Hungary’s retail tax under fire: EU investigates discrimination claims by Austrian government and SPAR

The European Commission is looking into the Hungarian retail sales tax following complaints from the Austrian government and Spar. They argue that the tax discriminates against foreign companies and breaches EU regulations.

Retail tax unfair? Austria and Spar complains

The tax rate has climbed to 4.5% of revenue, leading to operating losses for affected businesses, according to Portfolio. The European Commission is investigating complaints the Austrian government and Spar raised regarding Hungary’s retail sales tax.

The tax which was implemented in 2020 currently stands at 4.5% of revenue. Spar alleges that this tax unfairly targets foreign-owned retail chains, forcing them to operate at a loss compared to their Hungarian counterparts, who often face lower tax rates between 0-1%.

Austria’s reaction

Hans Reisch, the CEO of Spar in Austria has stated that Hungary’s tax plan puts pressure on foreign companies to run at a deficit because of the low profit margin in the sector compared to the 4.5% tax rate.

The Austrian Ministers of Economy and Foreign Affairs, Martin Kocher and Alexander Schallenberg both expressed their concerns to EU Commission President Ursula von der Leyen. They emphasised that this new regulation could have an unfair effect on foreign retailers and might go against EU market rules.

The European Commission has acknowledged receipt of the complaint and plans to analyse it, while Hungary’s government has yet to respond.

The European Commission has previously criticised Hungarian retail fees as discriminatory which was highlighted in the 2023 Country Report and country-specific recommendations.

The Commission stressed that these extra expenses are putting an unequal burden on the EU’s retail industry and this is being seen as unfair treatment towards foreign operators. Brussels is also looking into another government action about required shop promotions, which Spar has contested through legal steps with the Court of Justice of the European Union.

While the preliminary assessment does not guarantee further action, an infringement procedure may be initiated soon. In this procedure, the Hungarian government would need to defend the law to Brussels and if deemed unjustified, it can lead to the Commission issuing binding recommendations. Failure to comply could lead to the case being escalated to the EU Court of Justice by the European Commission.

Retail statistics

According to the Hungarian News Agency (MTI), retail sales increased by the following:

Retail sales in Hungary grew by an annual 4.6% in February, 1.1% when adjusted for calendar year effects, the Central Statistical Office (KSH) reported.

Adjusted food sales grew by 2.7 percent, non-food sales dropped by 2.1 percent and vehicle fuel sales grew by 3.9 percent. Month on month, retail sales edged down by a seasonally and calendar-year-adjusted 0.6%.

In the first two months of the year, retail sales fell by an adjusted 0.8%.

A detailed breakdown of the data shows adjusted retail sales rose at supermarkets, appliance shops, drugstores and pharmacies, and petrol stations, but fell at other shops.

Month on month, retail sales fell by an adjusted 0.6%.

In absolute terms, retail sales came to 1,395 billion HUF (EUR 3.6bn) in February. Food sales accounted for 50% of the total, non-food sales for 34% and sales at petrol stations for 16%.

Commenting on the data, the national economy ministry said growth in two consecutive months meant that the retail sector has started to rebound, after 13 months of contraction. The government’s measure to bring inflation down to 3.7% by February, growing real wages since September and the resulting return of consumer trust contributed to the change, the ministry said.

Real wages are expected to grow by more than 5% this year, which would drive domestic demand. The government will also restart growth this year and further boost it next year to support consumption, the ministry said.

Read also:

• The new Iron Curtain: Huge outrage at the Hungarian–Austrian border – HERE
• New Hungarian Golden Visa program: Orbán cabinet allows lots of foreigners to come! – HERE

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