Nov. 21 (Bloomberg) -- The European Commission urged Hungary to amend taxes on the retail and telecommunication industries, saying that the levies target foreign companies.
The commission, which today “formally requested” the changes, “considers them to be discriminatory, as they fall disproportionately on non-Hungarian operators,” it said in a statement on its website. Hungary’s government said it disagrees with that evaluation and is phasing out the special taxes to replace them with ones that make the budget sustainable.
Hungary risks losing European Union development funds unless it narrows its budget deficit below the bloc’s limit. The Cabinet imposed extraordinary taxes on banks, retailers, energy companies and telecommunication-service providers in 2010 to shore up its finances. The government last month backtracked on a pledge to cut the bank tax by half in 2013 and decided to make the levy permanent at its current level.
The country has two months to amend the taxes or the EU may refer the case to the Court of Justice, according to the statement.
Prime Minister Viktor Orban has deployed what he called “unorthodox” fiscal measures since he came into power in 2010 to rein in the budget and cut the country’s debt level, the highest among the EU’s eastern members. Some of the measures, such as the nationalization of private pension fund assets and the special taxes, have been questioned during financial-aid talks with the International Monetary Fund and the EU.
The taxes don’t breach EU regulations and aren’t discriminatory because of foreign-owned companies’ weight in the economy, the Economy Ministry said in an e-mailed statement today. The government decided to cancel special levies on industries including telecommunications and retail from next year even before the EU demanded the changes, the ministry said in a separate e-mail.
“As part of an overhaul of the tax system, the government decided to introduce taxes that will make public finances predictable in the long term and also fit into the concept of shifting the weight of the tax burden from incomes increasingly toward taxes on consumption, trade and the harmful effects of business,” the ministry said.
The forint is the world’s best-performing currency this year after gaining 12.2 percent against the euro as liquidity-boosting measures in developed economies spurred demand for emerging-market assets and investors bet Hungary was nearing a deal with the IMF. The currency was little changed against at 280.61 per euro at 7:48 p.m. in Budapest.
Hungary’s talks with the IMF, which started a year ago, may advance next month after the approval of Hungary’s 2013 budget, Mihaly Varga, the government’s chief aid negotiator said yesterday. The outcome will depend on the euro region’s debt crisis and the country’s economic policy, Varga said.
The government approved a set of measures last week to close the gap between the government’s 2013 deficit forecast of 2.7 percent of economic output and the EU’s projection of 2.9 percent. The plan includes new corporate tax rates and an infrastructure levy on cables. The Cabinet is seeking to convince the EU to lift next year the excessive deficit procedure against Hungary, which has been in place since the country joined the bloc in 2004.
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