Well, well! Tax increases hidden in the government's latest package

A long-standing uncertainty over the future of the windfall tax has been ended by a government decree published on Wednesday night. It includes new extra profit tax rules for 2024 for almost all sectors that were hit with the extra burden last year (originally for two years).

The only thing that may be missing from it is the new rules on airline contributions, for now. It is now officially decided that the government will only partially reduce the windfall tax that was supposed to be phased out at the end of this year, as promised to the European Commission last year.

As announced earlier this week, there are several sectors whose extra profit tax burden will be reduced in 2024 compared to this year, because the government has effectively eased the tax burden for them by rewriting the tax rules (such as the bank extra profit tax, the mining tax and the special tax on pharmaceutical producers).

In two cases, however, we found tax increases in Wednesday's windfall tax decree.

The extra profit tax to be paid by the retail sector in 2024 will continue to have four brackets, but in the top tax bracket (above HUF 100 billion annual net sales) the current top tax rate of 4.1% will rise to 4.5% (this scenario was already projected in an article last week, as it is clear that next year the revenue from the retail extra profit tax will grow robustly by 21.7% to HUF 250 billion).

This will allow the government to collect a few billion forints more from the special retail tax next year, and all this by again targeting the biggest chains, which the government would even like to play a predatory game with, according to the recently confirmed plans.

Before moving on to the changes in the position of the next sector, it is worth recalling that among the extra profit taxes, there were two measures in 2022 that affected pharmaceutical industry players: firstly, distributors were affected by the hike to the repayment obligation for subsidised sales, and secondly, pharmaceutical manufacturers were hit by a special sales tax last December.

Wednesday night's decree halved the rate of the special tax on manufacturers, so pharmaceutical companies benefited. However, it increased the repayment obligation for subsidised sales in certain cases. The cabinet has hidden the bitter pill for pharmaceutical companies and distributors in Section 12 of Wednesday's government decree, which reads as follows:

In Article 7(1), the words "in 2022 and 2023" are replaced by "in 2022, 2023 and 2024", the words "in the case of 28 per cent" are replaced by "in the case of 40 per cent";

This means that the rate at which pharmaceutical companies are taxed on their subsidised sales (with payments made to the pharmaceutical fund) is changing, and not in a small way.

Last summer, the government already introduced a change here: previously, there was a uniform 20% tax rate for pharmaceutical manufacturers and distributors, and then a new element was introduced with the windfall tax rule entering into force last year.

In particular, the repayment rate remained 20% for medicines with a producer price of less than HUF 10,000, while the obligation to pay increased to 28% for medicines with a producer price of more than HUF 10,000.

This was seen at the time as putting (innovative) international companies with more expensive products at a relative disadvantage. And the amendment to the regulation, published late Wednesday night, will further increase this relative disadvantage. The repayment / tax rate for medicines with a producer price of more than 10,000 HUF will rise to 40% from 28%.

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