Hungary: tax on Internet traffic

[Irbis]

Hungary plans to impose a new tax on Internet data transfers, a draft 2015 tax bill submitted to parliament late on Tuesday showed, in a move that could hit Internet and telecoms providers and their customers hard.

The draft tax code contains a provision for Internet providers to pay a tax of 150 forints (60 US cents) per gigabyte of data traffic, though it would also let companies offset corporate income tax against the new levy.

Within hours of the tax provision being published over 100,000 people joined a Facebook group protesting the levy, which they fear providers will pass on to them. Thousands said they would rally against the tax, which they said was excessive, outside the Economy Ministry on Sunday.

Prime Minister Viktor Orban's government has in the last few years imposed special taxes on the banking, retail and energy sectors as well as on telecommunications providers to keep the budget deficit in check, jeopardizing profits in some sectors of the economy and unnerving international investors.

Economy Minister Mihaly Varga defended the move on Tuesday, saying communications technology has changed the way people use telecom services and therefore the tax code needed to be changed. His ministry said it expects the tax to generate annual revenue of 20 billion forints.

However, fixed-line Internet traffic in Hungary reached 1.15 billion gigabytes in 2013 and mobile internet added 18 million gigabytes, which would generate revenue of 175 billion forints under the new tax according to consultancy firm eNet.

Traffic has probably grown since, eNet partner Gergely Kis told Reuters, so the tax could hit Internet providers by more than 200 billion forints, if left unaltered.

The entire internet service sector's annual revenue came to 164 billion forints at the end of 2013, according to the Central Statistics Office (KSH).

The government's low estimate of revenue suggests it will impose a cap on the amount of tax any single Internet provider will have to pay, and in view of the public reaction the ruling Fidesz party asked the government to set a maximum level on the tax payable by individuals.

"The Fidesz parliament group insists that the data traffic tax be paid by service providers, therefore we propose changes to the bill," Fidesz parliament group leader Antal Rogan said in an emailed statement.

"We think it is practical to introduce an upper limit in the same fashion and same magnitude that applied to voice-based telephony previously."

Under the current tax code private individuals' tax payments are maximized at a monthly 700 forints ($2.9) while companies cannot pay more than 5,000 forints a month.

A government spokesman was not immediately available for comment.

STOCK HIT, INTERNET USERS UNITE

Analysts at Equilor Securities said on Wednesday that the Internet service market leader, Deutsche Telekom's subsidiary Magyar Telekom could expect to pay about 10 billion forints if there was no limit on the proposed tax.

"Although corporate taxes offset this amount Magyar Telekom has paid only 200-300 million forints worth of such tax in recent years because its parent company used tax breaks," Equilor noted.

"The company could theoretically pass on the burden to its clients but that requires a business policy decision so it's too early to say much about that. The tax could, however, boost uncertainty about a resumption of dividend payments at Magyar Telekom."

Magyar Telekom recently said it would pay no dividend for 2014 in order to keep its debt in check.

The company said the "drastic" new tax threatened to undermine planned investments in broadband network infrastructure, and called for the proposal to be withdrawn. It said industry players were not consulted about the idea.

Magyar Telekom shares were down 2.9 percent at 1221 GMT (0821 EDT), underperforming the blue chip index, which was down 0.3 percent.

The Association of IT, Telecommunications and Electronics Companies said in a statement on Wednesday that the tax would force them to hike prices, which would reflect in consumer prices in general and hinder economic growth.

"The real losers of the Internet tax are not the Internet companies but their clients, users, and all Hungarians who would now access the services they have used much more expensively, or in an extreme case, not at all," the Association said.

Balazs Nemes, one of those who began the Facebook page protesting the move, said: "In more developed nations, broadband Internet access is considered part of human rights.

"Only the darkest dictatorships want to control the Internet either financially or with raw power," he said.

"We pay VAT, the Internet service providers pay corporate taxes, so what justifies making web use a luxury when we do basic things like arranging medical appointments, university applications or banking online?"

