HUNGARY: Hungarian parliament approves new tax on phone calls and text messages

Record ID: 838368

  • Title: HUNGARY: Hungarian parliament approves new tax on phone calls and text messages
  • Date: 18th May 2012
  • Summary: (SOUNDBITE) (English) ANALYST AND DIRECTOR OF ADVISOR COMPANY KPMG BALAZS FOLDES, SAYING: "Telecommunication services are not especially cheap in Hungary at the moment either. And obviously if telecommunication service providers are charged extra taxes then these will eventually on the long term increase prices. The government is currently stating that this is supposed to be a tax mainly on service providers and not on the consumers, but of course this can work for half a year or even a year but on the long term surely the consumers, the mobile phone users, landline users will pay for these taxes." CUSTOMERS AT TELEKOM SHOP DESK PHONES IN HANDS OF CUSTOMER AND ASSISTANT CUSTOMER DESK ASSISTANT LOOKING AT CONTRACT (SOUNDBITE) (English) ANALYST AND DIRECTOR OF ADVISOR COMPANY KPMG BALAZS FOLDES, SAYING: "These are big tax payers who are charged an extra tax but their current financial standing is not necessarily very stable, and these extra taxes will mean significant burden on their profits. Now for foreign investors a government which charges extra taxes on more or less profitable big tax payers are not very lucrative and therefore this can be something which is seen as detrimental for foreign investments in Hungary in the future." CUSTOMERS AT TELEKOM DESK ASSISTANT TALKING ON THE PHONE CUSTOMER TALKING ON THE PHONE TYPING NUMBER ON PHONE (SOUNDBITE) (Hungarian) HUNGARIAN RESIDENT ORSOLYA SZAKONYI, SAYING: "One feels that the situation is just getting worse all the time. The question is what the next tax will be, will they tax the air? There is hardly anything now which would not have some extra tax." (SOUNDBITE) (Hungarian) BUDAPEST RESIDENT TAMAS MAG, SAYING: "I am not even surprised anymore, there are newer and newer taxes all the time. My opinion about it though is tough: I feel its like a message 'You either get used to this or you leave.' Well, I don't want to get used to these." PHONES ON DISPLAY PHONES AND CUSTOMERS
  • Embargoed: 2nd June 2012 13:00
  • Keywords:
  • Location: Hungary
  • City:
  • Country: Hungary
  • Topics: Communications,Economy,Politics
  • Reuters ID: LVADG4HURIAT0MZXJUSQKAPSSCTQ
  • Aspect Ratio:
  • Story Text: When Hungary slapped banks and businesses with windfall taxes two years ago, it sweetened the tough medicine by saying they were temporary. Now the refashioned levies are here to stay.
    With an existing telecommunications sector levy already challenged in European courts, parliament approved on Friday (May 18) a new tax on phone calls and text messages from July 1 as part of broader efforts to plug holes in the government's budget.
    According to the new law a service provider would be taxed on the basis of the duration of the calls and the number of messages. The tax is HUF 2 per minute [approx. 0,008 euros] and per message. Private individuals would have to pay no more than HUF 700 [approx. 2.8 euros] a month, while the cap for businesses was set to HUF 2,500 [approx 10 euros].
    "This law distributes the burden among private persons and the companies who make significant profits and is suitable to implement the consolidation of the budget in a way that it doesn't cause any serious distortion in the structure of the Hungarian economy. At the same time it could even stimulate competition, and on the other hand it puts most of the burden on companies and not on the consumers," ruling party Fideszs parliamentary faction leader Antal Rogan said in the parliamentary debate of the law earlier this week.
    But analysts say the companies will nevertheless increase prices and customers will pay for the new taxes more than planned. One service provider Telenor told Hungarian News Agency on Thursday (May 17) that it would deflect the minute-based tax to its customers.
    "Telecommunication services are not especially cheap in Hungary at the moment either. And obviously if telecommunication service providers are charged extra taxes then these will eventually on the long term increase prices. The government is currently stating that this is supposed to be a tax mainly on the service providers and not on the consumers, but of course this can work for half a year or even a year but on the long term surely the consumers, the mobile phone users, landline users will pay for these taxes," analyst and director of advisory company KPMG Balazs Foldes said.
    The government launched its special taxes on banks, telecoms and energy firms in 2010 as part of an unorthodox campaign to avoid outright austerity and cut the budget deficit, which is crucial for central Europe's most indebted country.
    Then it said the levies would be scrapped from 2013 and the overall tax burden on businesses lowered.
    But, with the economy now facing recession and under pressure to wrestle down the deficit to avert a cut in European Union development funds, Prime Minister Viktor Orban has opted to keep the levies, only in a different, and permanent form.
    The telecoms tax and a planned new tax on financial transactions drew protests from banks and companies, who say the government broke its promise of ending crisis taxes in 2013.
    It also cut short a brief period of optimism after the European Commission's recent blessing for aid talks with Hungary, rekindling what an EU diplomat described as "negative buzz" around the country.
    Hungary seeks a vital new loan from the EU and International Monetary Fund to cut its borrowing costs. It hopes to start aid talks with the IMF in June and analysts say the negotiations will difficult as Orban will find it hard to accept tough conditions and quarterly checks attached to an international credit line. Investors hope an IMF programme would bring much-awaited predictability to Hungarian economic policies.
    The new tax, to be paid by telecoms firms, should raise 30 billion forints this year, while another planned new tax on financial transactions, to be paid by banks, will bring at least 130 billion ($554.16 million) into state coffers in 2013.
    The government says the taxes aim to shift focus on consumption and turnover type taxes, from taxing incomes, but Foldes questioned the government's strategy.
    "These are big tax payers who are charged an extra tax but their current financial standing is not necessarily very stable, and these extra taxes will mean significant burden on their profits. Now for foreign investors a government which charges extra taxes on more or less profitable big tax payers are not very lucrative and therefore this can be something which is seen as detrimental for foreign investments in Hungary in the future," Foldes said.
    Customers are fearful that the new levies will show up in their bills at the end of the day.
    "One feels that the situation is just getting worse all the time," said Orsolya Szakonyi, a doctor. "The question is what the next tax will be: will they tax the air?"
    "I am not even surprised anymore, there are newer and newer taxes all the time. My opinion about it though is tough: I feel its like a message 'You either get used to this or you leave.' Well, I don't want to get used to these," said Budapest resident Tamas Mag.
    Phone companies Magyar Telekom Telenor, and Vodafone, which asked the government to withdraw the new tax bill to allow further talks, have called the approach "unacceptable". All three companies declined interviews.
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