The Hungarian government has shelved plans to introduce a tax on internet use after tens of thousands of demonstrators took to the streets of Budapest in protest.
Prime Minister Viktor Orban conceded that “If the people not only dislike something but also consider it unreasonable then it should not be done.” Yet the issue may not end there; a national consultation into financial and regulatory aspects of Hungary’s online sector will take place in January
Here we take a closer look at the original proposed tax and how it could have fit into the wider picture in Hungary.
Why an internet tax?
The government in Hungary said the idea behind the tax was to catch those who use the Internet for telephone calls.
It claimed the proposal was simply an extension of an existing telecommunications tax.
The economy ministry told portfolio.hu that telecommunications firms pay taxes on fixed lines and mobiles, but not on internet-based calls.
So why the protests?
Protesters say the bill would curb fundamental democratic rights and freedoms.
They added that as well as increasing the tax burden, it would impede equal access to the internet and deepen the digital divide between Hungary’s social classes.
Others asked whether it will make it difficult for citizens to read unbiased news that is not under the control of Hungary’s ruling elite.
How would the tax work in practice?
The tax, on the face of it, would not have been imposed on individuals, according to the government, but rather on telecommunications firms.
But critics fear internet service providers would pass the tax onto their customers.
Initially the government had planned to tax internet data transfers, at a rate of 150 forints per gigabyte (€0.48).
But analysts calculated this would amount to more than the sector’s annual revenue.
An amended bill was then submitted, which would have capped the tax paid by telecommunications firms at 700 forints (€2.26) per month for individuals and 5,000 forints (€16.18) for corporate subscribers.
What has the Hungarian government said?
Before officially suspending the plan, the government denied it had any anti-democratic agenda, saying it aimed only to get all economic sectors to share the tax burden and was tapping into a trend of telecommunications shifting away from already-taxed telephony and text messages.
It also said telecommunications firms could deduct the tax from corporate tax.
What is opinion like outside Hungary?
Ryan Heath, spokesman for Neelie Kroes, the EU’s digital commissioner, said: “Hungary is below the EU average in virtually every single digital indicator and the digital part of the economy is probably the main thing keeping Europe out of recession right now. So taxing that … is a particularly bad idea.
“If Hungary becomes a precedent in this instance, it can become a problem in a lot of other member states and can be a problem for Europe’s wider economic growth.”
— Neelie Kroes (@NeelieKroesEU) 2014. október 26.
But Leonid Bershidsky, writing for Bloomberg, argued: “If governments choose to tax consumption in general — and most of them do, through value-added or sales taxes — it’s logical to tax data consumption, too.
“There is no reason why a society that accepts taxation of traditional telephony should reject levies on Internet traffic.
“The infrastructure that carries it is physical and not limitless, and taxing heavy consumption could be a way to preserve net neutrality.”
What other taxes are there in Hungary?
Hungarians pay a flat rate 16 percent income tax, but value-added tax (or a goods and sales tax) is 27 percent.
Corporation tax is paid at 19 percent, but less for smaller businesses.
How widespread is the internet in Hungary?
The percentage of people using the internet in Hungary was 72.64 in 2013, according to latest figures from the International Telecommunication Union, up from just 7 percent in 2000.
There were 2.4m people with fixed-line broadband subscriptions last year, figures from the ITU show, in a country with a population of 9.8 million.
What’s the bigger picture? Is it just the so-called internet tax that has got protesters onto the streets?
Organisers of the internet tax protests argue the proposal followed “a wave of alarming anti-democratic measures that is pushing Hungary even further adrift from Europe”.
Prime minister Viktor Orban – who has been in power since 2010 – is broadly popular and his Fidesz party won a two-thirds majority in parliamentary elections earlier in 2014.
But his opponents are upset at his increasingly authoritarian style and his proximity to Russian President Vladimir Putin.