Proposed changes to advertising tax in Hungary “a burden on everyone”

May 8, 2015


The Hungarian Association of Advertisers believes the latest proposed change to the advertising tax will push many companies to the brink of bankruptcy.  The uniform tax increases prices to consumers, causes inflation, results in lay-offs, worsens the ability of Hungarian companies to compete with global players, and harms the quantity and quality of accessible Hungarian-language media

Professional organizations are urging additional discussion take place regarding the advertising tax.  On Wednesday the Hungarian Association of Advertisers.announced it would ask the government to consider doing away with the tax altogether given its serious effects on the economy.

The common position of the advertising association and nine other professional organizations is that the proposed modification to the advertising tax decreases the ability of micro and small companies to grow.  The 0 percent tax proposed after the first HUF 100 million in advertising revenues offers relief, but larger companies still must calculate with having to pay a tax of 5.3 percent over that amount.

The advertising association believes the HUF 7-9 billion worth of revenue expected from the tax will do far greater damage to the entire Hungarian economy.

The Hungarian alliance of advertisers and professional organizations intends to avail itself of the opportunity to comment on the proposed modification to the law by May 9th.  The advertising association also plans to submit its observations to the European Commission (EC) in connection with the investigation launched into the Hungarian advertising tax, according to a statement issued this week.

The biggest problem with the advertising tax is that it does not only affect those in the field of advertising but the entire Hungarian economy, including producers, consumers and the service market, association general secretary Szilvia Fülöp told ATV’S Straight Talk, on May 6th.

Advertising driving force behind economy

Fülöp says advertising is the driving force behind the market economy.   Advertising makes possible the sale of products, and is primarily what supports newspapers and magazines.  Fülöp called attention to the fact that the advertising tax could result in the closure of media outlets, narrow the range of programs they broadcast, resulting in a decrease in the quality of the programs they broadcast, as well as endanger people’s ability to inform themselves on matters.  In a given case a news broadcaster or a program like ATV’s Straight Talk could end, said the general secretary.

From the point of view of consumers, the advertising tax would lead to an increase in prices.  The proposal submitted this week by the government to apply a 5.3 percent tax means a tax increase for every affected company, said Fülöp, who cites the example of a media company having annual advertising revenues of HUF 800 million.   To date such a company paid a tax of one percent after HUF 300 million, in other words, HUF 3 milion.  From this time on it would be required to pay 5.3 percent of HUF 700  million, which comes to more than HUF 37 million.  That’s a 12-fold increase.  She says that those falling in the 10 percent tax bracket will also experience a seven-time increase in taxes.  Companies would end up paying this just as they ended up paying every other sectoral tax.

Obviously, this would affect micro and small companies the most.  It is conceivable there would be lay-offs, says the general secretary, mentioning an earlier study according to which every HUF 1 spent on advertising generates HUF 47 for the economy.  Seen in this light, clearly the tax on advertising revenues was harmful.

Professional organizations have also complained that the proposed modified law continues to apply the tax to companies’ own advertising.  The uniform tax rate over HUF 100 million would result in a huge increase in costs for every big producer of products and handler of services.

To illustrate the absurdity of the proposed legislation, Fülöp cites the example of petrol stations, which would have to pay an advertising tax on the illuminated sign used to post prices “including the cost of lighting, installing and cleaning as well”.  Stores would have to pay the tax on small price labels in stores that help customers find their favorite sweets.

In response to a question from a reporter, Minister in charge of the Prime Minister`s Office Janos Lázár announced at a press conference on Thursday that it is not easy to find a solution that is good for everyone.  He said the government wants for there to be income from the advertising tax this year because this money is needed for the budget.  Lázár did not rule out the possibility of further modification to the law.