Hungary's parliament approved a package of tax changes on July 20, the last day of the summer session, that introduces a levy on NGOs that support immigration, while also scrapping tax exemptions for the national brandy, palinka.

A month after approving the controversial bill named after Hungarian-born billionaire George Soros, lawmakers voted to allow a 25% levy on material support for the operation of NGOs whose activities support immigration. The move will further sour relations between Brussels and Hungary's right-wing government, which has been a staunch opponent of the EU's migrant policy, standing up against the EU's relocation scheme.

The legislation would apply to NGOs that support the immigration of non-EU nationals or foreigners without proper residency permits either "directly or indirectly".

The text, which is likely to lead to international condemnation similar to that sparked by the Stop Soros law package, is extended to "programmes, operations or activities that are designed to promote immigration may be in the framework of conducting or participating in media campaigns and media seminars, organising education, establishing or operating networks or propaganda that paints immigration in a positive light”. Proceeds from the levy would go towards border protection.

On July 19, the EU’s executive body announced that it was taking Hungary to court over its treatment of asylum-seekers under the so-called Stop Soros laws, which penalise national, international and nongovernmental organisations for offering support to those applying for asylum or a residence permit in Hungary. 

There is a split inside the European People's Party, the largest faction in the European Parliament, over whether it should exclude Fidesz from its ranks, Fidesz MEP Gyorgy Schopflin confirmed in a weekend interview. MEPs from the Benelux states, Sweden and Portugal have become weary of Hungarian Prime Minister Viktor Orban's populist moves, which include dismantling checks and balances, extending control over the judiciary and curbing media freedom.  

Schopflin, who left Hungary in 1950 and settled in the UK, warned of the consequences. Decision making in the EP could be blocked if Fidesz were to join eurosceptic groups in the aftermath of its expulsion, he added, which suggests that the blackmail potential of Orban and Fidesz with their strong mandate in the faction remains strong, some observers noted.

On July 20, lawmakers also approved an exemption from the financial transaction duties for transfers of up to HUF20,000 (€61), which aims to strengthen the use of electronic payments and reduce the use of cash, which is still at a high level compared to other EU members. 

Hungary's parliament also ended the exemption from the public health tax for fruit distillates, such as palinka, as well as for herbal liqueurs which are mostly produced domestically, after the European Commission stepped up an infringement procedure against Hungary, saying the regulation is protectionist as it favours domestic producers. 

The change seeks to "end a legal dispute with the European Commission, avoiding a situation of legal uncertainty, bad for both taxpayers and the tax authority, that could drag on for years", according to the legal text. 

Friday's decision marks a U-turn, as the government had vehemently defended the protectionist measure and even threatened to go to court.

On Friday lawmakers also fine-tuned the regulation of real estate investment trusts (REITs), which are exempt from corporate tax and local business tax but must pay shareholders 90% of profits as a dividend. A number of REITs have been established in Hungary recently, following favourable changes to the regulatory environment.