Hungary’s windfall tax and rising energy costs push foreign retailers into the red in 2022

Hungary’s windfall tax and rising energy costs push foreign retailers into the red in 2022
Hungarian retail sales have been falling since December. / bne IntelliNews
By Tamas Csonka in Budapest June 2, 2023

The majority of Hungary’s largest retailers incurred losses last year as the energy crisis, the windfall tax and other government measures such as mandatory price caps negatively affected their operation, local media reported on June 2.

The six largest retailers (Lidl, Spar, Tesco, Auchan, Aldi, Penny) paid a combined HUF130bn (€351mn) in extra taxes into the budget, while they faced a sharp increase in energy and labour costs.

The Hungarian government raised the revenue-based windfall tax on retailers in 2023. On annual turnover of over HUF500mn, the rate rose from 0.1% to 0.15%, between HUF30bn-100bn revenue it grew from 0.4% to 1%.  The government initially set a 2.5% rate on net sales over HUF100bn, which was later raised to 2.7% and to 4.1%  in 2023.

Of the major sectors affected by the windfall tax, only retailers will see their burdens rise next year. The cabinet will tighten its squeeze on large multinationals dominating the market, raising the upper cap by 0.4pp to 4.5% in 2024.

In a decree issued on May 31, the government tweaked windfall taxes introduced in 2022 after the April elections to plug the deficit. The government promised the EU to phase out the extra levies introduced for a two-year interim period, but due to the growing deficit, these will be in place in 2024 as Hungary’s public finances are under growing pressure from surging debt service costs, while there is no timetable for the transfer of frozen EU funds. compiled the earnings of Hungary’s leading retailers, as companies had until May 31 to file their financial reports.

Spar Hungary incurred a HUF13bn loss in 2022 from a HUF5.3bn profit a year earlier as net sales grew 15.4% to HUF766bn last year. Hungary’s second-largest retailer operated 623 stores at the end of 2022, including 248 franchises, and paid HUF26.7bn in special taxes last year.

French retailer Auchan booked a HUF1.8 loss, reversing from a HUF8bn profit in 2021 amid flat net sales, at HUF354. The company paid HUF7.1bn more for electricity last year than in 2021 and the extra profit tax set them back HUF12.6bn.

Hard discount chain Aldi managed a profitable operation in 2022, a year characterised by huge swings in consumer spending. Pre-election transfers boosted retail sales in the first half, but as inflation and austerity measures kicked in, retail spending slowed and began to contract in Q4.

Aldi's net revenue rose sharply from HUF317bn to HUF 417bn, but government levies dented net profit by HUF2.5bn to HUF6bn. The company opened 10 new stores in 2022, increased payroll by 8% to 4164, and chipped in with HUF13.3bn in windfall tax.

A first-half spending splurge by Hungarian consumers lifted the net revenue of Penny Market by 25% to HUF405bn in 2022, when the company ended the year with HUF155mn, a HUF4.5bn annual decline in profit. Penny employed 4,531 at the end of 2022 and paid HUF13.1bn in windfall taxes.

The 2022 financial reports of Tesco and Lidl are expected in July. The windfall tax contribution of the UK-based retailer was HUF25bn and that of the German hard discount chain HUF37bn, reported.

The sector is bracing for more losses in 2023, according to the retail association OKSZ.

The energy crisis is easing, but government measures, the windfall tax, and higher administrative burdens remain in place. The government extended price caps on a dozen food staples until June 30, but the phase-out is questionable. The mandatory stocking of regulated items has also caused additional losses for retailers, and the financial impact of the mandatory food discounts from June 1 remains to be seen, it added.

OKSZ warned that if extra levies remain for good, as some analysts are now speculating, it would have a dire impact on the sector. They recalled that the domestic sales price of food rose at a faster pace than consumer prices, which means that retailers did not pass on rising purchase prices to consumers.

Hungarian retail sales have been falling since December.  In March annualised food sales in contracted for the 11 straight month and the trend is unlikely to change before the second half or early autumn, when disinflationary trends are expected to gather momentum, according to analysts.