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The tax burden on pharmaceutical companies rises further

A recent amendment of the relevant tax legislation (published on the 27th of June) has introduced an additional payment liability. Taxpayers include marketing licensees of medical products or their distributors. 

These companies are obliged to pay the 10 per cent extra tax on medical products:

  •  with prices exceeding HUF 1000
  • having been receiving state subsidies for at least six years, and
  • having no alternative active substance, dosage, brand name and marketing licensee in Hungary.

The base of the extra tax is calculated on the basis of the manufacturing or import valueof the products sold in pharmacies with subsidies with data derived from the monthly prescription figures. The extra tax base is calculated monthly, for each product and subsidy type separately.

The introduction of the new fiscal burden fits into the scheme of recent changes in Hungarian taxation, whereby the government imposes new, industry specific taxes. These are easily collected and provide instant financing for the budget deficit  – Péter Ágoston emphasizes. Recent examples of such measures include the 3 percentage points increase of the tax rate on the energy suppliers’ income (aka Robin Hood tax) and a rather wide scope local version of the Tobin tax. Moreover, the tendency of massive industry specific taxation is not likely to end soon: forecasts for further tax changes include a two-step duty increase hitting the tobacco, fuel and alcohol industries.

As a matter of fact, pharmaceutical companies are already having hard times in Hungary. The sector specific extra tax has been in force for the 6th consecutive year now, whereby entities requesting subsidies for dietary supplements are also subject to the medicine tax. In 2011, the fee to be paid after each medical representative visiting the general practitioners has been doubled, accompanied by other refund liabilities imposed upon the industry.

The only slight avail with the extra tax comes with the fact that it operates similarly to the ‘original’ medicine tax: the fiscal burden has to be paid monthly on the basis of data provided by the health fund. As a result, the first remittance of the new extra tax is due in November 2012. This is because the National Health Insurance Fund Administration (OEP, the Hungarian equivalent of NHS) provides monthly online data on the extra tax obligation some 40 days after the specific month. Thus, data on the first taxable month, August, will be accessible only in October. In addition to this, extra taxes – as well as monthly tax returns - are due by the 20th day of the third month following the subject month: this means that the tax burden for August has to be paid by the 20th of November.

The experiences of RSM DTM, one of Hungary’s prominent tax advisor companies, reveals that the calculation and remittance of the ever-changing tax obligations is more and more difficult for companies to handle on their own. Therefore, RSM DTM has not only prepared to give specific counselling for any kind of company in this field, but it also provides tax representation services for companies carrying out taxable activities in Hungary without local premises.

Characteristics of the medicine tax

  •  tax base: part of the monthly subsidy proportionate to the manufacturing value or import valueof all medicine and dietary supplement sold in pharmacies with subsidies, calculated from the monthly prescription figures,
  • taxables: marketing licensees of the medical products, or – in case the licensee does not distribute products in Hungary, but engages a local distributor - the licensee’s distributor. Note, that such engagements are subject to the Hungarian Tax Authority’s approval.
  • tax rate: 20 percent

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