"Financial institutions should assume a greater role in contributing to the equilibrium of the budget. Financial businesses will have to pay a 20% contribution on interest subsidies [provided by the state], which is to generate annual [budget] revenue of HUF 25 bln," acting government spokesperson Zoltan J Gal said in a statement.
Hungarian banks have been subject to a "bank tax" since the beginning of 2005, an extra 8% corporate income tax requirement on top of the standard 16% rate. This bank tax was to be phased out at the end of 2006, but Prime Minister Ferenc Gyurcsany announced last Saturday that Hungarian financial institutions would continue to be subject to extra taxation in a different form starting 2007.
Gyurcsany justified the tax by arguing that banks and insurance companies derive a substantial part of their profits from products where demand is boosted by government subsidies or tax breaks – such as housing loans or life insurance savings.
Speaking to reporters Tuesday, however, Finance Minister Janos Veres confirmed reports that insurance companies will be exempt from the new tax for the time being, due to legal complications.
"We could not yet find a way to extend this tax to insurance firms in a way that would stand up to constitutional scrutiny," said Veres.
While the most heavily-affected subjects of the new tax will be banks that provide state-subsidized housing loans – the main driver of banking sector profit growth in Hungary in the past years – Veres pointed out that the tax will also be applied to banks that provide state-subsidized loans to businesses, mostly SMEs.
