The decrease of the tax rate relating to the sale of residential property – the tool of social politics?

Abstract

The definition of value added tax treatment of real estate – primarily by applying a reduced tax rate to new residential properties – has been a recurring tax policy tool in Hungary in recent years. From 2010 onwards, an important tax policy objective was to increase the emphasis on consumption-type taxes over taxes on income, and to reform the complex and over-regulated tax and tax collection system, including the system of VAT payment and collection.
In the recent period, a significant part of the papers published concerning value added tax have been questions and interpretations related to the applicability of the 5% tax rate introduced for the sale of new residential properties. In this context, it should be pointed out that the regulation will continue to apply until the end of 2024 (or, under certain conditions, until the end of 2028) and that its extension for further years cannot be ruled out, taking into account trends in recent years.
In the present study, I analyze to what extent it is fair to determine the reduced tax rate for sectors that play a prominent role in the economy, such as residential real estate sales, and whether the reduction of the tax rate served or can serve social policy purposes, as is apparent from the statutory justification.