In response to our inquiry, advisory firm LeitnerLeitner has traced back the existence of special taxes to twenty years in the past. Over the past two decades, these taxes have sometimes been abolished or renamed according to current political objectives — at times they have been referred to as extra-profit taxes, and more recently as defence contributions. In some cases, the government would promise certain taxes to be only temporary, never to actually phase them out. Some elements of these taxes have even been increased mid-year or between years by the government. Between 2004 and 2022, the advisory firm
to which we can also add the new transaction tax to be imposed on foreign exchange transactions from October onwards. The firm’s analysis considered taxes and tax-like obligations pertaining to specific sectors, industries, or activities as special taxes and divided the recent past into three phases.
- The introduction of special taxes began already before the 2008 financial crisis, with the energy tax (in 2004), followed by the levy on credit institutions (from 2006 to 2017), and the taxes burdening the pharmaceutical industry.
- Between 2008 and 2022, the firm identified 13 special taxes, ranging from the so-called Robin Hood tax on energy providers to the retail special tax.
- 16 items were listed among the windfall taxes of 2022, ranging from the special tax on credit institutions to the increased mining royalty.
According to the company’s expert, Judit Jancsa-Pék, the main characteristic of special taxes is that although they are sector-specific, the budgetary revenue generated from them is mostly not reinvested, not even partially, into the given sector (some exceptions are tax types increasing the revenue of the Health Insurance Fund and the tobacco industry levy intended for the development of healthcare subsystems).
She also pointed out that several tax types were initially introduced for only one fiscal year, but their validity was “extended” every year, leading to a permanent tax burden. An example of this is the special tax on financial organisations, which has been extended every fiscal year since its introduction in 2010 and, despite promises made to the sector, has not yet been phased out. The mid-year tax changes in 2015 put an end to this, resulting in the tax becoming essentially permanent and generally applicable.
Special taxes have tripled in recent years
Based on data from the yearbooks of the Hungarian tax authority, official state statistics, and budget projections, we examined how expectations and actual special tax revenues have evolved over the past eight years.
While in 2017 the amount of special taxes was around 632 billion forints, this amount increased by about 33 per cent by 2021 — to nearly 846 billion forints. Then, in the election year of 2022, under the name of extra-profit taxes, these special taxes continued to be levied at significantly higher rates. By 2024, the government plans to collect approximately 2,640 billion forints from these taxes — this includes the additional 400 billion forint defence contribution announced in July. This means that compared to 2021, the special tax revenue is planned to be tripled by this year, and even more is expected by 2025, as the sectors targeted by these taxes will have to pay increased versions of these levies from this August and September, while also facing new ones introduced from October – in the next year, these will have to be paid for all 12 months.
Between 2017 and 2024, the largest amount of special taxes was paid by banks and financial institutions (3,400 billion forints), followed by the energy sector (1,432 billion forints) and insurance companies (1,038 billion forints). The tax levied on the telecommunications sector (telecommunications and utility taxes) approached 1,000 billion forints, while the retail special tax, mining royalty, and the special tax burdening the pharmaceutical manufacturing and distribution sectors were each over 700 billion forints. The public health product tax also exceeded 500 billion forints.
In total, based on the sources mentioned above, more than 10.3 trillion forints were paid in special taxes during these years — this is double the amount collected in corporate tax. The amount of special tax collected exceeded corporate tax revenues every year, and in some cases, these items contributed even more than twice as much to the budget.
From 2023–2024, special tax revenues were further increased. For example, the retail special tax for the multinational chains with the largest revenues rose from 4.1% to 4.5% this year. Since VAT must also be paid on revenue, it is as if Hungary’s world-leading 27% VAT was actually higher, with the state collecting a VAT of 31.5% on most products. For the smallest fuel retailers, the retail special tax has increased thirtyfold from this year.
