Despite certain minor variations, the Hungarian green tax legislation has barely changed from a structural perspective in the past 10 years. The main logic behind the green tax is driven by the polluter-pays principle: in the case of certain goods, the green tax must be paid upon the first domestic sale and the first use for own purposes while the amount of the liability is on-charged until the level of the consumer. The regime also applies various exemptions and refund opportunities together with assumptions suppliers can use to avoid their green tax liability. The current legislation is quite bureaucratic, and in many cases, it is not the tax liability itself but rather its administration that can create big challenges for companies.
From 1 July 2023, however, the system will become even more complex, as the Hungarian government will introduce the so-called extended producer responsibility (“EPR”) system whose detailed provisions have been published just recently by a long-awaited regulation. Based on the regulation, EPR will affect producers, distributors as well as various service providers, too. New concepts will need to be learned such as circular economy, circular products, KF code nomenclature and so on.
In the following, we summarize the most important changes starting 1 July 2023, including some of the expected details of the new deposit fee regime (to be introduced from 2024); this latter lacks a final regulation as of today but its draft regulation has been published.
Green tax’s new role
Currently, the green tax serves two purposes: first, it is a financing tool for the Hungarian waste management system, and second, it increases the price level of goods harmful to the environment. From July 2023, the first role will be shifted to the new EPR regime, leaving the green tax’s single purpose as the price adjustment of harmful goods.
The two systems, however, will remain closely connected to each other: taxpayers will be entitled to deduct their EPR liability from their green tax liability.
Circular products
The new legislation introduces the concept of the so-called “circular products” for goods subject to the EPR liability. The scope of the circular products will mostly overlap with the scope of the green tax products, such as packaging/packaging materials, batteries, electronic products, tires, etc. However, the new regulation will include additional products that fall under the definition of circular products, namely textile products, wooden furniture, disposable plastic products, vehicles, cooking oil, and fat. Furthermore, certain green tax products will not qualify as circular goods, so a thorough classification at the side of each taxpayer will be a must in the forthcoming weeks.
In the new system, manufacturers of circular products or – in case the related products are manufactured abroad – the first Hungarian distributors will be liable to pay a so-called extended producer responsibility fee (“EPR fee”). Additionally, if circular products are not sold but used in Hungary for own purposes, the EPR fee liability will also arise.
The new regulation introduces a new nomenclature: the system of KF codes. KF codes will serve as the basis for the reporting, payments, exemptions and assumptions.
Although the scope of circular products is limited, the fact packaging also falls under it means that EPR will affect the entire trade in goods.
Exemptions, customer’s export declaration, assumption
In some cases, the supply can be exempted from the EPR fee, namely where circular goods are sold in a bonded, tax or green tax warehouse, or the goods are exported outside Hungary. In the case of the sale of businesses, EPR liability will not arise if the sale meets the requirements of the conditions of the VAT TOGC simplification.
The EPR fee will not be applicable if the customer informs the supplier in a pre-determined way that it will export the goods later on. As cars and many car parts (batteries, electronic appliances and tires) are subject to the EPR fee, car manufacturers will be entitled to assume the EPR liability of their suppliers on the parts to avoid double payment of the liability.
Mandatory deposit fee regime will be introduced from 1 January 2024
Half a year after the introduction of the EPR system, the legislation will become even more complex with the introduction of the so-called deposit fee regime. The new deposit fee system will replace the current not-so-popular deposit system for glass, plastic, and metal beverage bottles.
According to the draft regulation, the price of the said goods will need to include a deposit fee to be refunded to customers when returning the goods. Manufacturers or first domestic distributors will need to work closely with the companies that will distribute their products. These latter companies (if exceeding a certain size) should install automated systems for the return of bottles. Furthermore, within the deposit fee regime, manufacturers and first domestic distributors will have to pay certain fees to the concession company for the construction and management of the waste recovery infrastructure.
Following the model for the deposit fee regime, companies can decide to implement a deposit fee system for other recyclable products (voluntary deposit fee system).
Companies subject to the deposit system will be exempted from both EPR and green tax liabilities.
Administration
The introduction of the EPR system and the new deposit fee regime is going to pose a significant burden for taxpayers in terms of administrative duties. The said systems will require separate registrations, record-keeping, and quarterly data reporting obligations. Invoices issued by producers and distributors need to include various clauses.
Registration and sanctions until 31 May 2023
The deadline for the two-step registration in the EPR system is 31 May 2023.
Conducting any business activity with circular products without registration will result in penalties and suspension of the activity if the taxpayer does not comply with these obligations after the fine is imposed.
Conclusions
As can be seen, the provisions related to the green tax will become more and more complex in Hungary. The EPR regime offers many possibilities for exemption purposes. However, the fast-approaching deadline for registration urges taxpayers to review their EPR and green tax liabilities as soon as possible. If there is no room for exemption, taxpayers still need to check their activities, set the KF codes of the circular products they are operating with and perform the associated administrative liabilities until July 2023.
Should you require any help with the above, Andersen is ready to assist you.