As Import Costs Rise, Hungary Allows Corporate Tax Payment in Euros or Dollars

0

Hungarian Finance Minister Mihaly Varga speaks during a business conference in Budapest, Hungary February 19, 2022. REUTERS/Bernadett Szabo

Join now for FREE unlimited access to Reuters.com

Register

BUDAPEST, July 30 (Reuters) – Hungary will allow businesses to pay taxes in euros or dollars, the government announced on Saturday, a move that analysts said could boost the country’s reserves at a time when its cash needs hard currencies exploded.

Like other central European countries such as Poland, the Czech Republic or Romania, Hungary is a long way from adopting the euro, with Prime Minister Viktor Orban’s government ruling it out for the foreseeable future, claiming that this would amount to a loss of sovereignty in matters of economic policy.

Hungary’s move is similar to a plan announced by the Czech government last month to allow companies to pay taxes in euros from 2024, allowing the state to increase its borrowing in euros.

Join now for FREE unlimited access to Reuters.com

Register

“If it’s technically easier for companies to pay taxes in euros or dollars, then it’s easier for the Hungarian state and import needs have exploded,” the chief of staff said on Saturday. ‘Orban during a briefing.

Gergely Gulyas said Hungary’s raw material imports, paid for in foreign currencies, once constituted 3.0-3.5% of total imports, but have now reached 20-21%.

A spike in global gas prices has recently put pressure on the forint rate as it worsens the country’s trade balance which is heavily dependent on energy imports, traders and analysts said.

Hungarian Finance Minister Mihaly Varga wrote on Facebook that the option would be available to all businesses and would simplify business accounting while ensuring taxes continue to flow to the state and the budget remains balanced.

The forint, Central Europe’s worst performing currency so far this year, hit a record high of 416.90 to the euro earlier this month, also under pressure from a lack of agreement with the EU. European Union on recovery funds.

“Companies could save on conversion fees…and the government is probably aiming to increase foreign exchange reserves,” said David Nemeth, principal analyst at K&H Bank.

“Even if there is an agreement with Brussels in the fall, there will not be a significant amount of European funds that will arrive by the end of the year, and it is an easy way to obtain foreign currency without issuing fx bonds.”

Hungary, a small export-oriented economy, is home to manufacturing plants of major German automakers, including Audi (AUDVF.PK) and Daimler.

The government could also use taxes paid in euros or dollars to refinance bonds denominated in foreign currencies, Nemeth said.

“If more and more market participants are able to use only euros, then the importance of the forint will be diminished… It also means getting closer to the eurozone without adopting the euro.”

Join now for FREE unlimited access to Reuters.com

Register

Reporting by Anita Komuves and Krisztina Than; Editing by Toby Chopra

Our standards: The Thomson Reuters Trust Principles.

Share.

Comments are closed.