István Garancsi reaps windfall at Hungarian taxpayer expense

July 15, 2016

Translation of G. Gábor Varga’s The “absentmindedness” of Varga’s team helped Garancsi and company reap a half-billion-forint windfall appearing in nol.hu on July 13th, 2016.

The ministry of national economy (NGM) has not followed its own decree, enabling István Garancsi’s firm to gather over HUF 400 million last year from data services for cash registers connected to the National Tax and Customs Administration (NAV).

Mihály Varga with the 100,000th online cash register Photo: Mediaworks

 

For two years, the ministry headed by Mihály Varga failed, despite its own rules requiring it, to review the official fee charged for the communication of cash registers connected to the tax authority. Thus the NGM effectively helped online cash register data service providers to reap windfall profits. Among them was the largest player in the market, a firm owned by István Garancsi, counted as a good friend of the prime minister. According to public data, Mobil Adat Ltd made a profit of HUF 450 million in 2015, of which the owners took the large part, HUF 420 million, in dividends. Some 378 million of this had Garancsi’s name on it, given that he is 90% owner of the firm. (In 2014, the owners took dividends of HUF 220 million from profits). The service is expensive. While the cost of mobile internet is falling across the world, this price remained unchanged. A competition procedure could be launched following Népszabadság’s inquiries.

“One thousand five hundred forints a month is 18,000 a year. That’s what I pay for the cash register ‘phone bill’, which isn’t much to the business. But I I think that the machine sends 100MB at most in a month, while I get 2GB for that price on my smart phone, then its outrageously expensive. And I’m doing alright! The shop over the road has two computer-based registers. Their data traffic is only sightly higher than ours, but they pay 5,000 forints a month,” said János, who runs a snack bar in Balatonfüred.

The Balaton entrepreneur Janos, and over a hundred thousand like him, cannot choose the service provider for their cash registers as they can for their smartphones. The communication module is built in to the register, and he didn’t have much choice when he bought the register three years ago: all models were fitted with a Mobil Adat SIM card.

When Mobil Adat was still charging HUF 2,300 for the service, the NMG issued a decree at the end of 2013 setting the data fee at HUF 1,500 for a small register and HUF 2,500 for a PC-based register, the firm’s director and part-owner Péter Brasnyó told this newspaper.

Mihály Varga’s decree meant a reduction of HUF 800 for traders with small cash registers, but a rise of HUF 200 for those with PC-based systems. While this could not be called cheap, it was at least comparable to mobile internet tariffs. The comparison is, however, complicated by the fact that we do not have official figures on the average data traffic for the machines. Neither Mobil Adat nor the NAV would disclose it, citing data protection rules. Moreover, in line with the ministerial decree, only SIM cards from foreign service providers can find their way into Hungarian cash registers – Mobil Adat procures them in collaboration with Vodafone.

Possible investigation

“This matter in not currently the subject of a competition procedure at the Hungarian Competition Authority,” the authority wrote in reply to our questions, while also treating our inquiry as a complaint and forwarding it to the relevant department. This could lead to the launch of an investigation.

Although the NGM decree prescribes that the official fee should be reviewed every December, with the opinion of the National Media and Infocommunications Authority and market participants taken into account when setting the price, the signs are that the review did not take place. The ministry has not responded to questions about the process, which were sent over two weeks ago. Mobile service providers reacted similarly, but we learned through unofficial channels that there have been no discussions since the end of 2013.

This is reinforced by the response of the media authority, which said it received no request for a professional opinion at the end of 2014 or the end of 2015. Yet the authority took part in the process in 2013, stressing the importance of keeping to a minimum the costs incurred by the operators of cash registers. It also signalled that this was made difficult by having an official price, and recommended that a maximum price should be set instead. This finally happened in December 2014, when the decree was amended to set the maximum price a service provider can charge at HUF 1,500 and HUF 2,500. However, the price did not fall despite this easing of the rules.

Number of online cash registers (May 31 2016)

Number of machines connected: 223 049

Small cash registers: 185 631
Mobil Adat small registers: 100 000*
PC-based registers: 37 418
Mobil Adat PC-based: 14 500*
Discontinued: 16 000

Total registers in operation: 206 000
Mobil Adat total: 115 000*

Source: NAV, Mobil Adat éves jelentés / *Népszabadság estimate

This is hardly likely to have upset Garancsi and company. The built-in SIM card trader and mobile data collection provider Mobil Adat garnered revenue of HUF 2 billion last year from small traders using online cash registers. NAV, citing business secrecy, declined to reveal which services providers were operating how many registers.

Seizing the opportunity

This state regulation meant Mobil Adat, the firm set up by Péter Brasnyó and Gábor Hauser, was entering a special market in the first half of 2013. We have already written about Hauser, and the fact that a fellow stunt flyer was NAV’s deputy head of information monitoring for the roll-out of the online cash register system. An owner linked to István Tiborcz later turned up in place of one of the firm’s founders, an offshore-type American company, until István Garancsi became the 90% owner in the autumn of 2014.

Update: the reaction of the NGM

Following the publication of our report, the ministry for national economy sent the following statement:

“The authority has discussed the official price with market participants on numerous occasions. In the course of these discussions the service providers were in favour of raising the price, while the Ministry for National Economy’s favoured a reduction in the price.

According to one part of the service providers, the present level is so low that they incur a loss by providing the service, and they would cease the service if the price were to fall further.

At the same time, it is a fact that the data transfer is done through the service providers’ SIM chips in the cash registers. If one service provider or another were to leave the market because of a reduction in the official price and not hand over to another mobile service provider, then those machines, which belong to the mobile service provider, cannot transfer data to the tax authorities, in other words they can no longer be legally used. It is particularly important to to avoid this situation, as the ministry should not place those users who bought a cash register 2-3 years ago in a situation where they have to buy another.

Consequently the ministry, representing the interests of businesses using cash registers, has not modified the official price for provision of data transfer services between the online cash register and the state tax and customs authority. That is, despite the requests of market participants, it has not consented to a rise in the official price.

Naturally, the ministry will continue to work toward lightening the burden on businesses, and in so far as market conditions allow, would reduce the official price for provision of data transfer services between the online cash register and the state tax and customs authority.

The Ministry for National Economy will continually monitor market conditions, and whether a significant change has occurred that would allow some or all service providers subject to the official price to lower their price. Another important aspect is that the service continue to be provided to the highest level of data security. It is important to note, however, that mobile services suitable for the forwarding of data from the connected cash registers to NAV cannot be compared with mobile internet services. The former implies a far more comprehensive, secure, inaccessible service that – in the interests of protecting the business data of the businesses using the cash registers – ensures the secrecy of the data connection.”

The ministry’s statement does not allude to whether a review of the official price took place with the participation of the parties as prescribed by the decree. These are the questions we sent to the ministry two weeks before the article was published:

What factors were used as the numerical basis for the official price for cash register data communication as per decree number 74/2013?

– Which service providers commented during the price discussions and how?

– Was there a price review in 2014 and 2015?

– Does the applied price conform to the law on pricing?

– Why, when the price of data traffic is falling worldwide, have neither the official maximum price nor the applied prices fallen in the case of online registers.

– Has the NGM asked the Competition Authority to establish whether real competition exists on the special market?