Country Rankings - Hungary
May 30, 2017 Hungary: selectiveHungary thinks it will get away with its amended revenue-based advertising tax because the tax threshold is low enough to effectively fly under the European Union's state aid radar. Except that the Hungarian ad tax has been flashing brightly on the European Commission's scope since it was introduced in 2014, and the two parties have already had run-ins over the measure. What's more, said threshold, at HUF100m, which at the time of writing converts to approximately EUR325,000, is surely too high, considering that the EU deems state aid of more than EUR200,000 per year to any one recipient to be illegal and therefore recoverable. It wouldn't be so bad if this was a one-off. But Hungary's rap sheet in this respect is by no means a short one. The Government has targeted financial services, tobacco companies, and telecommunications providers with special – and likely illegal as far as the EU is concerned – taxes. Indeed, in 2013, the Commission warned in an Occasional Paper that sectoral taxes had caused policy uncertainty and "contributed to historically low investment and productivity growth rates." Hungary is in better shape fiscally and economically than it was four years ago, but the Government appears fixated with special taxes. And it was only when the public revolted against a proposed internet tax in 2014, in the process nearly bringing down the ruling Fidesz Party, that the proposal was withdrawn. While businesses cannot protest against punitive taxes by taking to the streets en masse in the era of globalization they arguably have an more effective weapon: they can vote with their feet and invest elsewhere. Admittedly, the attractions of a nine percent corporate tax now make such a decision more difficult, and some taxpayers may consider sectoral tax risks a price worth paying for this.
Nov 24, 2016 Hungary: hungryThey say that a week is a long time in politics. It certainly seems to be in Hungary. We have gone from Prime Minister Viktor Orban telling us, on November 10, that he was in favor of cutting corporate tax here and there over the next few years, to Economy Minister Varga announcing, on the 17, a tax cut that will see Hungary out-compete even some traditional low-tax and offshore jurisdictions on corporate tax, with a proposed flat rate of just nine percent. Brave? Certainly. The measure, if introduced, is bound to provoke the wrath of certain European governments, who will cry "unfair tax competition" and accuse Eastern European states of using development funding from Western Europe as a subsidy for low rates of corporate tax. Again — and you can imagine the reaction to the proposal in Brussels — It almost goes without saying that this will be seen by the EU as contradictory to everything that it is trying to achieve with its tax transparency and BEPS agendas. However, on closer inspection, perhaps the move isn't quite as bold as it first appears. Companies in Hungary already pay just 10 percent tax on the first HUF500m (USD1.7m) of their income, so moving a relative handful of large companies on to a flat nine percent rate might not make a huge difference. Indeed, this measure is projected to cost the Hungarian Government around USD500m, which sounds quite low in the context of a 10 percent tax cut. Still, it's a very aggressive move, and while there is little the EU can do about it legally, assuming the cut does go ahead, I'm sure Hungary will be reminded of its duty to discourage profit shifting by the EU on a regular basis. At least one part of the EU might not be that bothered though. For Ireland, this development might mean that people stop going on about Irish corporate tax for a while. Hungary's tax cut announcement was certainly one of the more eye-catching international tax developments of recent days. But then we shouldn't be that surprised by anything anymore should we?
Sep 22, 2015 Hungary: expedientIt's certainly getting harder for the world to ignore the mass migration of persecuted and war-weary people into Europe. And I can understand the frustrations of the countries bearing the brunt of the migrant crisis in Europe, when there are several larger and considerably better off nations that seem to be turning a blind eye to it all. But I sincerely hope the countries on the front line aren't using the emergency as an excuse to dream up new taxes. Unfortunately, that seems to be the case. Hungary's Government, which is certainly creative when it comes to finding new sources of revenue, has said that the influx of refugees into the country (the majority of whom are trying to reach Germany) has cost it over EUR109m (USD124m) so far, and a budget "adjustment" – aka, a tax hike – will have to be made sooner or later to cover the costs of policing and security. I suppose Hungary does have some justification to raise taxes. Surely the same can't be said of Finland, which is hardly on the front line of all this (Finland has agreed to take two percent of the 120,000 refugees to be relocated across the EU). Nevertheless, the Finnish Government has announced proposals to hike income tax and introduce a "solidarity tax" (aka "the government is broke tax") to help cover costs associated with housing asylum seekers. What really needs to happen is for these governments to cut spending elsewhere, but it's a lot easier and politically expedient just to invent a "temporary" crisis tax when the going gets tough. I'm aware that this is a very sensitive issue, and emotions are running high in certain parts of Europe right now. But this calls for a collective solution from the world's richest nations, and one that goes beyond the blunt instrument of national tax hikes.