Of the 400 billion forints expected from the defence contribution announced for this year in July – according to the government – 85 billion forints could come from the one-and-a-half-times increase in the transaction tax from August, which is expected to generate 200 billion forints in revenue next year. From the newly introduced conversion transaction tax (on foreign exchange operations) launched in October, the government expects to collect 7 billion forints in 2024, and 30 billion forints by 2025.
Other special taxes are also increasing or being modified. Concorde estimates that the targeted 400 billion forints of new budget revenue could be collected from the following:
- Foreign exchange transaction tax (0.45%, maximum 20,000 forints/transaction): 160 billion forints,
- Other bank transaction tax increases: 100 billion forints,
- Energy tax increase: 100 billion forints,
- Other (including the “multinational corporations” tax, likely mainly in the retail sector): 40 billion forints.
Sector-based overtaxation has a negative impact on the economy
How do special taxes impact the economy? They can be seen as a form of overtaxation, as recently stated by Zsolt Hernádi, CEO of MOL. Not to mention the unpredictability they introduce.
The special taxes are obviously not paid out of the profits of the affected companies but are passed on to their customers, the population, driving up prices and reducing consumption. This is part of the reason why the economy is struggling
— said the CEO of economic research institute GKI in response to our inquiry. According to László Molnár, only in the minds of state economic managers do special taxes exist in a way that they are not passed on to the population by the affected sectors and companies. Despite attempts to prevent this through administrative measures, this is not how it works in reality. A business has an expected profit margin that it needs to achieve. For example, the multinational retail companies burdened by special taxes have invested heavily in Hungary (creating new stores and renovating old ones) and want to see a return on their investments, as this is the essence of business. After all this, telling them they have windfall profits while not criticising other companies, like those close to the government in the casino business or the large construction companies fattened by public procurement, is quite hypocritical. Special taxation is not sector-neutral but particularly sector-dependent — claims Molnár.
Take, for example, the telecom tax and the related utility tax in the telecommunications sector, which telecom companies have criticised, arguing that it raises the cost of investments and disrupts returns. But as soon as it became clear that Vodafone was partially acquired by state and government-affiliated investors, it could already be known that the utility tax would be abolished next year, and the telecom tax would be reduced
— he added. This suggests that in this new situation, it is no longer a problem if the remaining two players realise a profit, as long as friendly companies do not have to pay special taxes. Another example is the special tax on airlines, which will also be abolished next year after the Hungarian state regained the right to operate the Ferihegy airport.
From all this, he concludes that
He believes this is problematic because companies that can only grow large with state support are rarely able to operate efficiently. A good example of this, he says, is the BudaPart and Dürer Park developments: as no buyers were found, the developments suddenly became state projects — the state buys the properties at a price that ensures government-friendly entrepreneurs do not have to record losses. Practically, taxpayer money is used to save the profits of these companies. The same is expected regarding the case of the Ferihegy airport — if a thousand billion forints are spent and an annual dividend of 35 billion forints is expected, it means that not even the interest on the financing will be covered.
Special taxes obviously have a price-raising effect as they are passed on to prices, which, in the end, are paid by the Hungarian population.
The standard of living in Hungary is not improving partly because we are the ones paying these special taxes through higher prices
– László Molnár states.
The consumer banking price cap is only in effect until the end of the year, while banks can already pass the increased transaction fees onto businesses – ultimately, it is consumers who are going to pay. It is unrealistic to expect market companies to absorb these costs at their own expense when they have to pay more into the budget – Molnár noted.
Moreover, the years-long significant overspending of the budget is no justification for special taxes, especially when healthcare, education, and the social sector are deteriorating as there is little willingness to invest in these areas. The same can be said about road networks; secondary roads were only maintained as long as EU funds were available. However, since the operation of motorways has been passed on in the form of concessions (to friendly companies), there are no signs of major development plans — he added.
It can be said about all special taxes that they make people pay more, meaning that we live worse, or at least not as well as we could without them – stated the CEO of GKI.