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Market Insight

New utility tax imposed in Hungary

December 21, 2012

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Hungarian cable operators and telecoms companies are having to face up to a new tax levied on the owners of ducts providing electricity, telecommunications and other utilities. The new regulations come in force from January 2013, as the president did not veto the bill. The government expects that the new tax will generate HUF60bn (€200m) for the state budget.

The new tax, set for indefinite term, will replace the old, so called, 'special tax' which expires at the end of 2012. Moreover, in July 2013 yet another tax will be imposed on the telecommunications sector in Hungary (so called 'telco tax') for communications services.

The results of a survey conducted by the Hungarian Cable Communications Association show that a number of smaller cable TV providers will face a significantly higher tax burden under the new rules.

As the Hungarian economy undergoes hard times, with GDP forecasted by IHS to shrink in 2012 by 1.5 per cent and very likely to shrink again in 2013, the government continues its policy of so called 'crisis taxes' which it started in 2010. Several special levies have been imposed since then, primarily in the energy, retail and telecommunications sectors, in order to increase the income figures on the state balance sheets. The taxes have been widely criticised. A number of economic measures applied by the government have been also criticised by international institutions, primarily the IMF, which some time ago has suspended negotiations with Hungary about new lending agreements at least until 2013. However, with a seriously limited financial back-up from abroad, it seems that the government has stuck even more to its anti-recession policies.

For a big telecommunications player such as Magyar Telekom the sum of new taxes will be higher by about 20 per cent as compared to the amount paid as the 'special tax' in 2011 or 2012. It will be similarly for all other operators. Large players, however, with their financial resources and crediting possibilities are in a much better situation than the small ones.

In terms of subscribers top four cable TV operators account for over 70 per cent of the Hungarian cable TV market, so a vast majority of Hungary's 350 cable TV operators are small companies. Prolonged recession, combined with the 'special tax', has severely affected their finances, and many will struggle.

Due to the ties the president has with the ruling faction, Fidesz, vetoing the bill was highly unlikely from the very beginning. The only hope for Hungary's telcos with regard to the new taxes are the EU institutions. A number of laws and regulations passed by Fidesz have been already questioned by EU authorities and some of the most controversial once have been changed or withdrawn.

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