In Hungary, as in the other member states of the European Union (EU), VAT is levied according to the value added tax (VAT) principle. VAT is a taxation principle that is found worldwide. VAT or similar taxes currently exist in around 150 countries. VAT revenues in the EU member states thus accounted for 21.4% of all tax revenues. VAT is the most important source of revenue for many state budgets. It has taken the top spot in tax revenues, ahead of wage tax alone. In view of the fiscal importance of VAT, measures aimed at securing VAT revenue are politically very welcome.
The state largely relies on companies to collect taxes. VAT is an indirect tax that is intended to burden final consumption, but is levied on companies by means of self-declaration. Companies act as tax collectors on behalf of the state and in the interest of the state treasury. They must report the start and change of their business activities without being asked to do so, submit VAT returns regularly and pay the tax owed to the tax authorities. In addition, they must keep books and records for the purposes of auditing by the tax authorities. This makes VAT a source of income for the state with little bureaucracy; for companies, however, which have to correctly account for their VAT in accordance with often complicated regulations, VAT is associated with a great deal of bureaucracy, burdened with the possibility of drastic sanctions if the VAT requirements are not met exactly.
Even in times of recession, VAT is considered a modern financing instrument for the state. Apart from participation in the collection process, VAT is not intended to burden companies, but rather final consumption. Compared to corporate profits, private final consumption is relatively stable. The country of destination principle is usually applied in cross-border trade between companies. Imports are therefore typically subject to VAT, whereas exports are exempt from VAT; this also applies to shipments within the EU. The more a country finances itself through VAT, the more it strengthens its own exports compared to the domestic and import markets. At least in the EU there has been a long-standing trend to increase VAT rates in favor of income and corporate tax cuts. This trend is likely to continue in view of the demographic shift in the age pyramid.