Hungary: top EU VAT rate funds lowest Corp tax rate

Fri 18th Nov 2016

Hungary has proposed lowering its corporate tax rate to 9%, which would be the lowest in the European Union. This investment-attracting policy is partially funded by Hungary’s VAT rate of 27% – the highest in the EU.

The Hungary’s shift in tax – from companies to consumers – reflects a global trend. Countries need to attract global job-creating businesses with low tax rates, but have to shift the burden to consumption.

International companies are also much freer to shift their taxable profits, so legal tax avoidance can reduce corporate tax revenues. Whereas consumers have limited choice but to pay the tax on their spending. However, high VAT rates can lead to a different tax evasion problem: VAT fraud, including missing trader fraud.

More countries will follow the above trend. China has completed a wholesale VAT reform to facilitate a broader tax base, and India will launch a similar plan around GST next year.

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