Black Friday

First ever internet tax in EU a dubious decision

Stan Ward

Stan Ward

October 29, 2014

Update 31 October 2014: Plans for an internet tax have been dropped, with Prime Minister Viktor Orbán saying the proposed legislation ‘cannot be introduced in its current form’. Additional details available here.

In a first for European Union countries, Hungary has proposed an unpopular tax on Internet usage which has sparked demonstrations and has awakened a heretofore silent, young portion of the electorate. On the heels of winning another two-thirds majority in this years national elections, the ruling party both mystified and antagonized with its Internet proposal. Hungary already holds the dubious distinction of having he highest VAT in the world (27%), this being levied in the last four year reign and a similar two-thirds majority by the victorious center-right government- which has moved further to the right.

That Prime Minister Victor Orban’s government took the unprecedented step of attacking Internet users is bewildering, as Hungary is one of the few countries in the EU to present a balance budget for next year. Reaction to the new tax was swift and surprising. Thousands, mostly young protesters, gathered to demonstrate outside Fidesz Party headquarters in Budapest. Fidesz is the party headed by Orban who won the last election so decisively. Many fear it is the foreshadowing of future controversial moves by a government that is emboldened by its majority and has unbridled power.

It is believed to be the first such tax in the developed world. The Internet tax will be imposed on individuals and corporations and will disproportionately penalize the average Internet user. Under the proposed formula, individuals will pay about three euros a month for Internet usage while businesses will pay about 16 euros. No application will escape the levy, including hourly fees for Skype transmissions.

The reaction from the EU was swift and definitive, criticizing the Orban government for an unwarranted attack on the digital community. EC spokesman for digital affairs, Ryan Heath criticized the tax in strong terms yesterday, describing it as “a terrible idea both in theory and in practice. It is not a question of whether levying the tax is legal or not.” He also echoed the sentiment of many leaders in the EU when he said that, “this proposal is yet another element in the worrying conduct and legislative practice of the Hungarian government.” Moreover, he intoned that,

’Hungary is below the EU average in virtually every single digital indicator. The digital part of the economy is probably the main thing in the economy keeping Europe out of recession right now. So taxing that, in a country that is already below the average on digital indicators, is a particularly bad idea.”

Prime Minister Victor Orban seems to miss the point when attempting to dampen dissent by stating that the tax will not be on individuals, but instead on Internet companies. What this myopic position fails to recognize is that any tax is regressive in nature, and ultimately harmful to the economy. In reaction to such a levy, Internet companies may limit their activity in Hungary, causing a loss of jobs and government revenue.

It would appear that this proposal was ill-conceived and, given the precarious economic climate, premature. Moreover, the Prime Minister and his party may have awakened a portion of the electorate- the young, tech savvy voter-which will become important in future election cycles. So, by any measure, it appears that the Hungarian government overstepped its election mandate with this dubious initiative.

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