Hungary reportedly preparing special tax and produce quotas for retailers

By bne IntelliNews May 27, 2016

The Hungarian government is mulling a special tax on multinational retailers, and an attempt to boost domestic ownership in the sector, local press reported on May 27.

Budapest flagged earlier this month that it is looking for solutions that would allow it to "restrict" the participation of multinational companies in the retail sector without provoking the ire of the EU. The ruling Fidesz party has a long track record of putting pressure on international investors, especially in the retail sector, as well as banking, telecoms and energy.

With eyes on Poland’s plan to levy a 2% tax on large retailers, the government has “a similar levy on the agenda,” Nepszabadsag reports. The cabinet also aims to boost the country’s agriculture by requiring retailers sell more Hungarian products.

The prime minister's office and ministry of agriculture plans to set quotas that would see large stores required to source 60% of produce on their shelves domestically.  At first the quota will apply to milk and apples. Hungarian farmers have been protesting for state support because of low milk prices, while apple producers have been hard hit by decreasing sales by the Russian embargo on EU food imports.

An attempt last year to levy a progressive tax on Hungarian retailers was pulled due to complaints over distortion of trade by the EU, and the quota system could face a similar challenge. Portfolio.hu suggests Budapest hopes to push through the legislation by quoting consumer protection or environmental protection considerations, rather than attempts to offer support to agricultural producers.

Meanwhile, with the pressure on international retailers growing again, it is speculated - not for the first time it must be said - that troubled UK grocer Tesco is seeking an exit. Hungary's biggest lender OTP Bank confirmed on May 27 that it has considered an acquisition of Tesco’s Central European network, should it go up for sale. The UK company has denied several times that it plans to exit the region, but that has not halted speculation in most of the markets.

While OTP confirmed that a “theoretical possibility” did come up, the bank added that it has now dropped the idea, as “it turned out that the acquisition would imply a disproportionately large burden and risk compared to our planned exposure to the retail sector,” reports Figyelo.

However, quoting unnamed sources, the paper reports that a deal was blocked by Prime Minister Viktor Orban, as he feared it would raise "political tension with Poland”. Such a deal would upset Polish investors that are also eyeing Tesco, according to the claim.

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