Government Decree on Extra-profit Tax

The Government issued the Decree of 197/2022. (VI. 4.) on Extra-profit Taxes (hereinafter “Government Decree”) which includes the details of the formerly announced extra-profit taxes.

1. Extra-profit tax on producers of petroleum products
2. Extra-profit tax on producers leaving the KÁT and METÁR subsidy schemes and on producers leaving the green premium-type aid scheme
3. Contribution of commercial airlines
4. Energy suppliers’ income tax (so called Robin Hood tax)
5. Extra-profit tax on pharmaceutical distributors
6. Mining royalty
7. Surtax on credit institutions and financial enterprises
8. Financial transaction tax
9. Insurance surtax
10. Company car tax
11. Telecommunications surtax
12. Surtax on retail tax
13. Excise duty
14.  Public health product tax

Extra-profit tax on producers leaving the KÁT and METÁR subsidy schemes and on producers leaving the green premium-type aid scheme

The following renewable energy producers are subject to the extra-profit tax (excluding producers having power plants with an installed capacity not exceeding 0.5 MW):

1. producers subject to and eligible for the KÁT and METÁR schemes (according to Government Decree 389/2007 and Government Decree No. 299/2017) whose subsidy contract is terminated in the years of 2022-23, and
2. producers subject to the KÁT Decree, eligible for premium-type aid or green premium-type grants who do not enter or have not entered into the respective contract for state subsidy but commenced or will commence their commercial operation in the tax years of 2022 or 2023.

In the case of a producers leaving the KÁT and/or METÁR schemes, the special tax base is the sales revenue derived from the electricity supplied into the grid by the producer in the given month reduced by the product of the amount of electricity supplied to the grid and the the mandatory take-over or subsidized price (as established by the Hungarian Energy and Utilities Authority, “MEKH” in its resolution) applicable for the respective year (in each case only the positive amounts).

In the case of producers eligible for green premium-type aid but producing without a grant agreement, the special tax base is the positive difference between the sales price specified in the respective electricity sales contract and the subsidized price for the current year multiplied by the amount of electricity supplied into the grid by the producer.

The rate of the extra-profit tax is 65%, which should be paid by taxpayers in 2022 and 2023.

The special tax must be assessed, declared and paid monthly by the 20th day of the month following the respective month. The amount of special tax payable for the period from 1 January 2022 to 1 July 2022 shall be declared and paid by 20th of September 2022.

We further highlight that as per another government decree (Decree 184/2022 (V. 25.), starting from 26 May 2022, in the event of leaving the KÁT scheme producers  will no longer have the opportunity to return to the scheme (formerly a 12-month returning restriction was applied). According to the guidance published by the Hungarian grid operator MAVIR, those who withdrew from the KÁT scheme up to 31 May 2022 - provided that it was confirmed up until this date - will still be able to apply the above 12-month return rule. Further, producers who already announced their intention to leave the KÁT scheme but would leave the system following 30 June 2022 may be able to withdraw from their intention to leave the KÁT scheme. If so, they should notify MAVIR about their withdrawal.
 

Energy suppliers’ income tax (so called Robin Hood tax)

The scope of taxpayers has been extended with the so-called “processing industry producers”, namely bioethanol producers, starch and starch product producers and sunflower oil producers. The new taxable persons and activities are determined based on TEÁOR numbers as well as on the Combined Nomenclature numbers of the processed products.

Manufacturing producers will, in general, be subject to the energy suppliers’ income tax rules. Thus, as a general rule, the tax base is the adjusted pre-tax profit with a tax rate of 31%.

Processing industry producers are required to pay a tax advance based on the expected tax liability for the tax year of 2022 which must be paid by 20 September 2022, thereafter in equal monthly installments by the 20th of each month. The same tax advance payment obligation and schedule applies to the tax year of 2023. The above obligation shall be applied by processing industry producers for the first time for the full tax year beginning after 31 December 2021 and including 1 July 2022.
 

Mining royalty

The Government Decree also increases the rate of the mining royalty for the tax years of 2022 and 2023. The mining royalty is calculated based on the value generated after the quantity of minerals exploited under the official permit. The applicable rate is:

• 48% for crude oil and natural gas extracted from hydrocarbon fields which were put into production before 1 January 2008 (with the exceptions provided for in the Government Decree),
• 42% for natural gas sold at market price and which were exploited from hydrocarbon fields which were put into operation before 1 January 1998 (with the exceptions provided for in the Decree on extra-profit taxes),
• 36% for crude oil and natural gas exploited during test production and crude oil and natural gas exploited from hydrocarbon fields put into operation after 1 January 2008.

