New provisions entered into force on July 1, 2022 extending the scope of the “crisps tax” to food and beverages with added sweeteners, as well as new product categories such as sweet pastries and prepackaged salts. With a few exceptions, alcoholic beverages are exempt from the tax.
Initial scope of the tax on crisps
The tax on public health products – known as the “crisps tax” – was introduced into the Hungarian tax system in 2011. It increased the price of many foods and beverages considered harmful or not beneficial to health. public health. The objective was to reduce consumption while providing a financial basis for public health programs.
The groups of products previously subject to the crisps tax were determined, on the one hand, on the basis of the customs tariff code (or heading) in accordance with Council Regulation No 2658/87, and included non-alcoholic beverages, energy drinks, prepackaged products products with added sugar, salty snacks, seasonings, flavored beers, alcoholic beverages, marmalades and spirits, and on the other hand, according to the salt and sugar content of these products.
For example, concerning salty snacks, the tax on crisps was applied to products containing more than 1 gram of salt/100 grams of product. For beverages, such as flavored beer and alcoholic beverages (with a maximum alcohol content of 5% mixed with soft drinks or additives), the sugar content limit was 5 grams/100ml.
The chip tax rate is a fixed fixed amount per liter or kg, depending on the product category, and is payable by the first domestic supplier, i.e. the manufacturer in the case of products produced in Hungary , or the importer in the case of imported products.
New provisions extend the scope to “healthy” products
In addition to the general increase in the tax rate, the new provisions aim to extend the scope of the tax on potato chips to new categories of products generally considered “healthy”, and will tax not only the sugar content, but also the sweetener content. The new product groups are (i) “delicacies”, for example, muesli, cereals and candied fruit, and (ii) “prepackaged sweet and savory pastries”, which also means filled pasta or pastry . In addition, the definition of already existing product groups is now expanded, adding new foods and ingredients to the list.
Another key change is the introduction of a “double rate”. This means that the flat tax rate is set higher – in some cases triple the amount – for products whose added sugar or combined sugar and sweetener content exceeds a prescribed threshold.
Important news for beverage manufacturers and importers is that, based on the new list of exemptions, only non-alcoholic beverages and syrups (Hungarian: szörp) containing sugar or a sweetener containing at least 50% fruits or vegetables (instead of 25%, as before) are exempt from the crisps tax, while alcoholic beverages (with the exception of flavored beers and alcoholic refreshments) are now entirely exempt from this tax.
There are some challenges to be faced when applying the new provisions
Interpreting the new scope of the crisps tax will not be easy for stakeholders. Manufacturers are expected to review their product formulas to determine if their products fall within the extended scope, while taking any necessary administrative steps due to their potential tax liability, such as preparing a self-declaration of tax payable and keeping accurate records of their products subject to the potato chip tax.
While sweetened dairy products such as yoghurt or cocoa fall outside the scope of the new tax, it will be difficult to define the new product categories of pre-packaged sweet and savory pastries and sweets. The characteristics of special dietary products, such as pre-packaged but gluten-free pastries will not be a way to escape. The “pre-packaged” product feature is expected to lead to changes in the way certain products are offered to consumers, as the same product will be taxed differently depending on whether it is offered pre-packaged or unpackaged.
As the legislator has not given manufacturers and importers sufficient time to prepare, some required measures are still uncertain and spark discussions on different approaches and practices. Since the provisions have already applied since July 1, manufacturers and importers should be prepared to face specific audits on compliance with the new rules by the Hungarian national tax administration.
Domestic manufacturers whose products fall within the scope of the extended potato chip tax can simply try to change their product formulas or packaging approaches to avoid being subject to the tax. However, it is important to note that in the case of food supplied to or from other EU Member States, a producer or distributor is required to ensure that his product is not significantly different in composition from the same product placed on the market in another Member State. This means that in the long term, major manufacturers and importers might be inclined to rethink some of their product offerings.