Legal framework
Local business tax (HIPA), as one of the most important sources of revenue of local governments, plays a significant role in the operation of settlements. HIPA was introduced by Act C of 1990 on local taxes, with the purpose of providing financial independence for local governments, so their revenues may be used for settlement development.
Local business tax revenues shall be primarily used for local public transportation purposes, the remaining amount for financing social duties falling within the competence of the local council and for other settlement development projects.
HIPA is paid by enterprises that have their headquarters or local units in the given settlement, performing regular economic activities there. The tax is net sales revenue based, however certain expenses – e.g. cost of goods sold, material cost or fees paid for subcontractors – may be deducted. The tax rate is 0-2% of the rateable value, the exact rate is decided independently by the local government.
In case the entrepreneur performs business tax related activity in different settlements, the rateable value must be divided between these settlements, and the sums obtained in this way will be subjected individually to the tax rate of the settlement it pertains to. This division of the local business tax between the headquarter and local units may be performed generally speaking in proportion with personnel costs, based on the value of tangible assets used in the enterprise’s activity, or – especially in the case of large, over 100 million HUF business taxes – the combination of these. The division is calculated in special ways at enterprises performing certain activities, such as energy supplier companies, construction enterprises, telecommunication or air passenger transport businesses.
Methodology
The Lorenz curve is a quadrat shaped figure produced in a rectangular coordinate system, where the horizontal axis shows the cumulative relative frequencies, the vertical axis the cumulative relative sum of values. The diagonal represents the equal distribution, the total lack of concentration. The farther down the Lorenz curve is from the diagonal, the more concentrated the issue under observation is in relative terms.
The Gini index (concentration coefficient) is measuring the revenue (or asset) inequality within a given territory (usually a country). Its value falls between 0 and 1, 0 stands for equal distribution, 1 for the complete concentration. Its exact value may be quantified based on the Lorenz curve, it is the ratio of the area between the Lorenz curve and the equal distribution representing diagonal (45O) compared to the area of the triangle below the diagonal.
The index number measuring both absolute and relative concentration is the Herfindahl–Hirschman-index, one of the most frequently used concentration indices, the square sum of relative value. It is measured between 1/n and 1, where the value of 1/n stands for equal distribution of the value sum, meaning lack of relative concentration, 1 is for absolute concentration. HHI=Ʃ(Xi/ ƩXi)²
Maps
The study displays, beside traditional territorial scale maps so-called topological maps, too.
Topological maps are special thematic maps where original topological basic elements are preserved, meaning the originally neighbouring territorial units continue to be shown as neighbouring, the size of the territorial units, however, is proportional to the socio-economic volume (HIPA revenue in present study) to be displayed.
Sectoral distribution estimate of local business tax revenue
The rateable value for HIPA – based on available HCSO data – was determined by considering net sales revenue, material costs, cost of goods sold, research and development expenses, subcontractors’ performance.
Based on the resulting rateable value by sector – by divisions in the case of manufacturing - the sectoral distribution of the estimated HIPA revenue is identical to the sectoral distribution of the estimated HIPA rateable value when a uniform HIPA rate is applied.
At the same time the estimation of the HIPA rateable value may be distorted, among others, by the fact that we did not have quantifiable data on individual allowances used by companies, as well as on calculation methods (e.g. simplified rateable value determinations) applicable in certain sectors (and de facto applied as a matter of fact). Besides, in case of sectoral aggregated data the deductible limitations of the cost of goods sold could not be reckoned with.
Data sources
HIPA data on settlement and Budapest district level has been received from the Hungarian State Treasury. These data are available on the HCSO dissemination database. The HCSO is the source of all other data in the publication.
Footnote
Legal framework
Local business tax (HIPA), as one of the most important sources of revenue of local governments, plays a significant role in the operation of settlements. HIPA was introduced by Act C of 1990 on local taxes, with the purpose of providing financial independence for local governments, so their revenues may be used for settlement development.
Local business tax revenues shall be primarily used for local public transportation purposes, the remaining amount for financing social duties falling within the competence of the local council and for other settlement development projects.
HIPA is paid by enterprises that have their headquarters or local units in the given settlement, performing regular economic activities there. The tax is net sales revenue based, however certain expenses – e.g. cost of goods sold, material cost or fees paid for subcontractors – may be deducted. The tax rate is 0-2% of the rateable value, the exact rate is decided independently by the local government.
In case the entrepreneur performs business tax related activity in different settlements, the rateable value must be divided between these settlements, and the sums obtained in this way will be subjected individually to the tax rate of the settlement it pertains to. This division of the local business tax between the headquarter and local units may be performed generally speaking in proportion with personnel costs, based on the value of tangible assets used in the enterprise’s activity, or – especially in the case of large, over 100 million HUF business taxes – the combination of these. The division is calculated in special ways at enterprises performing certain activities, such as energy supplier companies, construction enterprises, telecommunication or air passenger transport businesses.
Methodology
The Lorenz curve is a quadrat shaped figure produced in a rectangular coordinate system, where the horizontal axis shows the cumulative relative frequencies, the vertical axis the cumulative relative sum of values. The diagonal represents the equal distribution, the total lack of concentration. The farther down the Lorenz curve is from the diagonal, the more concentrated the issue under observation is in relative terms.
The Gini index (concentration coefficient) is measuring the revenue (or asset) inequality within a given territory (usually a country). Its value falls between 0 and 1, 0 stands for equal distribution, 1 for the complete concentration. Its exact value may be quantified based on the Lorenz curve, it is the ratio of the area between the Lorenz curve and the equal distribution representing diagonal (45O) compared to the area of the triangle below the diagonal.
The index number measuring both absolute and relative concentration is the Herfindahl–Hirschman-index, one of the most frequently used concentration indices, the square sum of relative value. It is measured between 1/n and 1, where the value of 1/n stands for equal distribution of the value sum, meaning lack of relative concentration, 1 is for absolute concentration. HHI=Ʃ(Xi/ ƩXi)²
Maps
The study displays, beside traditional territorial scale maps so-called topological maps, too.
Topological maps are special thematic maps where original topological basic elements are preserved, meaning the originally neighbouring territorial units continue to be shown as neighbouring, the size of the territorial units, however, is proportional to the socio-economic volume (HIPA revenue in present study) to be displayed.
Sectoral distribution estimate of local business tax revenue
The rateable value for HIPA – based on available HCSO data – was determined by considering net sales revenue, material costs, cost of goods sold, research and development expenses, subcontractors’ performance.
Based on the resulting rateable value by sector – by divisions in the case of manufacturing - the sectoral distribution of the estimated HIPA revenue is identical to the sectoral distribution of the estimated HIPA rateable value when a uniform HIPA rate is applied.
At the same time the estimation of the HIPA rateable value may be distorted, among others, by the fact that we did not have quantifiable data on individual allowances used by companies, as well as on calculation methods (e.g. simplified rateable value determinations) applicable in certain sectors (and de facto applied as a matter of fact). Besides, in case of sectoral aggregated data the deductible limitations of the cost of goods sold could not be reckoned with.
Data sources
HIPA data on settlement and Budapest district level has been received from the Hungarian State Treasury. These data are available on the HCSO dissemination database. The HCSO is the source of all other data in the publication.
Footnote