UPDATE - European Commission tells Hungary to end telecoms tax

The European Commission on Thursday asked Hungary to abolish a tax on telecommunications companies.

"The Commission considers this tax is illegal under EU telecoms rules because revenue from the taxes is used for the Government's central budget and not for meeting the specific costs of regulating the telecoms sector," the body said.

The Commission also noted that Hungary had failed to consult with telecoms in an appropriate manner on the tax, as required.

The tax -- between 0% and 6.5% of gross revenue, excluding VAT -- was introduced in 2010 as one of three "crisis taxes" also levied on the retail and energy sectors.

The government targets revenue of HUF 161bn from the crisis taxes this year, including about HUF 61bn from the telecoms sector.

The Commission's request to Hungary to abolish the 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.

The Commission opened an infringement proceeding against Hungary concerning the tax in March 2011.

Charges by member states on telecoms may only cover certain administrative and regulatory costs. At the same time, they should be objective, transparent and proportionate and should be adjusted if appropriate. Interested parties must also be consulted in an appropriate manner of any amendments to the charges.

Answering a question at a press conference in Brussels on Thursday, Commission spokesman Jonathan Todd said revenue from the tax went directly into the government budget, which "according to the Commission's stand is not in line with the related union regulations". "Fees paid by telecommunications service providers may only be used to cover certain administrative and regulatory costs," he said. 

In March 2011, the Commission referred Spain and France to the EU's Court of Justice for levying charges on telecoms in breach of EU telecoms rules.

Prime minister's spokesman Péter Szijjártó said after the Commission's announcement on Thursday that the government saw no reason for any change with regard to the telecoms tax.

"The sharing of the burden and a proportional participation in this [sharing] is a European value. The profit-based tax on telecommunications companies, among others, was levied with the aim of giving these companies the chance to share proportionately in the public burden. For this reason, the government of national affairs believes there is no reason for change, and it is ready to take up the case before the European Court too," he said in a statement sent to MTI.

Telecoms asked by MTI declined to comment on the Commission's announcement.