Hungary Revamps Bank Tax Cut Legislation With Lenders' Support

  • Upper tax rate to be lowered by 7 basis points to 0.24 percent
  • OTP tax burden seen unchanged from previous draft, Erste says

Hungary amended the bill presenting cuts to one of Europe’s highest bank taxes to act on feedback from the European Commission, earning the approval of the financial industry’s representatives.

The draft legislation sets out a tax rate of 0.24 percent for bank assets exceeding 50 billion forint ($173 million) in 2016, seven basis points lower than the previous plan and compared to the current 0.53 percent, the Economy Ministry said in an e-mailed statement late Thursday. The lower rate of the bank tax remains unchanged at 0.15 percent.

The proposed changes would leave the banking sector’s total tax burden unchanged compared with the previous draft, staying in line with the agreement signed by the government and the European Bank for Reconstruction and Development in February, the ministry said. The Hungarian Banking Association supports the proposal and has accepted the amount of the tax to be paid in 2016, state-run news service MTI reported, citing Levente Kovacs, the group’s secretary general.

"Although the methodology changes in several points, the outcome is unchanged," including the expected 15.8 billion forint tax burden for the country’s largest lender, OTP Bank Nyrt., according to a research note by Thomas Unger, an analyst at Erste Bank.

Banking Stocks

A clause limiting 2016 tax payments to 45 percent of the amount paid this year will be removed, together with the clause linking 2016 tax payments to lending activity, news website Index reported. The ministry wouldn’t immediately comment on the Index report.

Banks’ tax burden will further decrease from 2017 in line with the previous draft, the ministry said. The legislation keeps adjusted 2009 assets as the reference for calculating the tax base for 2016, instead of 2014 proposed in an earlier version.

OTP’s shares fell 0.7 percent to 5,830 forint by 11:53 a.m. in Budapest as the trading volume amounted to 27 percent of the three-month full-day average. An index of European banking stocks fell 1.3 percent. OTP has rallied 53 percent this year on anticipation of the tax cut, outperforming the 41 percent advance of the benchmark BUX stock index.

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