In the case of natural gas extracted from hydrocarbon fields put into operation before 1 January 1998 and sold for the supply of users eligible for universal service, the calculation and the rate of the mining royalty remains unchanged. Moreover, the Government Decree includes further derogations from the Act XLVIII of 1993 on Mining. We note that the amount of mining royalty paid in a tax year may reduce the amount of energy suppliers’ income tax payable up to HUF 1.5 billion.
 

Financial transaction tax

The regulation on the extra-profit surtax expands the scope of transactions subject to the financial transaction tax. Investment firms, as well as credit institutions will become taxable after the purchase of a financial instrument specified in Act CXXXVIII of 2007 on Investment Firms and Commodity Dealers, and on the Regulations Governing their Activities (“Bszt.”) Section 6 a) –c) with an ISIN code issued by KELER Central Depository Private Limited Liability Company for the benefit of a client account or own account. The tax base is the value of the financial instrument that is the subject of the transaction and has been credited to the customer's account, the tax rate is 0.3% of the tax base but maximum HUF 10,000 per transaction. The tax liability arises upon the financial completion of the transaction, and taxpayers are required to declare and pay the tax by the 20th of the month following the relevant month, and for the first time by 20 September 2022. The purchase of a financial instrument is exempt from tax if the investment service is provided by the Hungarian State Treasury or the institution operating the Postal Clearing Center.

Persons performing money transmission service, credit and loan operation, currency exchange activity and currency exchange intermediation services in Hungary as cross-border services will also be required to pay a financial transaction fee. If these persons become taxable persons by 1 July 2022, they must request their registration as taxpayers with the Hungarian Tax and Customs Authority by 1 September 2022. If the foreign person becomes a taxpayer after 1 July 2022, the application for registration will have to be submitted by the 1st day of the month following the month in which the foreign person became a taxpayer. The tax rate is 0.3% of the tax base but maximum HUF 10,000 per transaction.
 

Company car tax

From the 1 of July till the end of this year company car taxpayers - Hungarian companies owning passenger cars or using such vehicles in the framework of a financial lease contract - will need to pay 81-87% higher tax.

The amount of the monthly company car tax remains linked to the performance of the engine and the environmental classification of the vehicle. In the case of modern passengers cars - namely in the case of cars with Euro 5 or Euro 6 engines, hybrid, electric cars and vehicles using solely gas (LPG) as fuel - the monthly tax changes the following way:

No other changes are expected related to company car taxation.

The Government Decree links the daily tax rate of simplified employment to the minimum salary, thus, as it is expected that the minimum salary will increase next year, the tax rates are also expected to increase further from 1 January 2023.

An additional change is that extras in movie productions may receive a maximum daily salary up to 12% of the minimum wage, in other words HUF 24 000 instead of the earlier HUF 18 000. Finally, as the daily tax increases the pension entitlement of the individuals employed in simplified employment is also practically doubled.  
 

Surtax on retail tax

Taxpayers under the currently in force Act on Retail Tax are obliged to pay a one-off surtax (80% of the retail tax paid for the tax year starting in 2021) in 2022 in addition to the retail tax that they otherwise pay. This tax is payable on the basis of the net revenues deriving from retail sales in a progressive way. The highest tax rate for this year therefore (including the surtax) almost reaches 5%.

From 2023, these taxpayers shall fulfill their tax payment obligation on the basis of an amended tax table, which will generally mean a declining tax burden compared to 2022, except for retailers with net revenues between HUF 30 billion and HUF 100 billion.
 

 Public health product tax

According to the Government Decree, from 1 July 2022, the tax rates for products subject to the public health products tax will increase, and the scope of the tax will be extended to include several new product categories.

The product categories „delicacies” and „pre-packaged sweet or savoury pasta” will be added to the list of taxable products. The scope of new taxable products will be determined by customs tariff number and the salt or sugar content, as for the other product categories.

For several categories of products, the definition of taxable products will be expanded; for example, products falling under additional customs tariff numbers or containing ingredients that have not yet been specified will also be taxable.

A dual rate will be introduced for soft drinks and syrups, pre-packaged sugary products, flavoured beers, alcopops, marmalades, delicacies and pre-packaged sweet or savoury pastas, depending on whether the sugar content of the product exceeds the prescribed limit. This means that products that were previously not subject to the public health product tax because although they contain added sugar, their sugar content does not exceed the prescribed limit, will also be taxable.

However, alcohol products under the excise duty regime will no longer be subject to the public health product tax.

According to the Government Decree, the tax rates applicable from 1 July 2022 are as follows:

Should you have any questions in relation to the above, please contact Ákos Burján (akos.burjan@pwc.com), László Deák (laszlo.deak@pwc.com), ok Gábor Farkas (gabor.farkas@pwc.com).