IMF warns Slovakia on VAT rate cut

The International Monetary Fund’s upcoming evaluation on the performance of the Slovakian economy has warned against a potential Slovakian VAT rate cut. This comes as the economy shows improvement from the slump of 2011, and it again meeting many of the Euro currency financial criteria.

Slovakia raised its VAT rate to 20% from 19% in 2011. At the time of the rise, the legislation included a clause requiring the adjustment to be reversed once the state deficit dipped below 3% of GDP. However, the IMF has warned that reducing the rate back to 19% would cost the country 0.3% GDP in tax take.

This 2011 rise mirrored neighbouring Czech Republic, which went onto raise its VAT rate to 21% at the start of 2013. The rises came at the height of the financial crisis as credit concerns spread to worries over indebted nations and collapsing tax revenues. Many countries resisted the option to raise corporate income tax during the turmoil, instead opting for more reliable, if less politically popular, consumer taxes.

As the economic picture has improved slightly, many countries have started to consider withdrawing these rises. Romania in particular, which took its VAT rate from 19% to 24% in 2010 has made a number of promises to reverse the hike.