(1 US dollar = 240.75 Hungarian forint)

[link] Putin should take notes. That's how you deal with pesky foreign companies and these troublemaking social media protesters within your old 100% certified democracies club - you tax them where it hurts them. Human rights? Who cares, they non olet

[Simon_Jester]

Question.

Is a (low, very probably lower than this) tax on large-scale data transmission unreasonable in and of itself?

It's certainly an expensive part of modern infastructure, even if it's not state-run everywhere.

[Jub]

Question.

Is a (low, very probably lower than this) tax on large-scale data transmission unreasonable in and of itself?

It's certainly an expensive part of modern infastructure, even if it's not state-run everywhere.

If it was state run and the state has been putting out good faith attempts to keep the network current and outlying areas connected a tax would be reasonable. If it's private cable or the government hasn't shown they can do a good job managing infrastructure I would have issues with such a tax unless the government could convince me that they plan to put that tax money to good use. If the tax inhibits private network growth and the government isn't doing anything infrastructure wise I would be wholly opposed.

[Fingolfin_Noldor]

Well, the flip side is that the Hungarian government does need every bit of revenue it can get since... its finances is not exactly in the best of shape.

[Mr Bean]

Well, the flip side is that the Hungarian government does need every bit of revenue it can get since... its finances is not exactly in the best of shape.

Funny enough one of the first responses to this was an economics fellow saying he things Hungarian estimates for the revenue brought in was going to be to low by a magnitude. It's in the article here

Economy Minister Mihaly Varga defended the move on Tuesday, saying communications technology has changed the way people use telecom services and therefore the tax code needed to be changed. His ministry said it expects the tax to generate annual revenue of 20 billion forints.

However, fixed-line Internet traffic in Hungary reached 1.15 billion gigabytes in 2013 and mobile internet added 18 million gigabytes, which would generate revenue of 175 billion forints under the new tax according to consultancy firm eNet.

Traffic has probably grown since, eNet partner Gergely Kis told Reuters, so the tax could hit Internet providers by more than 200 billion forints, if left unaltered.

The entire internet service sector's annual revenue came to 164 billion forints at the end of 2013, according to the Central Statistics Office (KSH).

But the number I saw was closer 200 billion forints per year growing by 15% per year pretty much forever.

For example if this tax was applied to myself I would have had to pay 400$ in tax last month since I re-formated my computer and re-downloaded my steam library of about 680 gigs over three days which works out to sixty cents per gig or 408$.

That's twelve times what I payed for internet last month as it is, granted not even month is an upgrade the computer month but it's still on the order of 40-70 gigs per month which means an extra 24$-42$ a month in taxes if this were applied here.

[Jub]

But the number I saw was closer 200 billion forints per year growing by 15% per year pretty much forever.

For example if this tax was applied to myself I would have had to pay 400$ in tax last month since I re-formated my computer and re-downloaded my steam library of about 680 gigs over three days which works out to sixty cents per gig or 408$.

That's twelve times what I payed for internet last month as it is, granted not even month is an upgrade the computer month but it's still on the order of 40-70 gigs per month which means an extra 24$-42$ a month in taxes if this were applied here.

So this tax not only won't cover more than a fraction of the defecit, but is also predicted to slow growth in the telecomm sector. Sounds like a swell idea.

[Simon_Jester]

Hm. A tax on data transfers with costs equal to the entire annual revenue of internet service providers would definitely disrupt their operations- basically, people would stop being willing to make large downloads at all. Sure, it'd still be worth it to download a one-gigabyte movie file for sixty cents... but it wouldn't be worth it to download a whole library of games or videos that takes up hundreds of gigabytes, if you're not sure you're going to use them all.

On the other hand, at the low end this sort of tax could be relatively painless; the problem is that this one is simply excessive, at least given the current volume of traffic. Sixty cents a gigabyte wouldn't have seemed excessive in 1999, it'd have seemed like pocket change because people didn't make gigabyte-range downloads back then.

[Pelranius]

Would it be too much to ask that such a telecoms tax would turn into a quagmire for Orban's government?

[LaCroix]

This morning, the radio claimed it would be capped at 700 Forint/month (about 2.5$).

