If VAT cuts are good for the goose, aren’t they good for the gander?

Hungary’s Poultry Product Council (BTT) is making a push to reduce the VAT rate on poultry products in order to clamp down on what is said to be a large black market in baromfi. According to BTT President László Bárány, an estimated 15% of domestic poultry sales are done under the table, leading to the loss of an annual Ft 11 billion-Ft 12 billion in unpaid VAT, and putting legitimate poultry producers at a disadvantage. Bárány – whose name, by the way, means “sheep” – says that the current 25% VAT on basic poultry products should be gradually reduced to 8-12% within two or three years to whiten up the industry. What’s interesting about this is that the BTT seems to think there’s something special about the challenges facing the poultry industry, whereas in reality pretty much every sector in Hungary faces the same issue with the country’s sky-high VAT rate.

That said, if the BTT is successful in making its case, it could get the ball rolling for a general cut in the basic VAT rate, and all the distortion and growth-causing damage it cases. Unfortunately, given the state of Hungary’s public finances, it’s hard to imagine the government cutting the rate much, even though this would eventually lead to faster growth and a higher rate of VAT compliance (and possibly even more VAT receipts). You might even say it’s a classic “chicken and egg problem.” [piacesprofit.hu]