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Hungary to Reintroduce Retail Tax

Posted on Apr. 30, 2020

Hungary will impose a new progressive tax on turnover of large retailers as part of its coronavirus emergency response.

The Finance Ministry expects the tax, which will be levied on retailers with net turnover exceeding HUF 500 million in an applicable tax year, to raise HUF 36 billion (about $109 million) this year.

According to Government Decree 109/2020 of April 14, which was posted to the Hungarian parliament’s website April 28, the tax is intended to be in effect from May 1 until the end of Hungary’s state of danger. However, Gergely Gulyás, Prime Minister Viktor Orbán’s chief of staff, said on an April 28 radio show that the tax will be made permanent after the pandemic ends.

According to the decree, a 0.1 percent tax rate will apply to turnover between HUF 500 million and HUF 30 billion, a 0.4 percent rate will apply to turnover between HUF 30 billion and HUF 100 billion, and a 2.5 percent rate will apply to revenue above HUF 100 billion.

The progressive retail tax is the first tax in Hungary declared by emergency decree that is intended to last beyond the pandemic. The Hungarian parliament gave Orbán the power to rule by decree in late March, a move that has been criticized by EU member states, the U.N., and rights groups.

The new tax is similar to a progressive tax introduced in 2010 on the retail, telecommunications, and energy sectors to alleviate the country’s budget woes. The law was met with several legal challenges from companies claiming that the tax discriminated against foreign-owned companies.

Most of those taxes have sunset, but in March the Court of Justice of the European Union held that Hungary's turnover-based taxes on telecom and retail operations don’t violate the freedom of establishment, even though the tax burden falls heavily on foreign-parented operations.

Orbán announced in early April that Hungary will tax banks HUF 55 billion this year to help pay for a HUF 2 trillion coronavirus relief fund. Minister of Finance Mihály Varga said banks would get that money back in the form of tax deductions over the next five years.

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