TAX NEWS - June 2010

Hungary's Planned Bank Tax May Force Insurers Out, Mabisz Says

Hungary's planned tax on financial institutions may force insurance companies to quit the country as the extra levy will make them unprofitable, the head of the insurance association said.

The recently elected government wants to raise 200 billion forint ($878 million) this year from a tax levied on banks, insurance companies and financial leasing firms, Prime Minister Viktor Orban said on June 8.

The tax is part of Orban's economic action plan aimed at cutting the budget deficit to 3.8 percent of gross domestic product in 2010.

"The extra tax will mean that small and medium-size insurers will become loss-making this year and this will immediately raise capital adequacy issues," Peter Kisbenedek, the chairman of the association of Hungarian insurers, known as Mabisz, said at a press conference in Budapest. As a result, a wave of consolidation will hit the market and several insurers "may quit the country."

In a letter to the prime minister, Hungary's foreign-owned banks requested a review of the effects of the proposed tax, news portal Portfolio.hu reported today, without citing anyone. There is growing resentment in the banking industry against the tax, the news website said, citing several unidentified bank executives.

Insurance firms will try to work out a consensus for the basis of the planned tax, Kisbenedek said.

The nation's lenders are also seeking an agreement among themselves on whether the tax should be based on profit, total assets or other indicators, Janos Muller, chief adviser to the Hungarian bank association, said over the phone today. Financial firms have until the end of next week to present their proposals to the government, Muller said.