Hungary modifies insurance tax, withholds Covid levy reimbursement for banks this year

Smaller insurers may rejoice

In a decree published on Monday night, the government has pushed up the band limits of the flat-rate insurance tax introduced in 2012, with effect from 1 April. Insurers with casco and property and casualty premium income of between HUF 8 billion and HUF 20 billion will be the biggest winners, with smaller insurers gaining too, while larger insurers will not get any relief.

CASCO insurance is a type of motor insurance cover whereby the insurance company compensates damages incurred to the policyholder's vehicle in case of an incident, theft, robbery and fire. It also covers the policyholder in case of injury or death.

Previously, insurers had to pay

• 15% of the premium in the case of casco,
• 10% of the premium in the case of property and casualty insurance and
• 23% of the premium income (up to HUF 83 per vehicle per day) in the case of compulsory motor liability insurance,

with the exception of the following, if the combined tax base of the first two items was less than HUF 8 billion, the insurer had to pay only

• 25% of the tax rate up to HUF 100 million,
• 50% between HUF 100 million and HUF 700 million, and
• the standard rate between HUF 700 million and HUF 8 billion.

(In addition, insurers have to pay a windfall tax, which in turn also affects life insurance).This will now be amended as of 1 April, so that

THE HUF 8 BILLION "ELIGIBILITY" LIMIT IS INCREASED TO HUF 20 BILLION, the HUF 100 MILLION threshold TO HUF 250 MILLION AND the HUF 700 MILLION TO HUF 1.75 BILLION.

This means that if the total tax base of the first two items is less than HUF 20 billion, the insurer will only have to pay 25% of the tax rate up to HUF 250 million, and 50% between HUF 250 million and HUF 1.75 billion.

The change is logical in the sense that the world has changed a lot since the original legislation, both in terms of prices and premiums, and it is logical to update it. Insurers with total premiums of less than HUF 20 billion for casco, property and casualty insurance (including presumably the listed CIG Pannónia's property and liability insurance interest, CIG EMABIT) will benefit from the change, especially those with a tax base of between HUF 8 billion and HUF 20 billion. However, insurers with a similar tax base above HUF 20 billion will not benefit.

According to the latest figures by the Hungarian Insurance Association (MABISZ), the insurance sector last year paid

HUF 122.9 BILLION IN INSURANCE TAX AND HUF 88.1 BILLION IN windfall TAX, SO THE TOTAL PAYMENT OF 211.1 BILLION FORINTS wiped out 13.5% OF PREMIUM INCOME.

No pudding for banks this year!

At the beginning of the coronavirus pandemic, the government also asked for the banks' contribution to burden sharing. Therefore, in 2020, a one-off 'Covid levy' of HUF 55 billion was imposed on banks, which was to be paid back in equal instalments of 20% over the following five years, or more precisely, by which much the banks can reduce their special tax liability.

That was then. The new government decree published on Monday night stipulates that

2024 will drop out, so the banks will be reimbursed in 20% instalments in 2021, 2022, 2023, 2025 and 2026.

According to the the central bank's (MNB) latest data, the Hungarian banking system achieved an after-tax profit (non-consolidated) of HUF 1,451 billion last year, which will be the subject of a separate analysis in another article.

Finance Minister Mihály Varga announced on Monday that the government will bring the deficit below 3% in the next three years. This year the government has targeted a gap of 4.5% of GDP, next year 3.7%. The deficit will be 2.9% in 2026 and 2.4% in 2027.

This is the first official acknowledgement by the Finance Minister that the government will not be able to meet this year's original deficit target of 2.9%. This was previously predicted by Márton Nagy, Minister of National Economy.

Cover photo: Shutterstock