Editorial: One Issue, Multiple Attacks

First came the news, apparently broken to the Hungarian government on July 8 but made public on Twitter the following day, that the United States had walked away from the dual taxation treaty it first signed in 1979.

Pre-deadline commitments meant I could not attend the American Chamber of Commerce forum with the Minister of Technology and Industry László Palkovics on Monday. He was there to talk about the new government’s program, but according to the three colleagues we did have at the event, much of the conversation over coffee and croissants centered on this one tax topic and what its implications might be, especially (given the context of the meeting) for American companies.

As our article on page five makes clear, at this stage, very little about those implications can be said definitively so soon after the event. I am sure AmCham’s taxation committee, headed by Károly Radnai, managing partner of Andersen in Hungary, will be looking into what it means, and you can be sure the Budapest Business Journal will be too. One interesting quirk of timing has become clear, however: had the U.S. government communicated its withdrawal in June, it would have been effective from January 2023; having arrived in July, it will not apply until 2024.

The government has made it evident it believes the American withdrawal is a simple attempt to apply “pressure” on Hungary to give up its opposition to the global minimum corporate tax. The Hungarian argument is that, with the European Union looking to implement the tax first, it would put European markets at a disadvantage with those not yet applying it, threatening investments and thus jobs at a time when the war in Ukraine is already contributing to inflation, energy and growth concerns.

But these aren’t the only tax issues facing the government. In a move reminiscent of when it first returned to power in 2010, the government presented new legislation on the Kata simplified tax regime and pushed it through Parliament in an expedited procedure with very little debate or industry consultation (ironically, Palkovics had praised the platforms available for just that in his AmCham presentation).

It is true that there had been discussions about how the tax is implemented, with concerns employers were using it to hire what are effectively full-time salaried staff as freelancers to avoid having to make social security payments. Those criticisms were first aired by László Parragh, chairman of the Hungarian Chamber of Commerce and Industry (MKIK) and a government ally. Indeed, there is currently an MKIK consultation on what is next for Kata that has yet to report.

Parragh himself has said he agrees with the direction of travel but found the implementation forceful and argued it should be introduced from January 2023, a new tax year, and not September this year, as the government intends. Others have been more critical, including employers', IT, accountants' and doctors’ organizations. (It is noticeable taxi drivers have been given an exemption: students of Hungarian history since the change of regime will know the power of a taxi driver’s blockade.) The decision also prompted street protests that briefly closed a couple of bridges.

The various governments of Viktor Orbán have never been shy of a fight but now face wide-ranging opposition that includes the United States, the European Union, several professional associations, and even (limited) public unrest. You might recall that just about the only time Fidesz has backed down was in the face of massed public protests at plans to tax the internet. The crowds that took to the streets on Tuesday were nothing like on that scale, but could they grow?

Having started with one hoary old saying, I’ll leave you with another. Conventional military wisdom has it that you should never fight simultaneously on two fronts. But Orbán has always enjoyed unorthodox approaches.

Robin Marshall

Editor-in-chief

This editorial was first published in the Budapest Business Journal print issue of July 15, 2022.