The tax of 150 forints ($0.62) per gigabyte will, under the new draft of the Telecommunications Tax Act, be capped at 5,000 forints per month for companies and 700 forints per month for individuals.
“As a result of the public reaction, there has been an amendment today with 700/5000 forint cap,” said Gergely Riszter, head of tax at Kajtár Takács Hegymegi-Barakonyi Baker & McKenzie.
“The legislation will be passed in a way that it [the cost] cannot be passed on to the consumer,” he added.
The government intends the tax to be a hit to the profits of internet service providers (ISPs), rather than being passed on to consumers, though it remains unclear how this could be enforced.
One method for companies to avoid simply adding the cost of the tax to consumers’ bills will be offsetting corporate income tax against the new tax, a provision which was allowed for in the first draft of the law.
“At this stage it is hard to estimate if such deduction may significantly mitigate the effect for ISPs,” said Riszter.
“It’s something that the government has to figure out,” he added. “It is a natural economic rule that increasing the cost of supply will increase the cost [for consumers].”
The tax, a draft for which first emerged last week, provoked an angry reaction from the Hungarian public, many of whom saw it as an encroachment on their freedom.
More than 10,000 people marched against its introduction in Budapest on Sunday, with another march expected tonight [October 28 2014], if Hungarians are not satisfied with the amendment, which was tabled yesterday.
"The move... follows a wave of alarming anti-democratic measures by [Hungarian Prime Minister Viktor] Orban that is pushing Hungary even further adrift from Europe," said the organisers of the march in a press release.
"The measure would impede equal access to the internet, deepening the digital divide between Hungary's lower economic groups, and limiting internet access for cash-poor schools and universities," added the release.
The government, however, said that the tax was designed to fill the gap left by the public avoiding the telecommunications tax of 2 forints per text message or minute of a phone call by using internet-based services such as WhatsApp, Skype and Viber.
“That was the official communication, that people were using alternatives, but another purpose of this [the new tax] is budgetary,” said Riszter.
Hungary’s national debt is more than 80% of its GDP, with the country struggling economically compared with central European neighbours such as Austria, Slovakia, and Slovenia. It is yet to return to pre-financial crisis levels of GDP.
The tax is expected to raise more than 28 billion forints ($115 million), but many fear it could spook foreign investors. Under Orban, Hungary has introduced a wide range of industry-specific taxes targeting areas such as banking, energy, retail and, during the summer, media.
The inclusion of a tax specifically on internet data usage is a world first, but is a measure which could be considered by other jurisdictions if its implementation is successful.
The first action point on the OECD’s project to tackle base erosion and profit shifting (BEPS) is to address the tax challenges of the digital economy, and other OECD countries will be following events in Hungary carefully.
