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Government to cut VAT on internet services, despite EU request to wait

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The Hungarian government is planning to lower the VAT rate on internet services from January, despite an EU commissionerʼs request for Hungary to postpone the reduction, according to a report today by business daily Világgazdaság, citing government sources.

Citing the secretariat responsible for the Digital Welfare Program, which is charged with aiding the countryʼs technological and digital development, the paper said the government will most probably reduce the VAT rate on internet services from 27% to 18%, as approved by the Hungarian Parliament in early June. The secretariat reportedly gave no further details. 

EU Commissioner for Economic and Financial Affairs Pierre Moscovici asked the Hungarian government to postpone a reduction of VAT on the provision of internet connections, in a letter sent to Economy Minister Mihály Varga, state secretary Bence Tuzson told a press conference on July 19.

Moscovici wrote that he supported the governmentʼs intention to foster digitalization, but said current EU rules do not allow the Hungarian government to reduce the VAT on internet subscriptions. He added that the European Commission aims to change the related directive and introduce more flexible regulations, but these changes will materialize later than expected, hence the request to delay the reduction.

Tuzson said in July that Hungary will fight further for the VAT reduction to take place as planned from the start of 2017. Tamás Deutsch, the Prime Ministerʼs commissioner in charge of the internet, added that Hungary has well-founded arguments for the introduction of the reduced VAT rate as planned. He said he was confident the Hungarian government would be able to convince Brussels at further talks on the matter.

The Commission said that internet subscriptions are not listed among the products and services permitted to have a preferential VAT rate in a supplement to the EUʼs VAT directive, Deutsch noted. Tuzson added that the EUʼs sanction for ignoring the request could be an infringement procedure. 

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