The Hungarian banking transaction tax drives market players and private individuals to use cash rather than electronic payment methods. Eighty per cent of all payment transactions were in cash last year. But extensive use of cash negatively impacts the economy in several ways, such as the high cost of maintaining a large cash volume, easier tax evasion and expansion of grey and black markets.
The current rules
Under the current Hungarian regulation, electronic money transfers are subject to a 0.3 % banking transaction tax. The tax liability theoretically falls on the banks, though in practice banks pass the cost onto clients via their fees. This compels clients to seek alternatives, such as extensive use of cash.
The plan
With the forthcoming PSD2 framework, the competition and innovation of payment services are to be promoted within the EU. Hungary has already implemented the directive and the Hungarian National Bank aims to introduce an instant money transfer system by 1 July 2019, where electronic payments must be processed and completed within five seconds.
The implementation
This sounds promising, but who will use the instant money transfer system if cash offers Hungarians the same speed for lower costs? Realising the hurdles, the Hungarian parliament amended the current regulation on 20 July 2018, with the aim to boost electronic money transfers by forcing banks to reduce their banking fees, and as of 1 January 2019 transactions by private individuals worth less than HUF 20,000 (approx. EUR 65) will no longer be subject to the banking transaction tax. Market players generally pushed for a considerably higher threshold, as grocery shopping, most online purchases and the like will remain subject to the banking transaction tax and this partial relief might not be enough to convince people to use electronic means of payment instead of cash.
By Gergely Szaloki, Local Partner Schoenherr
