Economy
The way Hungary can raise taxes is a form of art
By Gergely Csiki
There is a new chapter in never-ending saga of Hungary’s advertising tax. When everyone thought this is it, here’s the final act, it was when the real turn of events came to pass. Here’s a note to the margin of an odd tax hike.
The whole thing started when, out of the blue, Economy Minister Mihály Varga submitted on 28 March an amendment proposal to the advertising act, arguing that the European Commission suspended the implementation of this special levy. One of the key changes to the law was the raise to the 5.3% rate to 9% as of this June. The other was that the media companies that had already paid the tax were to receive it back from the state.
Nothing proves more how well the proposal was “founded" that it took less than a week to take it off the agenda. Lajos Kósa, head of the parliamentary group of the ruling Fidesz party said the proposal still required some work to be done, and it needed to be checked whether it was compliant with the European Commission’s stance on the matter. We were pondering even back then, why had the proposal been submitted to Parliament in that form in the first place.
One month of total uncertainty came next. The next stage in this tragicomedy took place on 3 May, but the storyline diverted and here’s everything about the details, so let’s take a good look at them.
In other words, lawmakers were debating the tax amendment while they were unable to tackle the meaningful amendment, i.e. the new rate. Instead, we could hear professional arguments from Tállai such as this one:
The cabinet’s recurring argument in favour of the advertising tax is that “by this innovative Hungarian initiative the tax due for the state budget may be collected from international companies engaged in advertising activity." A single sentence that sounds fab, only it is not overly convincing. You may have spotted the wording “MAY BE COLLECT". We inquired at the Economy Ministry more than a month ago if they have managed to collect any advertising tax from these technological giants. We are still waiting for an answer.
While tax rates and unprofessional arguments keep flying about, there is absolutely no sign of impact studies about the ad tax hike. It is not difficult to see that the tax hike will have economic implications. The revenue-based advertising tax digs into the management of local media companies with a sledgehammer, making a great deal of their profits disappear. Hungarian businesses (with a tax base smaller than HUF 100 million) will be worse off, and they will be in an even more disadvantaged position versus global companies (Google, Facebook) that have been carving out ever greater slices from the advertising market.
What is the lesson here?
There is a new chapter in never-ending saga of Hungary’s advertising tax. When everyone thought this is it, here’s the final act, it was when the real turn of events came to pass. Here’s a note to the margin of an odd tax hike.
The whole thing started when, out of the blue, Economy Minister Mihály Varga submitted on 28 March an amendment proposal to the advertising act, arguing that the European Commission suspended the implementation of this special levy. One of the key changes to the law was the raise to the 5.3% rate to 9% as of this June. The other was that the media companies that had already paid the tax were to receive it back from the state.
Nothing proves more how well the proposal was “founded" that it took less than a week to take it off the agenda. Lajos Kósa, head of the parliamentary group of the ruling Fidesz party said the proposal still required some work to be done, and it needed to be checked whether it was compliant with the European Commission’s stance on the matter. We were pondering even back then, why had the proposal been submitted to Parliament in that form in the first place.
One month of total uncertainty came next. The next stage in this tragicomedy took place on 3 May, but the storyline diverted and here’s everything about the details, so let’s take a good look at them.
- On 3 May, it was a Wednesday afternoon, like nothing has ever happened before, the parliamentary debate of the bill kicked off. Yes, it was the very same amendment proposal Varga had submitted, of which the government had known a month earlier that the final version would be different. András Tállai, state secretary in charge of tax issues, confirmed that the rate will be 9% as of 1 June, but stressed they remained open to debates about the rate of the levy.
- Also on 3 May, on Wednesday, only in the morning, Fidesz caucus chief Lajos Kósa has announced that the rate of the advertising tax will be raised to 7.5% and that it will remain so until the clawback is complete, i.e. until the state repays media companies the collected levy, which could take as long as four years. (It is unclear how could it take that long, unless the cabinet plans a delayed reimbursement from the revenues to be collected from the ad tax over a four-year period.
In other words, lawmakers were debating the tax amendment while they were unable to tackle the meaningful amendment, i.e. the new rate. Instead, we could hear professional arguments from Tállai such as this one:
The opposition remains on the side of multinationals, protecting them so that large-revenue companies would not have to pay the advertising tax. [...] We should not give much consideration to LMP’s argument for one of their representatives admitted that he would exit politics in 2018 because people had not paid much attention to what he was saying.
It is also noteworthy that the governing parties are doing their utmost to avoid the appearance that this is in fact a tax hike. It is possible that the measure will temporarily not increase burdens for media companies in 2017 (if the rate is 0% in the first half and 7.5% in H2), but the raise to the tax will hurt local businesses a lot come 2018. The 2018 budget bill reveals that the cabinet wants to collect 44% or HUF 5.2 bn more from the advertising tax in 2018.The cabinet’s recurring argument in favour of the advertising tax is that “by this innovative Hungarian initiative the tax due for the state budget may be collected from international companies engaged in advertising activity." A single sentence that sounds fab, only it is not overly convincing. You may have spotted the wording “MAY BE COLLECT". We inquired at the Economy Ministry more than a month ago if they have managed to collect any advertising tax from these technological giants. We are still waiting for an answer.
While tax rates and unprofessional arguments keep flying about, there is absolutely no sign of impact studies about the ad tax hike. It is not difficult to see that the tax hike will have economic implications. The revenue-based advertising tax digs into the management of local media companies with a sledgehammer, making a great deal of their profits disappear. Hungarian businesses (with a tax base smaller than HUF 100 million) will be worse off, and they will be in an even more disadvantaged position versus global companies (Google, Facebook) that have been carving out ever greater slices from the advertising market.
- Do not submit a bill if you have not consulted about it properly, even within the government and have no clue about the political implications (European Commission). Especially avoid doing so if you have never discussed it with those the new legislation would affect.
- Do not submit a bill if you don’t have an impact study behind it.
- What the debate in Parliament should really be about is - especially in the current favourable state of the budget - which special levy to could be lowered if possible. If the cabinet were serious about improving the country’s competitiveness, it should be preparing these measures.
