BUSINESS IN SHORT

Parliament approves VAT hike

THE BASIC VAT rate will increase to 20 percent in Slovakia as of January 1, 2011, and the reduced VAT rate of 6 percent on foodstuffs sold directly from farms will be eliminated and such products henceforth taxed at the full rate.

THE BASIC VAT rate will increase to 20 percent in Slovakia as of January 1, 2011, and the reduced VAT rate of 6 percent on foodstuffs sold directly from farms will be eliminated and such products henceforth taxed at the full rate.

Slovakia’s parliament approved the legislation proposed by the Finance Ministry as a temporary measure which will end when the government’s deficit is reduced to below 3 percent of GDP, the SITA newswire reported.

Tax revenue to the state should rise by €185.5 million in 2011 because of the higher VAT rate. The Finance Ministry also expects the measure to bring an additional €196 million in 2012 and €209 million in 2013.

Prime Minister Iveta Radičová called the temporary VAT increase “Fico’s tax”. Her predecessor and the leader of the opposition Smer party, Robert Fico, called the measure the worst right-wing solution and charged that the coalition parties have reneged on their election promises not to raise taxes.

Economic analysts have said that increasing VAT by 1 percentage point could lead to higher prices of some goods and services but that many people will barely feel the hike which is expected to increase overall price levels by 0.5 to 0.8 percent.

The Finance Ministry also agreed that the VAT increase may cause prices to rise, saying its estimate of inflation for 2011 is now 0.7 percentage point more than its original projection as a result of forecast higher energy prices and the impact of government budget consolidation measures.


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