Hungarian Small Business Tax and Possibilities to Minimize Distortions from Capital Income Taxation

Benedek Nobilis and András Svraka

Society and Economy, 2015, vol. 37, issue supplement, 87-105

Abstract: Governments throughout the EU and OECD countries rely on revenues raised on capital income. Albeit several arguments can be made for keeping these taxes, in their widespread form they hinder capital accumulation and significantly lower potential growth due to their savings and investment distorting nature. At the same time, the actual economic impact of tax types is largely influenced by their structure. An elegant method, which is also simple in its concept, for eliminating the economic distortions of profit taxes is cash-flow taxation which moves income taxes closer to the more growth-friendly value-added taxes. The small business tax, which was introduced in Hungary in 2013, was designed along these principles. In this paper we review the theoretical literature on cash-flow taxation and discuss the main regulatory elements of the small business tax, as well as the solutions elaborated for working out the challenges related to its implementation.

Keywords: corporate taxation; cash-flow taxation; small businesses; tax design (search for similar items in EconPapers)
JEL-codes: H25 H32 K34 (search for similar items in EconPapers)
Date: 2015
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