On Friday evening Hungary’s government unveiled its third (!) austerity program in two years. Although the draft of the new legislation is not available yet, it seems the Robin Hood tax (a tax measure affecting energy providers, introduced by the previous government in 2008) will be raised from 11% to 31% and will remain in effect permanently. However, Hungarian investments will be deductible from the 31% Robin Hood tax up to a maximum 50%. The government confirmed it would withdraw sectoral ‘crisis taxes’ from 2013.
This latest news is clearly negative for the investment case, not only because will need to pay more towards the Robin Hood tax, but also because it highlights the unpredictability of the Hungarian investment climate. As is eligible to deduct 50% from the tax – and it will easily do so given the firm’s massive investments in Hungary – the “real” increase is “only” 10%. Moreover, the basis for the calculation of the Robin Hood tax is different than that for CIT: it only relates to energy-related profit of the Hungarian operation. guides that 1% Robin Hood tax translates into roughly 0.7% effective tax rate. This suggests an increase of 7% in the effective tax rate at . We calculate pays roughly HUF 0.5-bn-0.7bn for 1% of Robin Hood tax under a normal business environment. This suggests an increase in tax payments of roughly HUF 5bn-7bn going forward. While this will still leave MOL’s year-on-year tax payments on a highly improving trend (mainly due to the abolition of roughly HUF 30bn in crisis tax), it wipes out roughly HUF 320-450 from our fair value estimate of HUF 19,100 per share. Although MOL’s stock price has fallen HUF 965 (5.2%) in the last three trading sessions, this latest news, together with fears about MSCI exclusion and the rather disappointing investor day, may continue to put some downward pressure on the stock price in the days ahead.