Hungary – Creative taxation: Internet Tax proposed

Technology - using an iPad inside PwC office, PwC NYC Technology-6.jpgEarlier this week the Hungarian government submitted its proposed tax bill for 2015. One of the most interesting changes is the proposed introduction of the “Internet tax” that will be imposed on Internet service providers at a rate of HUF 150 (approx. USD 0.60) for every gigabyte of data or part thereof. By way of example, downloading a movie in HD quality (8.5 GB) would attract a tax charge of approx. USD 5 or the download of a 6GB game would have an additional cost of approx. USD 4 according to the original version of the proposal. You may expect that providers will try to recharge this cost to their customers, which makes surfing even more expensive.

Hungary already has the highest VAT rate in the EU (27%) and it seems that with this new tax the country would like to continue with imposing sector specific taxes (see our previous blog post on the tailor made tax on the telecom sector).

There was no prior indication of the new tax, which resulted in an immediate uproar by industry players as well as by the public and it was also picked up by major international media outlets (here, here, here or here just to mention a few). The understandably negative reception of the proposal made the government to reconsider its approach slightly and the latest amendments talk about a monthly cap of HUF 700 (approx. USD 2.8) for private users and HUF 5,000 (approx. USD 20) for business users. (Business users may also be entitled to offset the internet tax against their corporation tax liabilities.)

What does it mean?

Even if the proposed new tax would pass the EU’s tests from a pure taxation perspective, it may conflict with other principles and trends. This includes net neutrality, maybe freedom of speech or the EU’s and the OECD’s efforts to establish the correct taxation rules of the digital economy. This tax is especially painful in the digital age when the use of Internet is increasing on every platform, but it may as well be a new tool for less “picky” governments to increase their tax revenues.

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