Hungary snubs EU injunction to scrap telecom tax

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The European Commission yesterday (29 September) requested that Hungary abolish a special turnover tax on telecoms operators, introduced a year ago, which the EU executive sees as illegal. The Hungarian government swiftly replied that it had no intention of doing so.

Announcing its monthly package of infringement proceedings, the Commission singled out the case of Hungary, which has been charging a tax on telecom operators ranging between 0% and 6.5%, on the basis of gross revenues (excluding VAT).

The Commission's request to Hungary to abolish the telecoms tax takes the form of a 'reasoned opinion' under EU infringement procedures. Hungary now has two months to inform the Commission of measures taken to comply with EU telecoms rules.

If it fails to do so, the Commission may refer Hungary to the EU's Court of Justice, Jonathan Todd, spokesperson for Commissioner for Digital Agenda Neelie Kroes, told the Brussels press.

The tax is illegal, Todd explained, because the proceedings went to the state budget. Under EU rules, charges on telecoms operators can only cover certain administrative and regulatory costs.

Budapest was quick to answer. Hungary's government sees no reason to act on the Commission's decision, the prime minister's spokesman Peter Szijjarto said, quoted by Dow Jones. Budapest expects telecoms firms to make a contribution to the state's finances and is therefore willing to dispute the matter with the EU executive, Szijjarto added.

Asked by EurActiv if the Commission had looked at other economic sectors in Hungary, Todd said investigations were ongoing in the energy and retail sector.

Faced with a high public debt (see 'Background'), the centre-right ruling party Fidesz has pledged to cut the country's budget deficit below 3% of GDP in 2011, making it one of the EU's top fiscal performers.

But the methods used to achieve this goal have stirred controversy inside the country and now also at European level.

New taxes were imposed on all retail stores, telecommunication and energy distribution activities. They are retroactive and had to be paid in 2010 although they were enacted only two months before the end of the year.

In an explanatory paper, the Hungarian Ministry of Economy defended the crisis tax as an emergency measure, which the government had to take in order to fill in a gap of 500-700 billion Hungarian forints (€1.8-2.5 billion) left by the previous Socialist government.

The first "special taxes" were levied on the banking and insurance sectors in the summer of 2010.

Last December, György Matolcsy, Hungary's Economy Minister, appealed to national solidarity to replenish empty state coffers and proposed a consultation to determine how banks could contribute their share. The objective was to raise 200 billion forints (€734 million) within a year.

By the third quarter of 2010, 17 banks out of the 39 chartered in Hungary, all foreign-owned, reported a loss after they paid the new tax.

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