(Updates with government reaction from first paragraph.)
Sept. 29 (Bloomberg) -- Hungary will defy a European Union request to abolish a special tax on telecommunication operators designed to narrow the budget deficit, a government official said.
The Cabinet of Prime Minister Viktor Orban sees “no reason” to end the special levy and stands ready to face action in the EU Court of Justice, Peter Szijjarto, the prime minister’s spokesman, said in an e-mailed statement today.
The commission called on Hungary earlier today to scrap the tax, which is “illegal under EU telecoms rules because revenue from the taxes is used for the government’s central budget and not for meeting the specific costs of regulating the telecoms sector,” according to a commission statement.
The government has two months to take measures to comply with the ruling, the commission said, adding that it may refer Hungary to the EU Court of Justice if the cabinet fails to do so.
The special tax of up to 6.5 percent of gross revenue “gives companies the opportunity to share the social burden in a proportionate manner,” Szijjarto said.
Orban imposed special taxes on energy, financial, retail and telecommunications companies last year, one of several measures to cut the deficit characterized by Orban as “unorthodox.”
The Cabinet may reduce the special levies while extending them beyond 2012, Janos Lazar, head of the ruling Fidesz party’s parliamentary group, said on July 15.
Magyar Telekom Nyrt., Hungary’s former phone monopoly controlled by Deutsche Telekom AG, jumped as much as 7 percent to 505 forint, the steepest increase since May 10, 2010, after the announcement of the EU decision.
--Editors: James Kraus, Alan Purkiss
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