The Hungarian government has announced plans to eliminate windfall taxes on the telecommunications and pharmaceutical sectors by 2025, according to Economy Minister Marton Nagy.

By phasing out these taxes on telecommunications and pharmaceutical companies, the government aims to foster a more stable economic environment and restore investor confidence.

This development follows the government’s decision earlier this week to increase taxes on banks. The extension of windfall taxes on banks and retailers will continue beyond 2024, while taxes on airlines will be discontinued.

“The windfall tax on banks is justified,” Nagy said  in a statement to local broadcaster ATV on Wednesday, 10 July 2024.

The policy shift is aimed to raise HUF 800 billion forints by tapping into the “extra profits” of these sectors, a move that impacted Budapest’s stock market and created unease among investors.

A windfall tax is an extra tax that a government charges a company when it makes a large unexpected profit, especially if they have been helped by economic conditions.

The concept of a windfall tax was introduced in the 1970s. It aims to tax entities that earn disproportionate profits due to unusual or unexpected market events. These increased profits are not the result of any business expansion or investment strategy, but rather favourable external factors for which the business is not responsible.

Since its inception, the windfall tax system has been a subject of debate. Critics argue that it reduces a company’s profits and discourages innovation. Conversely, proponents view the windfall tax as an effective tool for promoting a more egalitarian society.