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PwC advisor gives thumbs up to small hikes in two VAT rates

PricewaterhouseCoopers tax partner Tamás Lőcsei called a move announced earlier on Tuesday to raise Hungary's mid and highest value added tax (VAT) rates by small amounts a much better idea than raising only the mid 15% rate by a larger amount. The announcement of the dual rate increase was made earlier by Finance Ministry State Secretary Tamás Katona, who said that instead of pushing up the 15% mid-rate, used mainly for groceries, to 20%, it would be increased to 17%, and the 20% rate, used for manufactured goods and other products, would go up to 23. This will increase the tax revenue and negate the need to raise employee healthcare contributions, Katona said. Lőcsei of PwC noted that the move was a good one and would do more to boost the economy than raising income taxes or employee contributions. "People have no choice but to pay when contributions and taxes on groceries are increased, but when the manufactured goods rate goes up, they can decide on how expensive a product they want to buy," he said. noted that in general the government could obtain higher revenues with indirect taxes on income, such as the VAT, rather than direct ones. Employee contributions and personal income taxes affect the business world and end up triggering extra expenditure, while taxes like the VAT are generally neutral, since most businesses can get them refunded, he said. (Bloomberg)