Jan 22, 2015 Hungary: sillyThe award for silliest tax so far in 2015 must surely go to Hungary, and it's going to take some beating I think. Most countries now provide tax incentives in one form or another to the renewable energy industry, while simultaneously increasing or creating new taxes on the use of fossil fuels. Yes, the jury is still out as to what the perfect environmental tax policy should be to reduce emissions of greenhouse gas, or, indeed, whether taxes work at all. But it's still an eminently sensible policy you might think, when you're trying to save the world. Hungary thinks rather differently, and in its wisdom has slapped an environmental levy on solar panels. This is because, says the Government, solar cells contain hazardous materials and are therefore difficult to dispose of at the end of their lives. The solar industry counters that panels are actually recyclable, and in any case, have very long lives, in the order of 40 years. This move says more about Hungary's desperation to tax anything it can get away with, in view of its fragile fiscal situation, than it does about its ministers' apparent lack of common sense. I refer you to the equally daft attempt last year to tax internet usage, which was quickly slapped down by the EU and brought Hungarians out on to the streets in protest. An environmentally-unfriendly solar panel indeed. I think I've heard it all now.
Oct 30, 2014 Hungary: misguidedSurveying this week's news output, I'm struggling to find any real positives for taxpayers. I was going to try and give a qualified encomium to Hungary after Minister of National Economy, Mihály Varga, reaffirmed the Government's commitment to implementing a flat rate of corporate income tax and to shifting the burden of taxation away from income and onto consumption, which is generally agreed to be a more growth-friendly way to raise taxation. But I decided not to because the qualification probably outweighs the good news. In addition to restating the Government's long-term tax goals, Varga said that it intends to expand the range of "sectoral" taxes that Hungary is using as part of its "economic stabilization" plan, including an extension of the special tax on telecommunications to include the internet. With the advertising industry already up in arms about a special progressive tax on turnover up to a steep 40 percent, and the special bank and retail taxes having attracted the legal eagles of the European Commission, it is fairly obvious that the internet tax, whatever form it takes, will be challenged too, fueling uncertainty about future tax policy. Lower income taxes are a nice idea. But I've seen too many Governments have nice ideas, only for them to turn nasty when the ambition doesn't quite match the reality. Perhaps it would have been better to keep aspirations more in line with present fiscal conditions.
Jun 12, 2014 Hungary: loses itA tax on advertising is possibly an even more egregious offense against free trade principles than are anti-dumping duties. I thought that such dippy ideas had been junked along with Gosplan and the Marxist-Leninist Millennium, but I was wrong, because here it is, surfacing again in the EU's equivalent of a Marx Brothers comedy, that's to say, the Hungarian Government. They are seriously considering a tax on the revenue of media organizations of up to 40 percent. I really don't know where to begin with this one. Presumably there is some undercurrent of moral disapprobation going on: that was certainly the case in the USSR, where advertising was seen as as a reprehensible feature of capitalism, and taxing it was therefore a virtuous expression of good Communist principles. But Hungary isn't Communist. It teeters on the edge of becoming a dictatorship, and seems to have some fairly nasty fascist leanings, neither of which appear fitting for a Member State of the EU; but its economy is ruggedly capitalist. So what is the logic of trying to destroy the ability of companies to communicate with their customers? Especially perverse is the idea of taxing media companies more if they are more successful. Anyway, the results of this foolish proposal are easily predictable: first, all media companies will leave immediately and conduct their business in Hungary from outside the country. There is nothing the Hungarian authorities can do about this, within the single market. Second, advertising agencies will follow the media companies and will do business with them elsewhere. Those Hungarian media companies that cannot physically move – a newspaper with a printing plant in Budapest, say – will set up advertising sales subsidiaries outside the country and will offer space at knock-down prices to those subsidiaries in order to minimize the amount of in-country advertising revenue. And so on. You can work it out for yourself. There will be minimal revenue from the tax and very high enforcement costs. And all that is if the EU even permits the proposal in the first place, which is unlikely. What is wrong with these people?
