Hungary to Push Foreign Firms for Cash Despite EU Probe

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Hungary will continue squeezing foreign companies for cash and threatened to penalize businesses that complain about it even after the European Union told the country to suspend two special taxes.

Companies including Philip Morris International Inc. and supermarket chain Spar International will have to pay extra levies regardless of European Commission suspicions that the measures are violating the bloc’s rules, according to Janos Lazar, the minister in charge of the prime minister’s office.

“We can say to Spar and to Philip Morris that if you’re not going to pay this tax, then you’ll pay another, but for sure you’ll pay,” Lazar told reporters in Budapest on Thursday. “You can go complain to the EU, but then you’ll just pay more. And it’s going to be this way for every group that presses charges against a country where it wants to earn money.”

The comments encapsulate the pressure the government has applied on selected industries, including imposing Europe’s highest bank tax, as Prime Minister Viktor Orban seeks to cut the budget deficit. The clash may hurt Hungary’s chances of regaining an investment grade after all three major credit rating companies cited an improvement in the business climate among conditions for an upgrade.

Selective Advantage

The European Commission this week temporarily barred Hungary from collecting special taxes from retailers and tobacco companies. The EU’s executive arm opened separate probes into a food-chain inspection fee and a tax levied on the production and trade of tobacco products, saying the taxes may provide a “selective advantage” to companies with lower sales.

The decision may curb budget revenue by as much as 40 billion forint ($141 million) this year, Economy Minister Mihaly Varga told the state TV on Thursday. Hungary will try to prove that the taxes are in line with the rules, Varga said.

Several international investors with operations in Hungary have criticized Orban’s tax policies as deforming business environment in the central European country of about 10 million people.

Philip Morris and Imperial Tobacco Group Plc said on June 17 the special levy, which ranges from 0.2 percent to 4.5 percent of revenue, was “openly and clearly” discriminating against foreign companies.

In the retail sector, chains with a large turnover, including units of Tesco Plc. and Groupe Auchan SA, pay an inspection fee of as much as 6 percent of revenue, compared with 1 percent or nothing for small stores.

Hungary earlier this year backtracked in a similar case after imposing a tax ranging from zero to as much as 50 percent on advertisement. Faced with an EU probe, the cabinet reduced the highest bracket to 5.3 percent.

(Corrects date in third paragraph.)
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