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Hungary raises VAT tax to highest in Europe

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(BUDAPEST) - The Hungarian parliament passed Tuesday a law hiking the VAT sales tax to the highest level in the European Union and raised the levy on small businesses, the government news agency MTI announced.

As part of the new tax bill, the value-added tax (VAT) will increase to 27 percent from a previous 25 percent, making it the highest in the EU.

A levy on small businesses will jump to 37 percent of net revenues -- up to a maximum 30 million forints (98,000 euros, $132,000) per year -- from 30 percent.

The bill, which breezed through a parliament controlled by the ruling Fidesz party with 232 votes in favour and just 72 against, also includes a new 30 percent tax on third-party insurance premiums for drivers.

The tax package comes as Hungary has had to seek outside help to overcome its economic troubles.

Already bailed out in 2008 with 20 billion euros ($27 billion) from the International Monetary Fund, the World Bank and the European Union, Budapest had to again request financial assistance from the IMF and EU in the past week.

Government measures to fill budget holes, such as the nationalisation of private pension funds and exceptional taxes on banks and various sectors like telecommunications, have angered partners and made investors wary.

The main credit rating agencies, which have placed Hungary just one notch above junk bond status, have also worried over the lack of far-reaching reforms.

While the country teeters on the edge of a downgrade of its debt rating, the Hungarian currency, the forint, has also dropped significantly in recent weeks.

The government is due to approve a new budget early next week, based on a deficit of 2.8 percent of gross domestic product in 2012.

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