spiritsNEWS February 2019

Hungarian health tax: infringement procedure closed, as other problems emerge

It has taken four long years to finally get the Hungarian Goverment to respect the rules of the Internal Market as far as taxation is concerned.

Back in January 2015, a new “health tax” had been introduced, imposing an arbitrary and discriminatory tax to some spirit drinks while exempting other categories and products such as Pálinka which are traditionally produced in Hungary.

An infringement case was opened against Hungary by the European Commission based on the view that this new “health tax” was in breach of EU laws, particularly Article 110 of the Treaty on the Functioning of the European Union (TFEU). After a long process, the Hungarian Government finally modified its legislation to apply the “health tax” to all spirits products. The decision entered into force in January 2019. It is a welcome development, as Hungary has been distorting the normal functioning of the spirit drinks market for years by granting undue protection to certain national products. 

At the same time, it needs to be noted that a considerable amount of Pálinka on the Hungarian market is home-distilled. As allowed by EU legislation, a reduced rate of 50% of the standard excise rate applies to Pálinka produced at home or in the hire distillation scheme (maximum quantity per annum: 50 litres). Market data forecasts show that, following the introduction of the modified health tax on 1 January 2019, the sales of commercial Pálinka are set to decrease significantly whilst the hired and home distillation share is predicted to increase… We invite public authorities to apply a strict control on both market and production premises.

A final point to note on this matter: despite its name and the fact that inappropriate consumption of alcohol is irrespective of the category of beverage consumed, the tax does not apply to either beer or to wine.  As each of the three categories in Hungary has a broadly similar market share, this means that two thirs of the alcoholic beverages market remain outside the scope of the ‘Health’ Tax…

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