Home NewsEconomy News As import costs leap, Hungary to allow corporate tax payments in euros or dollars By Reuters

As import costs leap, Hungary to allow corporate tax payments in euros or dollars By Reuters

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As import costs leap, Hungary to allow corporate tax payments in euros or dollars By Reuters

© Reuters. FILE PHOTO: Hungarian Finance Minister Mihaly Varga speaks during a business conference in Budapest, Hungary, on February 19, 2022. REUTERS/Bernadett Szabo

by Anita Komuves

BUDAPEST (Reuters) – Hungary’s government announced on Saturday it will allow companies to pay taxes in euros or dollars, a move analysts said could boost the country’s reserves at a time when demand for its hard currency has surged.

Like other Central European countries such as Poland, the Czech Republic or Romania, Hungary is nowhere close to adopting the euro, with Prime Minister Viktor Orban’s government excluding it for the foreseeable future, claiming it would amount to a loss of economic policy sovereignty .

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 country to boost euro borrowing.

“If it’s technically easier for companies to pay taxes in euros or dollars, then it’s easier for the Hungarian government, and demand for imports has skyrocketed,” Orban’s chief of staff said at a briefing on Saturday.

According to Gergely Gulyas, Hungary’s raw material imports are paid for in foreign currency, which used to account for 3.0-3.5% of total imports, but now it has reached 20-21%.

The recent rise in global natural gas prices has weighed on the forint exchange rate as it worsened the country’s trade balance, which is highly dependent on energy imports, traders and analysts said.

Hungarian Finance Minister Mihaly Varga wrote on Facebook (Nasdaq: ) that the option will apply to all companies and will simplify corporate bookkeeping while ensuring a continued flow of tax revenue to the country and a balanced budget.

The forint, the worst-performing central European currency so far this year, hit a record low of 416.90 per euro earlier this month, also under pressure from a lack of agreement with the European Union on recovery funding.

“Companies can save on switching fees … the government may be aiming to increase foreign reserves,” said David Nemes, senior analyst at K&H Bank.

“Even if there is a deal with Brussels in the fall, there won’t be a lot of EU money arriving before the end of the year, it’s an easy way to get foreign currency without issuing foreign currency bonds.”

Hungary is a small export-driven economy with manufacturing plants of large German automakers such as Audi and Daimler (OTC: ).

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 the euro, the forint will be less important … which also means moving closer to the euro area without adopting the euro.”

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