The Great Tax Overhaul of Hungary

This Monday, Hungarian Prime Minister Péter Magyar made significant announcements on 6th October via video message regarding Hungary’s tax system. The government, which won the parliamentary elections in April with a landslide, is targeting three milestones in its four-year agenda: a more equitable tax burden, cutting state squandering inherited from the former Orbán government, and reducing the budget deficit.

The Prime Minister pointed out that the tax on the minimum wage will be reduced to 9 percent. Every taxpayer earning less than 680,000 HUF (approx. €1,870) gross per month will see their taxes reduced (this affects approximately 2.5 million people, including healthcare workers). Furthermore, the 5 percent VAT rate will continue to be available to buyers of new homes.

With the wealth tax, the government is introducing a new type of taxation. This will affect the 15,000 wealthiest individuals and approximately 2,000 asset management entities, with the government expecting it to generate 200 billion forints in revenue annually. A 1 percent tax rate will be imposed on annual net private wealth exceeding 1 billion HUF (€2,750,000), while a 1.5 percent tax rate will be applied to wealth exceeding 100 billion HUF (€275,563,000).

The advertising tax imposes a burden on a sector that was previously tax-exempt. Media companies generating revenue from the advertising market and the social media platforms of major tech companies will be subject to an annual tax rate of 3.75 percent.

TAO, the former opaque funding system for Hungarian sports, is being abolished; instead, the government is converting this funding into direct and transparent subsidies totaling 150 billion forints per year. TAO was a form of tax that very characteristic of the Orbán era. The profitable companies used to allocate as much as 80 percent of their corporate tax not to the state but certain sport clubs and institutions.

In addition, the government is once again making the KATA tax regime available to second-job holders, retirees, and students running a business alongside their university studies. The KATA tax system was initially introduced by the first Orbán-government to help small or micro entrepeneurs by reducing administrative and bureaucratic burden. This tax system was commonly used by freelancer creative professionals, artists. Later this tax category was abolished in the later years of the Orban-era.

Through these reforms, Péter Magyar’s government aims to create greater social equity and a more unified tax system. The new tax categories and rules will take effect on January 1, 2027. We will have to wait at least another year to see the results of these reform efforts.