[quote="Mr Bean“] my steam library of about 680 gigs .[/quote] wow...

[Grumman]

On the other hand, at the low end this sort of tax could be relatively painless;

I disagree with this notion - at the low end this sort of tax would be disproportionately painful, because the first cent is always the most costly.* Much better to not enact the tax at all and be happy that Hungarians have access to such an efficient form of wealth generation instead of trying to kill the goose that lays the golden eggs.

* For example, last year Kevin Rudd proposed a new tax on bank deposits to fund a $500 million per year nest egg, in case the banks needed to be bailed out. Just the suggestion that the government thought this was a good idea dropped the share price of those banks by $40 billion.

[Simon_Jester]

I acknowledge your point in principle, although I think that after a system has had a meaningful amount of time to stabilize, then a "five cents per gigabyte" or whatever low figure we pick would seem relatively un-noticeable.

I mean, the matter of the Australian bank tax indicates either a very systematic stupidity in the way the stock market works... or a one-time drop in stock prices that would renormalize pretty quickly if anyone gave it the chance.

[madd0ct0r]

is growth in downloads an unambiguously good thing? by the time I was 19 I had more music on my hard drives then I could ever physically listen to. What benefit does anyone get from such waste?

[Zixinus]

The idea of "just taxing the big businessmen, not the people they give service to" is just propaganda to comfort Fidesz's voterbase. They did this line with banks and since then you have to pay for things while banking that you previously didn't have to. The people served are going to have to pay for this and the Hungarian consumer is not that rich.

Here's a thing that seems obvious to someone in the country: the idea to tax internet usage isn't the outcrop of some sort of ideological thinking. It is the outcome of a government that has no real idea how to govern outside of old Soviet-era self-service politics whose new element is mostly populist nationalism (coupled with a media empire). The tax is a desperate and stupid idea to try and keep that up while not giving a crap about the consequences (the people making the choice are well-shield from the consequences naturally), rather than re-evaluate budget priorities.

I would not be surprised if the idea of crippling the source of significant opposition to them is also in play, but that's just my cynicism talking.

is growth in downloads an unambiguously good thing? by the time I was 19 I had more music on my hard drives then I could ever physically listen to. What benefit does anyone get from such waste?

What waste? You caused probably as much waste in electricity as you would have if you had the habit of leaving the light on sometimes. That hard-drive space can be re-used many, many times. Your probably did do so with many things on your hard-drive that didn't use bandwidth at all (the same goes for the other wear-and-tear use of the rest of your computer). Other than that there is no direct side-product of downloading stuff.

[Jub]

is growth in downloads an unambiguously good thing? by the time I was 19 I had more music on my hard drives then I could ever physically listen to. What benefit does anyone get from such waste?

What is wasted exactly? The servers/peers you downloaded from would have been online even if you didn't download from them and your computer doesn't burn much more power managing a download than it does sitting idle, the hard drive space is - for he most part - wasted if not used, plus most of the download size creep isn't related to music but to increased video fidelity and larger file sizes for everything from operating systems, to games, and other files. Not many people are filling up Terabyte sized drives with just music and those that are are no different than any other large scale collector.

[madd0ct0r]

I was primarily thinking of the bandwidth used, seeing as the discussion is based around tax on use of infrastructure.

[salm]

I was primarily thinking of the bandwidth used, seeing as the discussion is based around tax on use of infrastructure.

I work from my home office for, among others, a customer in a city 600 km far away. I exchange 100s of Gigabytes per month with him. If I didn´t have the infrastructure to support this or was taxed too much per GB I´d lose this customer.
While bandwidth is used for a whole bunch of useless crap it is also essential to more important things such as entire business models.

[SpottedKitty]

While bandwidth is used for a whole bunch of useless crap it is also essential to more important things such as entire business models.

A good point. Wouldn't this sort of extra charge have a greater effect on the flavour-of-the-month, cloud computing? It doesn't just depend on, it demands regular high bandwidth use as big chunks of data sets go whizzing back and forth — things that would normally happen inside peoples' home or office systems.