New Levy to Make Cigarettes More Expensive in Hungary

Source from:  Portfolio 10/30/2015

A new special levy will be slapped on tobacco producers in Hungary, namely an additional tax burden of HUF 4 per cigarette on certain types of cigarettes, announced János Lázár, the Prime Minister chief of staff, on Thursday.

The new levy is to offset the negative impact of a European Commission decision to suspend progressive rates of a special tax on tobacco companies.

Lázár told journalists today the cabinet plans a HUF 4 / cigarette tax on tobacco products that are particularly harmful to health.

Responding to a question later on he disclosed that the new levy would enter into effect on 1 January 2016 and would affect slim and menthol cigarettes.

Details are unknown at this point but we can have ballpark estimates on the impacts. A pack of cigarettes contains 19 cigarettes, which implies an additional tax burden of HUF 76 per pack. If retail prices are adjusted accordingly, a HUF 1,000 pack could cost nearly 8% more as a result.

It was not unexpected

The European Commission announced in July this year that it opened two separate in-depth investigations to further examine whether two recent Hungarian measures with steeply progressive rate structures are in line with EU state aid rules, and that it suspended application of the progressive rates until the completion of the assessment.

The first measure concerns a food chain inspection fee and the second a tax on turnover from the production and trade of tobacco products.

The government's reaction to that already suggested that Budapest would not just lie down without a fight. Lázár made it clear in the summer that despite the suspension tobacco companies would need to pay - this way or another.

The EC decision strips the Hungarian budget of revenues. In the case of the food chain inspection fee the loss is HUF 23-24 bn and the suspension of progressive rates on the tobacco sector eat into budget revenues by HUF 10-11 bn this year.

Now it seems the special tax on tobacco companies will be replaced by a new levy but food chains will not get off that easy either. A mandatory staff expansion is awaiting them around the corner. Enditem