Windfall tax could lead to tariff increases in the telco sector

Telco

Image by Pixabay

The telecommunications sector is particularly affected by the government's extra profit tax regulation, which, because of the low revenue threshold, will impose a heavy burden on smaller firms and could take a significant hit on the profits of larger ones, according to Niveus Consulting Group.

Operators could easily be forced to increase their charges more significantly, using their right under the general terms and conditions, the group says.

Miklós Pálffy, a collaborating partner at Niveus Consulting Group, pointed out that in 2020 there were telco companies with losses, but if they had high turnover (and costs were high), they would still have to pay a very high tax.

The big three telephone and internet service providers will have to pay the most. One of the big operators made a loss of HUF 1.3 billion last year on net sales of almost HUF 284 billion (but could still have a significant tax liability, according to Niveus). Of course, there were also profitable operators, another operator achieved a profit after tax of HUF 20 billion on a turnover of almost HUF 200 billion, but even this would be heavily taxed, at 1% of the share between HUF 1 billion and HUF 50 billion, 3% of the share between HUF 50 billion and HUF 100 billion, and 7% of the share above HUF 100 billion, which could add up to HUF 9 billion for this operator.
 
According to a GKI report, although telco is a profitable sector, it was only ranked 15th in the list of taxable profits as a proportion of turnover.

Pálffy stresses that the regulation sets the turnover threshold relatively low: although HUF 1 billion is a high turnover, telco services are not usually provided by small businesses, so the tax could impose a heavy burden on smaller firms and could significantly cut into the profits of larger ones.

As the tax affects net revenue - i.e. the tax burden increases for every HUF collected from subscribers regardless of costs - it is possible that operators will be forced to increase their charges more significantly, exercising their right under the general terms and conditions. Even in the case of substantial profits of up to 10% of turnover, the new special tax could amount to half of the profits.                                                                                                                               
 
Niveus Consulting Group says that it is almost certain that the general terms and conditions of telco operators often allow for unilateral price increases, and that, in view of inflation, the accompanying wage increases, and the special taxes, the sector is likely to rise prices significantly.

ADVERTISEMENT

Annual Inflation Hits 23-Year High in May Analysis

Annual Inflation Hits 23-Year High in May

Lawmakers postpone expanded data provision for tourism secto... Parliament

Lawmakers postpone expanded data provision for tourism secto...

Dóra Petrányi to co-head CMS Tech, Media, and Comms Group Appointments

Dóra Petrányi to co-head CMS Tech, Media, and Comms Group

Budapest targets tourists with public transport fare hikes City

Budapest targets tourists with public transport fare hikes

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.