Hungary targets foreign retailers: Government aims to curb Temu’s market domination

The Hungarian government is considering new measures to reduce the growing influence of foreign retailers like Temu, as it seeks to encourage citizens to spend more at domestic businesses. These efforts are part of a broader push to keep more consumer spending within Hungary and to support the local economy, which has been impacted by the rise of online shopping and cross-border purchases.

Márton Nagy, Minister of Economic Development, hinted at the potential for administrative intervention during an interview with InfoRádió and a recent speech covered by Portfolio. He outlined the government’s concerns over increasing consumer reliance on foreign-owned retailers, both online and offline.

Shopping tourism surges, government concerned

According to a G7 article, the Hungarian government seems to have recently recognised a growing trend, driven by consumer data: more Hungarians are shopping either abroad or with foreign-owned companies operating within the country—a development the government finds concerning. Shopping tourism has surged near Hungary’s borders due to significant and persistent price differences, with many Hungarians regularly purchasing groceries from neighbouring countries.

Online shopping and service sectors are also seeing a rise in foreign companies, such as Temu and Netflix, which are not traditionally established in Hungary. It seems that Hungarians started to prefer shopping for various items from Temu due to the fact that products that are almost identical to those they can get on the Chinese online webshop are sold by Hungarian retailers at several times the price of Temu. Despite fewer Hungarians travelling abroad, the amount they spend while abroad has increased, signalling that wealthier individuals are opting for more luxurious vacations.

All these factors result in money flowing out of Hungary, which doesn’t help stimulate the domestic economy—a point of frustration for the government. In both online and offline retail, the market is dominated by foreign-owned companies. In online retail, local businesses were pushed back years ago by regional competitors like Czech and Romanian firms, while offline, the largest chains are controlled by German, Austrian, and British multinationals.

Lots of Hungarian money flowing out of Hungary

The Chinese platform Temu has further disrupted the market, rapidly gaining a foothold, despite an ongoing investigation by the Hungarian Competition Authority (GVH).

Since 2010, Prime Minister Viktor Orbán’s government has introduced several policy changes aimed at favoring Hungarian-owned businesses, including closing shops on Sundays, imposing special taxes, and halting the construction of large malls. However, these measures have failed to reverse the dominance of foreign retailers. In fact, the increasing burden on the retail sector, along with high VAT, may be one of the reasons why shopping tourism has grown.

As reported by Telex, in 2023, Hungarians used their bank cards to make online purchases worth HUF 1,888 billion (EUR 4.78 billion) from foreign websites. Based on this year’s first-quarter growth rate, that figure is expected to reach HUF 2,400 billion (EUR 6 billion) by the end of 2024.

Last year’s figure accounted for about 10% of Hungary’s retail market, and this year it could rise to 12%. Notably, these numbers do not include Hungarians who use foreign bank cards for purchases abroad.

Additional taxes, further obligations?

Márton Nagy aims to create a level playing field by ensuring that foreign retailers selling to Hungarian consumers face the same tax obligations as domestic companies. This would likely involve imposing additional taxes on cross-border online retailers, which currently do not pay corporate taxes in Hungary. However, Hungarian e-commerce companies selling abroad also benefit from similar exemptions, though they cannot leverage them as effectively.

As for Temu, while it may be subject to increased taxes, it seems unlikely that the government will be able to halt the broader trend of international online commerce. What makes the situation even more complicated is that China is one of Hungary’s top partners in trade: thus, sanctioning a Chinese company merely due to its success on the market would not be an ideal move.

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