Hungary Mulls Introduction Of Single VAT Rate

by Ulrika Lomas, Tax-News.com, Brussels

26 January 2005

Tax reforms designed to unify Hungary’s two-tier value added tax system, replacing it with a flat rate of 20%, could be in place by the end of the year, Finance Minister Tibor Draskovics has revealed.

"I believe a flat VAT rate of around 20 percent can be introduced, although we will have to think it over whether it is reasonable and when it could be launched," Draskovics stated, according to Reuters.

At present, most goods in Hungary are charged at the top rate of 25%, with the remainder of VAT-rated goods falling into the lower 15% bracket.

Tax reform has become a key issue for the Hungarian government of Prime Minister Ferenc Gyurcsany, which is facing an election in 2006, and the administration is keenly aware of tax cuts being made in neighbouring countries such as Slovakia, which has introduced a flat income tax to help attract investment.

However, Gyurcsany’s Socialist government is also keen to balance the need for tax reform with maintaining tax revenues and satisfying the demands of the government’s core working class vote.

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