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Magyar Telekom to pay HUF 27.5bn in "crisis tax" this year

Hungarian telecommunications service provider Magyar Telekom expects to pay this year HUF 27.5 billion in a special "crisis tax" imposed on telecommunications sector companies, the company said on Wednesday. The tax will reduce the company's corporate tax payment but will not affect its EBITDA projection.

Hungarian Parliament approved an act which levies the tax on annual net sales from electronic telecommunications services for three years starting this year. Magyar Telekom said that based on the legislation it expects to pay HUF 27.5 bilion in the tax for the full year of 2010. This is little less than half of the annual HUF 61bn the government expects the temporary tax to bring from the telecom sector.

The tax is expected to be accounted as other expense thus will lower profit before tax. As a consequence, the crisis tax will reduce Magyar Telekom's corporate tax payment by around HUF 1 billion in 2010.

Although the crisis tax is expected to be reported as other expense, Magyar Telekom will treated it as a one-off item, therefore having no impact on the company’s guidance for an underlying EBITDA decline of 7-9% for 2010.

In a statement released on Tuesday, Magyar Telekom said that the special tax will significantly limit the resources available for Hungarian operations, adding it was too early to tell how the new tax will affect their operations and/or investment and dividend policies. The company will monitor the EU's response to the measure. While noting the company had not been informed or consulted regarding the measure, Magyar Telekom said it understands Hungary's difficult budgetary position.

Telecommunications companies will pay crisis tax of 2.5% on revenue between HUF 100 million and HUF 500 million, 4.5% on revenue between HUF 500 million and HUF 5 billion, and 6.5% on revenue over HUF 5 billion. The tax rate for the first HUF 100 million of net sales will be zero.

The act levied temporary taxes on energy and trade companies too. The government expects to collect a combined HUF 161 billion annually in the tax from the three sectors. (MTI-Econews)