Government plans major advertising tax hike

Banking

Advertising tax in Hungary is set to be raised from the current 5.3% to 9% as of June, for taxpayers with revenue exceeding HUF 100 million, according to a proposed amendment submitted by Minister for National Economy Mihály Varga, Hungarian wire service MTI reported today. The amendment would also allow companies tax-free self-advertising.

Vargaʼs ministry noted, according to MTI, that the European Commission, in a resolution dated November 4, 2016, found the Hungarian tax on advertising incompatible with European Union rules and ordered Hungary to recover taxes from companies that enjoyed an unfair advantage. 

Although the government has appealed the decision and turned to the European Court of Justice to seek legal remedy, according to the ministry, the appeal to the court does not have a suspending effect, so that taxes paid from 2014 until May 31, 2017 will be classified as overpayments and returned to taxpayers. The tax rate will also be lowered to 0% in the first half of 2017 to avoid retroactively taxing companies, according to MTI.

Despite objections from the EC, the amendment aims to keep companies with revenues of less than HUF 100 mln exempt from payment of the tax, the ministry emphasizes, adding that this tax exemption would be made available in line with the EUʼs de minimis regulations.

Hungary introduced the progressive tax, with rates ranging from 0% to 50%, in June 2014. Back then the EC said that Hungary’s progressive tax rates, abolished since, were in breach of the European Union’s state aid rules, unduly favoring companies that did not make a profit in 2013 by allowing them a tax preference. The EC launched an in-depth investigation into the matter in March 2015 and asked Hungary to suspend application of the tax.

The progressive tax was widely considered by the public to have been aimed at commercial television channel RTL Klub, which has carried news coverage critical of the government, while favoring its more government-friendly competitor TV2.

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