Budapest, April 21 (MTI) – Hungary’s government aims to reduce the 27 percent general value-added tax rate in the long term, though “now is not the time” for a cut, Economy Minister Mihály Varga said in an interview in the fresh issue of business weekly Figyelő.
“It would be nice if the VAT rate could be reduced and the top rate brought to 25 percent or lower. This is in line with the cabinet’s long-term intentions, but now is not the time for this. There is opportunity for targeted steps,” Varga told the paper.
Hungary’s government recently announced plans to reduce from next year the VAT rate for milk eggs and poultry to 5 percent, while cutting the rates for catering and internet service to 18 percent.
Varga explained the decision to reduce the rate for catering citing the impact of Hungary’s strong tourism sector on catering. “Much of the fiscal revenue from tourism flows in through catering services. We believe that the lower tax will generate larger turnover,” he said.
Asked why the VAT rate for bread was not reduced, Varga said the broad selection of baked goods in Hungary posed a problem. “Where do we classify langos?” he asked, referring to a savoury donut popular among Hungarians.
Commenting on the government’s announced aim to bring the personal income tax rate into the single digits from 15 percent at present, Varga said he “very much hopes” that there will be an opportunity to cut the rate sooner than 2020. But he noted that every percentage point reduction in the PIT rate results in a 120 billion forint (EUR 387m) fall in budget revenue.
“We decided that it was more important now to ease the public burden with regard to staples. Not only in the interest of consumers, but because we can support the sector’s producers, too,” Varga said.
Next year’s budget targets additional revenue of about 600 billion forints from a government crackdown on tax evasion, he said. State debt as a percentage of GDP is set to fall to 74 percent by the end of 2017, he added.
Hungary’s state debt stood at 75.3 percent at the end of last year.
Varga said the government is still weighing the adoption of the euro “even if we don’t talk much about it”. “Poland and Hungary have no reason to rush, and I’m of the opinion that we don’t have to deal with this question in earnest until around the end of the decade at the earliest,” he added.
Speaking about the government’s aim to accelerate the absorption rate of European Union development monies in the 2014-2020 funding period, Varga said that the EU has objected to the 50 percent pre-financing Hungary is offering applicants, citing concerns over graft.
“I have faith in Hungarian SMEs, but to prevent such occurrences, we’ve introduced close monitoring that can quickly rout out abuse and mismanagement of money. Based on our experience, we could even propose to the government at a later date rolling back the payout system to the previous one,” he said.
Varga acknowledged that Hungary’s issue of a CNY 1 billion offshore yuan bond a week earlier was more a matter of economic policy than of refinancing a big chunk of debt.
“It was more important that we became the first to enter this market in central Europe. It’s not a problem that we’re diversifying our debt, and that we issue in other currencies beside dollars, euros and yen,” he said. “We gained good experience from our Chinese partners,” he added.