Jun 27, 2013 Hungary: still hungryHungary continues on its perverse path of increasing taxation, despite recommendations to the contrary by the IMF and the European Commission (on the right side, for a change). In January, the Commission encouraged the government to review its increased reliance on revenue side measures, and, in particular sectoral taxes. These, the Commission warns, are "likely to be harmful for business confidence, economic growth and employment, not just in the short run, but even more so in the medium and longer term." Such sectoral taxes have been used by the Hungarian Government to extract additional revenue from the telecommunications, banking and retail sectors, and it's just these that are now being increased, even. The root of the problem, apart from the absence of belt-tightening measures, which are never mentioned, is the failure of the Financial Transactions Tax to generate anywhere near its intended level of receipts. Hungary, along with France and Italy, rushed to impose an FTT ahead of the EU's 11-country version due to be implemented next year, but now probably deferred at least until 2015. All three countries have seen their FTTs fail to perform as expected, but this doesn't deter the European Parliament, of course, which this week proposed "enhancements" to the tax which would actually worsen it in various ways, including a highly illiberal and probably illegal suggestion that owners of securities would lose title to them if the tax was not paid. We should ship them lock, stock and all 754 smoking barrels to Belarus.
Apr 25, 2013 Hungary: out of lineIf Hungary doesn't want to be a law-abiding member of the European Union then it should leave, in my opinion. The last year has seen a succession of blatantly un-communautaire actions on the part of Viktor Orbán, many of them worryingly autocratic, and several of them provoking complaints from the European Commission ending in references to the ECJ. The latest outrage, in anticipation of fines which the Commission is likely to levy on Hungary, is a law which would finance the fines by collecting a matching levy from taxpayers. The Commission says that this is unlawful in itself, and it seems calculated to whip up anti-EU sentiment on the part of voters. Let's hope it boomerangs. For sure that's what they must be hoping in Brussels!
Apr 18, 2013 Hungary: mistreat ChinaOne country which is conspicuous by its absence from the TPP talks is of course China. Although there are ongoing negotiations between the Middle Kingdom and various other countries, and China has FTAs with a scattering of other countries, notably including ASEAN and New Zealand, on the whole it is lagging. And it considers itself as an injured party in trade affairs, complaining this week about the level of "dumping" and "counter-vailing" measures it is subject to, particular emanating from the USA. A lot of the problem revolves around the designation of China as a "non-market economy" (NME). For anyone who, like me, finds it extraordinary that China should still be regarded as an NME, a word of explanation is in order: an NME is a country in which the State subsidizes enterprises or indulges in other non-market behaviour, despite WTO rules against it. So, an NME is allowed to cheat, if you will; but the other side of the coin is that for an aggrieved counter-party, the burden of proof is lower in anti-dumping proceedings. China's accession agreement to the WTO allows it to retain NME status only until 2015; but the change is not in China's gift, and both the USA and the EU persist in regarding China as an NME, despite frequent requests from China for them to treat it as a market economy.
Oct 25, 2012 Hungary: will not be the VictorVictor Orban continues his one-man, or at least one-party crusade against the assorted suits of Brussels and the IMF, although maybe we're not allowed to refer to Christiane Lagarde as a suit? If he thinks he knows better how to run a country's economy than the world's united fiscal experts, then why doesn't he take Hungary out of the EU and join Vladimir's Potemkin village of a common market to the East? The answer is obvious: his countrymen and women wouldn't agree. So the sooner they turf him out of office, the better it will be for Hungary. Meanwhile, if you were thinking of starting a bank, that's one place where you don't want to do it!
Jul 19, 2012 Hungary: dreams of empireHungary is going ahead with its financial transactions tax. What can I say? Obviously Mr Orban doesn't read this column. Nor does he seem to understand that joining the European Union was an act of submission. Post-imperial countries are always very conscious of their (ex) status, and in Hungary's case, as the junior partner in the Austro-Hungarian empire, this hunger for glorious autonomy is especially pointed. Austria seems to have become comfortable in its own skin, and has turned its imperial heritage into a tourist attraction. Well done! Not so hungry Hungary. Perhaps one must be charitable and allow that forty years under the Soviet yoke may not have been the very best medicine for post-imperial blues. OK; but now it's time to grow up!
May 24, 2012 Hungary: heaps Pelion on OssaNow we are for the dark; and nowhere darker than Hungary, which after being saved earlier this year by an impressive display of right-thinking international solidarity from a lurch towards fascism is showing its gratitude by setting about taxing everything that moves. What a rotten idea to tax telecommunications! And that on top of VAT. If there is any one vital 'factor of production' (to use economists' jargon) that is required to underpin success in our post-industrial world, surely it must be extensive and cheap connectivity. I don't suppose the tax will even work at the level of raising revenue: Hungary is a land-locked country, so with Skype, ever-cheaper mobile roaming, courtesy of the EU, and a burgeoning host of cloud-based communications technologies, people have options and won't be slow to work out how to dodge the new tax.