Hungary to debate 35% luxury VAT rate this week

Thu 17th Oct 2013

Hungary is still considering introducing a super VAT rate of 35% on luxury goods, in time for the implementation of the 2014 budget.  Government officials have said that a decision will be taken this week.

EU only allows three VAT rates

The standard VAT rate in Hungary is 27% following a rise in 2012.  It is a common misconception that the 28 EU member states are only permitted to have a standard rate limited to 25% of below.  Instead, the European Commission (EC) only has the power to set the lowest level of the VAT standard rate, which is 15%.

The EC only permits two further, reduced rates.  Hungary’s reduced VAT rates are 18% and 5%.  It would therefore be in contravention of the EU VAT Directive to implement a higher rate above the standard rate.  Hungary is therefore looking at treating the tax as a levy, outside of the scope of EU VAT.  Again, it is doubtful this re-terming would satisfy the EU.

The Hungarian government of Premier Victor Orban has attempted to introduce this luxury goods tax on several occasions in the past two years.  Goods in target include expensive: cars, jewellery, yachts etc.