Hungarian Prime Minister Mulling VAT Hike

by Ulrika Lomas, Tax-News.com, Brussels

29 January 2009

Hungarian Prime Minister Ferenc Gyurscany has indicated that value-added tax may have to rise to make room for tax cuts for the corporate sector, including the much discussed reduction in employment tax.

Gyurscany’s Socialist party has warned that Hungary could face a shortfall of up to HUF200bn (USD915m) this year, explaining that cuts in government expenditure and the newly proposed VAT hike would have to fund future tax cuts.

It is believed that a 1% hike in VAT would generate the government an extra HUF100bn (USD457m) a year, although some reports have suggested that the government is considering increasing the rate of VAT by as much as 5%.

Currently the standard rate of VAT in Hungary stands at 20%, while essential goods like medicines and books are taxed at a reduced rate of 5%.

The government has long been keen on cutting payroll tax but has had to shelve the idea several times in the face of tight budgetary constraints. Gyurscany is also contemplating the elimination of the so-called solidarity tax, a surtax which is levied at 4% on corporations and wealthy individuals.

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