The Government reached a compromise with the National Interest Council yesterday to raise the middle rate of the value added tax (VAT) by 2 points to 17% and the upper rate by 3 points to 23% from this autumn, instead of lifting the middle rate only to 20%, undersecretary at the Finance Ministry Tamás Katona announced according to business daily Napi Gazdasag.
The VAT compromise is expected to generate HUF 30bn extra revenues for the budget, but in return the National Interest Council asked for not raising the employer’s social contribution burden which will take out money from the Government’s pocket.
We see the news as neutral for the budget, but we would like to point out that the increased VAT brackets will put upward pressure on inflation, and since the Government has decreased the upper 25% rate to 20% this January, the current increase to 23% lowers their credibility.