Hungary bridge blockade fails to derail small business tax rise

  • Parliament fast tracks overhaul of favourable tax regime
  • Orban's party defies protest, criticism of business groups
  • First major show of disquiet since Orban's re-election

BUDAPEST, July 12 (Reuters) - An hours-long blockade of a bridge in Budapest on Tuesday failed to derail the approval of a motion by Hungarian Prime Minister Viktor Orban's government to increase the tax rate for hundreds of thousands of small firms.

Protesters against the overhaul gathered at a main square outside parliament before marching to the nearby bridge over the River Danube, blocking traffic in both directions between the two sides of Budapest amid a heavy police presence.

Nationalist Orban is facing his toughest challenge yet since taking power in a 2010 landslide, with inflation at its highest in two decades, the forint plumbing record lows and European Union funds in limbo amid a dispute over democratic standards.

With the bridge blocked for several hours, choking off on one of Budapest's main traffic arteries, Orban's ruling Fidesz party comfortably passed the legislation in parliament, defying criticism from some business groups and opposition parties.

"This will endanger my livelihood, the livelihood of my entire family," said 52-year-old protester Katalin Karolyi, a medical worker who also has a small business advising a company on dietary issues.

The Hungarian Medical Chamber said the abrupt overhaul could jeopardise the seamless treatment of patients, calling on Orban's government to exempt medical workers from the new rules.

In the first major show of popular disquiet since Orban was re-elected in April, protesters temporarily blocked some lanes on another bridge further downstream, but police said that group dispersed and the number of demonstrators at the main blockade also waned.

Orban's government submitted the amendments to parliament on Monday, drastically tightening eligibility for the simplified tax regime, which many small businesses opted into due to the low administration and low tax rate it offered.

However, the government says the system was abused by some businesses forcing workers into the scheme to curb their own costs, facilitating a form of covert employment.

The new rules are set to take effect in September. The tax had been due to raise 237 billion forints ($572 million) this year. The opposition Jobbik party has called on Orban to withdraw the legislation.

Laszlo Zara, a tax adviser, said the changes affecting an estimated 400,000 to 500,000 small businesses could squeeze the overwhelming majority out of the revised scheme, with some 50,000 people remaining eligible.

"This is clearly a tax increase, any way you try to frame it, a very large tax increase," he said.

"This will be inflationary because (small businesses) will not be able to reach their previous income levels, forcing them to raise prices, also raising inflation."

($1 = 413.66 forints)

Reporting by Anita Komuves; Writing by Gergely Szakacs; Editing by Catherine Evans, Angus MacSwan, Mark Heinrich and Alison Williams

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