
When analysing tax types an important aspect to consider is how much they contribute to the central tax revenues. From this point of view, value added tax is by far the most significant tax which accounts for more than 25% of the central tax revenues. Some way behind VAT we find the social contribution tax (19.4%) and the personal income tax (13.5%).
It may seem surprising to some that the rather well known corporate income tax only accounts for slightly more than 3% of tax revenues. This is however a misleading comparison as in actual fact most of Hungary’s non-municipal taxes account for less than 1% of the central tax revenues. Considering this, the financial transaction tax is quite a significant kind of tax with its share exceeding 2%.
The not-so-important ones
Among the 60 taxes, several seem to be immeasurable from the perspective of the state budget. As an example, we have the 1,000 forint-per-month household work registration fee. On the basis of the statistics of the Central Statistical Office and the relevant budgetary act, it produced 26 million forints (around 84,000 euros) of tax revenues in 2014 and 29 million forints (around 94,000 euros) revenues in 2015. If we divide these figures by the yearly amount falling to each worker (which is 12,000 forints), we find that in average this tax was only paid with respect to 2.400 workers in 2015. This means that not only were the revenues small, but neither the policy goal of legalising income from such activities was reached. Even though administering this tax by the tax payers is very easy, one may assume that it costs the Hungarian Tax Authority quite a few million forints to collect and administer this tax. For these reasons keeping this tax going does not seem justified.
We get similar results if we take into account the cultural tax levied on pornographic content. From this tax the government earned 145 million forint (around 470,000 euros) in 2014 and all together 126.5 million (around 408,000 euros) in 2015. In contrast, pornographic services supplied from abroad through the internet were not subjected to this tax, whereas those looking for these kinds of services obviously used the internet primarily for this purpose. As such, there are few arguments in favour of keeping this tax.
Is this too much?
Although international comparisons are very useful, each country needs to set its benchmarks itself: how many taxes does it need in order to operate an efficient yet fair tax system which also recognizes the ability-to-pay principle. One should also carefully consider those policy goals which should be reached primarily through taxation.
In light of this, the 60 Hungarian taxes seem to be too much indeed; especially considering that most of these generate less than 1% of the tax revenues of the central budget. Not even mentioning those from which tax revenues are only in the range of millions of forints. One should therefore think through which taxes to keep and which ones to discard.