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Hungary's VAT, excise taxes to increase on July 1

Hungary's VAT will rise to 25% from 20% on July 1, while the excise tax on fuel, alcoholic beverages and cigarettes will also increase on this date.

VAT on staples such as bread, grain, flour, milk and other dairy products will drop, however, from 20% to 18% as of July 1. The VAT on district heating will be increased to 25% on July 1, though reduced to 18%, pending approval from the European Commission, from August 1 the earliest.

The excise tax on alcoholic beverages will be raised by 6%-7%, while that on cigarettes will increase by HUF 140 per 1,000 cigarettes. András Patai of the Hungarian tobacco industry alliance said that the VAT and excise-tax hikes will result in a HUF 37 increase in the cost of a pack of cigarettes currently costing HUF 550.

An increase in excise tax on fuel and the 5 percentage-point VAT rise will result in a HUF 18-HUF 19 rise in the average retail price of fuel at the pump from the current HUF 267 per liter of diesel and HUF 290 per 95-octane petrol. MOL President-CEO Zsolt Hernádi told MTI earlier that MOL will built the July 1 tax increases fully into fuel prices.

Chief Researcher Márton Szabó of the market-research institute Kopint-Tárki said the rise in VAT would increase retail food prices by 3.5% annually but he expects the rise to be only 1% given the recession. He said the overall rise in food prices is expected to slow further, to 6% this year from 10.2% in 2008 and 11.5% in 2007.

The VAT increase will raise the cost of compensation for damages for insurance but they will rather reduce their profit than raise insurance premiums, industry players said citing the situation on the market. (MTI – Econews)