The government issued a decree in June on extra taxes on certain sectors, which was recently extended to the pharmaceutical industry as well.Continue reading
A government decree amending regulations on windfall taxes was recently published in the Hungarian Gazette. According to this, there will be a major change in tax rates for petroleum product producers, and pharmaceutical companies, among others, from 2024, reports Világgazdaság.
Until now, the extra profit tax rate has been 2.8 percent and will remain so in 2023. However, from 2024, this figure will be significantly reduced to just one percent. The change will be particularly welcome for MOL, Hungary’s main oil and gas company, which has been paying very high taxes. It was announced last December that the tax rate on the margin between the price of Brent oil, Russian oil, and market prices will rise from 40 percent to 95 percent. As a result, most of the extra profit from cheaper Russian oil will be taken by the government, resulting in a 95 percent windfall tax for MOL.
Now, it is not only MOL that can look forward to the tax decrease, since the extra profit tax on pharmaceutical companies will also be reduced.
However, it will not be automatic, and can only be applied if these companies carry out investment and research activities. They can then deduct these costs from their windfall tax if the conditions are met.
The tax rule for airlines has also changed, but not to the extent of the deduction. The government has also defined Israel as a European route, so that passengers traveling to this destination will also have to pay the same rate as passengers traveling on European routes. This means that a much lower tax burden than hitherto will be applied to Israeli flights.
The Hungarian government has introduced extra profit taxes for certain groups of companies in 2022. As the Oeconomus Economic Research Foundation pointed out in an analysis, economic trends give different definitions of extra profit generated by certain business activities, some even deny its existence. Extra profit is also referred to as the supernormal rate of return, meaning that the rate of return is above the average profit level for sectors in recent years.
This excess return is usually above what would be expected based on the level of risk assumed by the investment, and is referred to as an unexpected and unanticipated excess return.
In the case of the energy sector, energy prices started to rise spectacularly in the second year of the COVID outbreak, exacerbated by sanctions imposed in response to the Russian-Ukrainian war. As a result, from mid-2021, the sector has seen an unjustifiable accumulation of profits, primarily for companies specializing in the production, refining, and distribution of gas and oil. As a result, various sectoral levies have been introduced across Europe to mitigate the damage caused by the crisis by redistributing the corresponding revenues.
In Hungary, the windfall taxes affected the banking and insurance sectors (HUF 300 billion (EUR 787.6 million) and HUF 50 billion (EUR 131.2 million) respectively), the energy industry (HUF 300 billion (EUR 787.6 million)), the retail sector (HUF 60 billion (EUR 157.5 million)), telecoms (HUF 40 billion (EUR 105 million)), airlines (HUF 30 billion (EUR 78.7 million)), and the pharmaceutical industry (HUF 20 billion (EUR 52.5 million)).
Featured photo via Facebook/MOL Campus
