The Hungarian government to tax corporate “extra profit”
Multinational companies and grocery trade will be affected too.
Shortly after Viktor Orbán has formed the fourth successive Fidesz-KDNP government since 2010, the Prime Minister has announced last Wednesday that extra tax burdens would soon be placed on targeted sectors. Mr. Orbán has officially named “the prolonged war and Brussel’s sanctions policy” as the culprit behind the staggering price increase (link) experienced in the Hungarian market in the recent past, announcing that the administration would tax what he perceives as “extra profit” gained “from rising interest rates and prices” by “banks and multinational companies.”
Back in the 2010-2014 cycle, the Fidesz-KDNP government had introduced extra taxes on grocery retail companies, which were also reintroduced during the pandemic crisis in 2019-2020.
The current incarnation of the extra corporate tax will target a wide array of industries including the finance industry (banking, insurance companies), the telecommunication sector, the energy sector, the airline industry, the pharmaceutical industry, the media through a reintroduced advertisement tax – And the grocery retail industry.
Grocery trade will be primarily affected by the increased ceiling on corporate taxes in the sector. The grocery industry is taxed in progressive tiers after their profits:
- For profits under €1.26 million: 0%
- For their profits between €1.26 million - €76 million: 0.1%
- For profits between €76 million - €254 million: 0.4%
- For any additional profit over €254 million: 2.7%
With the new policy of taxing “extra profit”, tax rates on profits in the two latter tiers have been increased, from 0.4% to 1%, and from 2.7% to 4.1%.
It is worth noting that out of the top eleven highest-grossing grocery trade companies, only three are Hungarian in origin: Coop, CBA and Reál, no. #4, #5 and #6, respectively, in the middle of the list. The top three are Lidl, Spar and Tesco. After the three Hungarian chains follow Auchan at #7, Penny Market at #8, Aldi at #9, and finally, the two big drug store chains, Rossmann and DM.
Telex.hu reports that analysts generally predicted that the new administration would get off the ground with massive fiscal corrections to drastically increase governmental income due to high energy prices, an approaching economic trough and public finances being in dire straits. A further analysis on Telex.hu adds that the fact that the state’s coffers are empty is in part due to the government’s increased spending before the elections.
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