Hungary Plans New Tax on Internet Traffic, Public Calls for Rally

BUDAPEST — Hungary plans to impose a new tax on Internet data transfers, a draft 2015 tax bill submitted to parliament late on Tuesday showed, in a move that could hit Internet and telecoms providers and their customers hard.

The draft tax code contains a provision for Internet providers to pay a tax of 150 forints (60 US cents) per gigabyte of data traffic, though it would also let companies offset corporate income tax against the new levy.

Within hours of the tax provision being published over 100,000 people joined a Facebook group protesting the levy, which they fear providers will pass on to them. Thousands said they would rally against the tax, which they said was excessive, outside the Economy Ministry on Sunday.

Prime Minister Viktor Orban's government has in the last few years imposed special taxes on the banking, retail and energy sectors as well as on telecommunications providers to keep the budget deficit in check, jeopardizing profits in some sectors of the economy and unnerving international investors.

Economy Minister Mihaly Varga defended the move on Tuesday, saying communications technology has changed the way people use telecom services and therefore the tax code needed to be changed. His ministry said it expects the tax to generate annual revenue of 20 billion forints.

However, fixed-line Internet traffic in Hungary reached 1.15 billion gigabytes in 2013 and mobile internet added 18 million gigabytes, which would generate revenue of 175 billion forints under the new tax according to consultancy firm eNet.

Traffic has probably grown since, eNet partner Gergely Kis told Reuters, so the tax could hit Internet providers by more than 200 billion forints, if left unaltered.

The entire internet service sector's annual revenue came to 164 billion forints at the end of 2013, according to the Central Statistics Office (KSH).

The government's low estimate of revenue suggests it will impose a cap on the amount of tax any single Internet provider will have to pay, and in view of the public reaction the ruling Fidesz party asked the government to set a maximum level on the tax payable by individuals.

"The Fidesz parliament group insists that the data traffic tax be paid by service providers, therefore we propose changes to the bill," Fidesz parliament group leader Antal Rogan said in an emailed statement.

"We think it is practical to introduce an upper limit in the same fashion and same magnitude that applied to voice-based telephony previously."

Under the current tax code private individuals' tax payments are maximized at a monthly 700 forints ($2.9) while companies cannot pay more than 5,000 forints a month.

A government spokesman was not immediately available for comment.

STOCK HIT, INTERNET USERS UNITE

Analysts at Equilor Securities said on Wednesday that the Internet service market leader, Deutsche Telekom's subsidiary Magyar Telekom could expect to pay about 10 billion forints if there was no limit on the proposed tax.

"Although corporate taxes offset this amount Magyar Telekom has paid only 200-300 million forints worth of such tax in recent years because its parent company used tax breaks," Equilor noted.

"The company could theoretically pass on the burden to its clients but that requires a business policy decision so it's too early to say much about that. The tax could, however, boost uncertainty about a resumption of dividend payments at Magyar Telekom."

Magyar Telekom recently said it would pay no dividend for 2014 in order to keep its debt in check.

The company said the "drastic" new tax threatened to undermine planned investments in broadband network infrastructure, and called for the proposal to be withdrawn. It said industry players were not consulted about the idea.

Magyar Telekom shares were down 2.9 percent at 1221 GMT (0821 EDT), underperforming the blue chip index, which was down 0.3 percent.

The Association of IT, Telecommunications and Electronics Companies said in a statement on Wednesday that the tax would force them to hike prices, which would reflect in consumer prices in general and hinder economic growth.

"The real losers of the Internet tax are not the Internet companies but their clients, users, and all Hungarians who would now access the services they have used much more expensively, or in an extreme case, not at all," the Association said.

Balazs Nemes, one of those who began the Facebook page protesting the move, said: "In more developed nations, broadband Internet access is considered part of human rights.

"Only the darkest dictatorships want to control the Internet either financially or with raw power," he said.

"We pay VAT, the Internet service providers pay corporate taxes, so what justifies making web use a luxury when we do basic things like arranging medical appointments, university applications or banking online?"

(1 US dollar = 240.75 Hungarian forint)

(Reporting by Marton Dunai and Gergely Szakacs; Editing by Hugh Lawson)