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The top rate of VAT is to be reduced from 25% to 20% from the beginning of next year. The government says that consumer prices of goods in the top VAT bracket will fall by 4% as a result of the move, giving consumers HUF 166 million in extra spending power next year. Gyurcsany noted, however, that alcohol, tobacco products and cars will not be cheaper, as the decline in VAT will be offset by a rise in excise taxes. The 16% corporate tax, among the lowest in the region, is set to stay. A 10% corporate tax rate will, however, be introduced on the first HUF 5 million of taxable income providing certain conditions are met, such as employing workers at at least twice the minimum wage. This measure, aimed primarily at small businesses, will save companies HUF 13 billion, says the government. Local business tax, currently at 2% of revenues, is to be phased out in two stages by 2008. The first stage, which will come into effect in January 2006, will allow companies to deduct 100% of local business tax from their corporate tax base, up from 50% this year. According to government figures, this will save companies HUF 18 billion. The second phase will see a complete end to local business tax from 2008, saving companies a further HUF 145 billion, says the government. Local business tax will, however, be replaced by other local taxes levied by municipalities, which will recoup sums equal to a current 1% business tax, while the central government will refund local governments the other 1%.
