Hungary poised to give ground on controversial advertising levy

Hungary is set to row back on a controversial advertising tax targeting foreign-owned media, marking a victory for independent broadcasters and EU regulators who had opposed the measure.

The tax on advertising revenues - rather than profits - was introduced by Viktor Orban, prime minister, in June last year and applied a higher rate of charges exclusively to RTL Group, an independent media company owned by Germany-based Bertelsmann.

Described by critics as part of a media clampdown, the levy provoked criticism from then EU digital commissioner Neelie Kroes, who called it a "political weapon" designed to drive RTL out of Hungary and "wipe out democratic safeguards".

Budapest had presented the tax as a revenue-generating scheme to help balance its budget. But the administration plans to slash it significantly, according to a draft bill published on Monday evening. The move would amount to a second media tax climbdown after the government dropped plans for the world's first "internet tax" following mass demonstrations in October.

Adoption of the advertising tax prompted protests by Hungarian media outlets and a concerted campaign by RTL, the country's most popular commercial station, which expanded its critical current affairs programming, boosting audience figures by 200,000 and contributing to a slump in government support.

RTL had said the 50 per cent top rate of tax it attracted put the station in a "structurally lossmaking position" and filed a legal complaint with the European Commission in October, claiming the charge was "confiscatory". The company, which operates eight channels in Hungary, recorded a €95m impairment on its television business in the country for 2014.

In response, EU antitrust regulators announced infringement proceedings against Hungary in March, citing concerns the tax discriminated against particular outlets. The government had previously signalled it would reform the measure but had not spelled out how.

The new proposal suggests the top rate will be reduced to 5.3 per cent on income over €330,000, while the lower rate will be zero. The government said it expects to raise Ft6.6bn (€21.7m) from the measure in 2015.

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A government spokesman said the reform was drafted in consultation with Brussels and described it as "a reasonable and acceptable solution".

But an official in Brussels said the commission had not received formal notification from Hungary of the proposed changes and that its investigation into the tax was continuing.

RTL said the tax revision appeared to meet its concerns but that it would await approval of the bill in parliament. If approved by lawmakers as expected on June 30, the law will come into effect within a month.

"In any case, RTL in Hungary will continue its independent news reporting," said the Luxembourg-based media group.

The government's retreat comes amid a broader reshaping of Hungary's media landscape as once-loyal outlets owned by former government ally and construction tycoon Lajos Simicska have adopted a more critical tone.

Although the Fidesz government won large majorities in national, local and European elections last year, opinion polls have indicated a steady decline in approval ratings since the autumn.

Mr Orban's party has since lost its two-thirds supermajority in parliament following a string of by-elections defeats, most recently to the radical rightwing Jobbik party in March.

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