The Directive also allows Member States to introduce up to two reduced VAT rates. Such reduced rates may only be applied to categories of goods and services specified by the Directive and must generally, with a few exceptions, be set at a minimum rate of 5%. In 2022, the VAT Directive underwent a significant reform, expanding the range of goods and services eligible for reduced rates and providing greater flexibility to Member States. However, the reform did not introduce any general obligation to apply reduced VAT rates.
In line with these EU requirements, Hungary currently applies a standard VAT rate of 27%, which is among the highest standard VAT rates in the European Union. In addition, the Hungarian VAT Act provides for two reduced VAT rates of 18% and 5%. The purpose of reduced VAT rates is to stimulate consumption, support specific sectors of the economy and help moderate consumer prices.
The 5% reduced VAT rate applies, among others, to medicinal products for human use, certain medical and specialised nutritional products, books, journals and other printed publications, internet access services, public heating services, as well as certain live animals and fish. The 18% VAT rate applies, among others, to milk and dairy products and to certain products made from cereals, flour, starch or milk. Making use of the options available under EU law, Hungarian VAT legislation also applies a 0% VAT rate in an exceptionally limited scope. Currently, only one product category falls within this regime: newspapers published at least four times per week.
The tax policy program announced by the new Government in Hungary may bring a significant change in this area. According to current plans, one of the first measures would be to reduce the VAT rate applicable to fruit and vegetables from 27% to 5%. Based on available estimates, the measure could result in approximately HUF 150 billion in annual budget revenue losses, while at the same time contributing to lower food prices. The proposal is driven by the substantial increase in fruit and vegetable prices in Hungary in recent years and reflects an intention to reduce the financial burden on consumers through targeted VAT relief.