EU Launches Probe Into Hungary Food Inspection, Tobacco Taxes

By Margit Feher

BUDAPEST--The European Commission has launched two separate probes into Hungarian special taxes, on suspicion that they benefit small, mostly domestically owned firms at the expense of large, mostly foreign-owned companies.

The Commission is scrutinizing the food inspection fee, as well as a levy on sales from tobacco production and the trade of tobacco products.

Since coming to power in 2010, Hungary's ruling Fidesz party has enacted policies that overwhelmingly hit foreign-owned businesses, imposing special taxes and seeking to reclaim ownership of certain industries, such as banking and power generation.

In a release issued on Wednesday, the Commission, the European Union's executive body, expressed concern that these latest measures benefit firms with a low revenue over competitors with a higher turnover, in breach of EU state aid rules. The statement didn't mention the possible ownership of the firms involved.

The Commission has also prohibited Hungary's government from applying the progressive rates of the food chain inspection fee and also the tobacco tax until its investigation is included.

The Hungarian government wasn't available immediately for comment.

Under an amendment to the food inspection fee, effective from the start of this year, stores with a low annual turnover are exempt from the tax, or liable for a substantially lower fee--0.1% of their annual revenue--than stores with a higher annual turnover, which are obliged to pay up to 6%.

According to calculations in December by Hungarian fiscal watchdog KFV, the local arms of U.K. retailer Tesco PLC (TSCO.LN), the biggest food retailer in Hungary, and SPAR International, headquartered in the Netherlands, would pay more than two-thirds of the tax.

"So far, Hungary has provided no objective reasons that would justify such differentiated treatment between companies for different turnovers [in either case]," the commission said.

In 2015, Hungary introduced a steeply progressive new tax on the sale of tobacco products, referred to as a health contribution.

"The Commission welcomes member state measures to reduce tobacco consumption. However, it has doubts that the effects of tobacco products on public health increase progressively with the turnover of companies selling them," the statement said.

Write to Margit Feher at [e-mail]; Twitter: @margitfeher