Hungary gives up plan to cut VAT on food - newspaper

Hungary's government has given up earlier plans to cut VAT on food, the national daily Népszabadság reported on Tuesday, citing government sources.

An earlier government resolution set the end of July, the date for preparing the main outlines of next year budget, as a deadline for a detailed proposal on the cut, including its effect on the budget and growth and the whitening of the food trade.

The Ministry of Regional Development prepared an impact study in the matter in April, but it has not yet been discussed by the cabinet. The National Economy Ministry is not supporting the measure because of its effects on budget financing, the paper reported.

Cutting VAT on all staple foods to 5% would result in a HUF 240 billion annual budget revenue shortfall, the ministry calculated in the April study. But this effect could have been to a large part offset if the measure halted the decrease in consumption and if the lower tax rate would prompt those operating in the grey or black economy to legalize their activities.

At present staple food carries either a preferential 18% or the standard 25% VAT rate.