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European Vat rises as Government Debt Balloons

A fresh wave of European VAT increases kick in this month as governments try to bring under control colossal deficits and reassure worried financial markets. The average European VAT rate will have risen from 19% in 2009 to almost 21% by the end of this year.

European states face panicked markets

As the extent of the massive government debt mountains become clear, with many European countries having pumped billions into wobbling banks, the day of reckoning is coming. Spooked government bond markets are putting intense pressure on the most heavily indebted nations to bring forward austerity packages.

EU average vat rate rise dramatically

As an easy and cheap-to-administer tax for the state, VAT has proved the most popular fiscal remedy. EU states have been racing to raise their levies as a very public demonstration to lenders of their commitment to bring down deficits. Recent increases include:

- Greece: increased VAT twice in as many months to 23%

- Portugal: raised VAT 1% to 21%

- Spain: a 2% rise took the rate to 18%

- Hungary: increased VAT by 5% to 25%

- Czech Republic: pushed through a 1% rise to 20%

- Finland: raised its rate 1% to 23%

- Romania: moved VAT up by 5% to 24%

- UK: plans to increase VAT by 2.5% to 20%

This now takes the average VAT rate of the European Union member states from 19% less than two years ago to almost 21%

Richard Asquith, MD of TMF VAT & IPT Services commented:

"VAT rises were always going to be the first option for hard-pressed European countries. The recent turmoil in the money markets has probably brought forward rises into the first half of 2010. There are hidden benefits to these increases - governments will be able to subsidise cuts in business tax to help fight off competition for job-creating industries from the low-tax economies to the East.

SOURCE: TMF VAT & IPT Services