Analysts skeptical about economy minister's tax notions

Banking

Analysts voiced doubts regarding National Economy Minister György Matolcsy's suggested changes to Hungary's tax system in an article published on Thursday.

Matolcsy said in an article published in the weekly Heti Válasz that he is in favor of introducing a financial-transaction tax and five VAT rates. "Five VAT rates, of 5%, 15%, 20%, 25% and 30%, would be better, however, the Union does not yet allow [such VAT rates]", he wrote.

Market players and international organizations would like to see an economic package focusing on structural expenditure cuts, OTP Bank said in its daily research note on Thursday. Therefore a package based on VAT increases and introduction of a financial-transaction tax could trigger a negative reaction on the bond and forint markets, the bank said.

Takarékbank analyst Gergely Suppan said that the response to any measures depend on the their objective. If the aim is to increase budgetary revenue, the response would be negative. But if the aim is to increase budgetary efficiency, markets would likely receive the measures positively, he said.

Suppan said that the introduction of five VAT rates would be unnecessary, noting that the more rates there are, the greater the possibility there is to evade taxation.

Suppan agrees that consumption-based taxes entail the least market distortion, but he said VAT is already too high in Hungary, which encourages the black economy, boosts inflation thereby limiting the central bank's room to maneuver.

Hungary's main VAT rate was raised from 25% to 27% from the start of 2012.

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