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Differences over the compensation businesses should get for a big minimum wage rise moved closer to resolution at talks between employers, unions and the government on Wednesday, while the government offered to cut the rate on the small business tax (KIVA) from 11 percent to 10 percent, the Innovation and Technology Ministry said.

“Although some differences of opinion remain with regard to the scale of compensation for wage increases, the sides have moved substantially closer,” the ministry said.

Innovation and Technology Minister László Palkovics said the government is prepared to cut the KIVA rate to 10 percent if employers and unions can come to an understanding. He added that tax cuts the government has proposed until now would save businesses over 660 billion forints (EUR 1.8bn) a year, savings companies could plough back into pay rises.

Minimum Wage to be Raised to 200,000 Forints Next Year
Minimum Wage to be Raised to 200,000 Forints Next Year

However, at the first round of talks, the social prtners did not agree on the minimum wage for skilled labourers.Continue reading

The government earlier offered to cut the payroll tax from 15.5 percent to 11.5 percent to compensate for a more than 19 percent increase in the minimum wage from the start of next year.

The ministry said the one-percentage-point reduction in the KIVA rate would save businesses about 13 billion forints.

Businesses that opt for KIVA pay a fixed tax rate on a tax base of payroll expenditures plus dividends and capital transfers. KIVA businesses are exempt from the payroll tax, training tax and corporate tax. KIVA eligibility is limited to companies with annual revenue up to 3 billion forints and headcount up to 50.

The ministry said a proposal by the Hungarian Chamber of Commerce and Industry (MKIK) to extend local business tax relief for SMEs into 2022 “remains on the agenda”.

Orbán Announces Huge Minimum Wage Increase, but Still Among Lowest in EU
Orbán Announces Huge Minimum Wage Increase, but Still Among Lowest in EU

If the government were to raise the current gross monthly minimum wage to HUF 200,000 in just one step, it would mean a more than 19% percent increase.Continue reading

As part of coronavirus crisis relief, the central government halved the local business tax in 2021 for companies with annual turnover of under 4 billion forints and fewer than 250 people on payroll. The central government automatically compensated settlements with fewer than 25,000 residents for revenue loss because of the measure, while compensation for larger cities was weighed on a case-by-case basis.

Featured photo illustration by Zoltán Balogh/MTI