April 29, 2020 / 8:29 AM / a month ago

Hungary reintroduces special retail tax

BUDAPEST, April 29 (Reuters) - Hungary’s government has outlined plans to tax large retailers as part of an economic package to tackle the fallout from the coronavirus pandemic, but the new levy is intended to become a permanent feature of the tax system.

The tax, detailed in a bill on parliament’s web site late on Tuesday, is expected to raise 36 billion forints ($110 mln) from the largest retailers this year and more in subsequent, full years as the economy recovers.

The tax harks back to the early 2010s, when Prime Minister Viktor Orban taxed retailers, banks, energy and communications firms to correct the country’s fiscal course, drawing criticism and international legal challenges.

Most such taxes have since been phased out. The retail tax was annulled by the European Union but Hungary and Poland won a subsequent EU court case, which deemed the tax legal.

Orban has also levied a new 55 billion forint tax on the banking sector, but that money will be returned to the lenders in subsequent years in the form of tax breaks.

The pandemic is putting pressure on Orban’s economic, social and health policies alike. His eyecatching response, unlimited power to rule by decree, was criticised as autocratic by EU partners and rights groups.

The government has said parliament - where Orban’s Fidesz party holds a two-thirds majority - can revoke that right at any time.

The central European country’s economy is expected to shrink by more than 3% in 2020, according to Finance Minister Mihaly Varga.

The economy is expected to rebound quickly next year, according to the government, the central bank, the International Monetary Fund and Standard & Poor’s. The credit rating agency revised its outlook on Hungary to stable from positive on Tuesday but said the economy could withstand the crisis.

Varga wrote in the retail tax bill that it allowed the government to focus taxes on consumption, not labour. The tax was being imposed on those who could bear it, and took into account the environmental footprint of large retailers.

Once passed by parliament, the tax rate will be zero for small retail businesses, 0.1% on revenue above 500 million forints a year, 0.4% on revenue above 30 billion forints, and 2.5% for revenue above 100 billion forints.

Orban’s chief of staff Gergely Gulyas confirmed in a radio interview late on Tuesday that the retail tax was permanent.

$1 = 328.4300 forints Reporting by Marton Dunai; Editing by Giles Elgood

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