Hungary Introduced the “Excess Profits Tax,” and It Is Already Affecting Prices (Hungary)
Recently, Hungary introduced a cap on utility bills to minimize the financial impact of necessities on citizens. But as the cost of providing utilities increases, the government needs funds to maintain that cap. Their solution to this concern is an “excess profits tax.”
Who Is Directly Targeted
The excess profits tax is designed to directly target large companies. Specifically, the tax focuses on companies that have recently had huge profits. This tax is imposed on energy and trading companies, banks, airlines, and more. The excess profits tax is very targeted and also temporary.
Márton Nagy, the Hungarian Minister of Economic Development, explained this tax in more detail. He pointed out that banks and multinationals have had significant profits recently. These profits are largely a combination of increases in prices and interest rates. According to Nagy, the excess profits tax has these companies “pay their share” of the burden.
Companies Should Not Pass on the Cost
The official policy behind the excess profits tax is to target companies, not consumers. After all, the tax resulted from the need to pay for a utility cap, helping citizens. As such, the goal is not for prices of other goods and services to increase. The initial announcement even said that the government will monitor companies specifically to ensure they don’t pass the tax’s cost to consumers.
Despite that provision, Hungarians are still dealing with rising prices, some of which are likely a direct result of the excess profits tax.
New Plane Ticket Taxes
Prices are rising not just because of the potential of passing on the excess profit tax on consumers. The Hungarian government also introduced a new tax on plane tickets. But it specifically calls this tax the contribution of the airlines, not the passengers. This extra tax applies only to passengers leaving Hungary.
Importantly, the ground service companies are supposed to pay the tax. Still, it is expected that many companies will pass the costs on to consumers in one way or another. One example is Wizz Air. Shortly after announcing the new plane ticket taxes, the company announced they “might” increase prices.
The Exact Tax
There are two tax rates depending on the destination of the flight. The rates are 3,900 or 9,750 HUF (EUR 10.18 or EUR 24.88). The cheaper tax rate applies to a long list of locations, including the EU, the UK, Northern Ireland, Serbia, Ukraine, Switzerland, Iceland, and more. The higher rate applies to destinations not explicitly listed.
Taxes in Other Sectors
The excessive profit tax applies across numerous other sectors. It is likely that many of these tax costs will be passed onto consumers, despite Hungary never intending it to be so.
Another sector seeing the result of the excess profits tax is the securities sector. There is a transaction duty of 0.3 percent with a maximum of 10,000 HUF (EUR 25.52). Interestingly, this also applies to cross-border transactions, such as those via Wise or Resolut. These transactions have the same tax and maximum.
Banks will see an additional tax of 10 percent for 2022. By 2023, it will be at eight percent. The tax will be on the net income from the previous year.
Insurers will have a progressive extra tax. In 2022, it will be two to 14 percent. In 2023, it will be one to seven percent.
These companies will have a 20 or 28 percent extra tax on medicines. This does not apply to small pharmacies.
Excess tax of Telcos will depend on their net revenue. It is zero percent under 1 billion HUF, one percent for 1 to 50 billion HUF, and three percent for 50 to 100 billion HUF. Above that, it will be at seven percent.
Expect additional taxes on alcohol and tobacco as well.
Hungary implemented a cap on utility prices to reduce the financial strain on Hungarians. The excess profit tax is intended to pay for this. Ideally, companies will pay the tax, but some of the burden will likely be passed onto consumers.
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