The Hungarian government will fight to reverse a ruling on taxing palinka, the traditional fruit brandy, local media reported on September 25.

State secretary of the finance ministry Andras Tallai told pro-government daily Magyar Nemzet that the government will call for making palinka exempt from taxes at every forum. The EU should ensure that no member state is cut off its traditions, he said.

Tallai's comments came less than three weeks before the local elections, where Fidesz is expected to win by landslide in the countryside. Opposition parties are running on a joint list in most county seats and in Budapest. The issue of making palinka tax free pops up every now and then and it remains a popular theme by the government to address rural voters.

One of the first measures of the first Orban government in 2010 was to cancel the license for the home distillation of palinka, which accounts for about a third of retail turnover in spirits. Parliament also implemented a law that year which made distillers exempt from paying an excise tax for the first 50 litres per year if the spirit was for personal consumption.

The tax exemption was not welcomed by the EU, which launched an infringement procedure. The ECJ in 2014 ruled that Hungary has infringed EU law by exempting the private production of small quantities of spirits from excise duty.

A year later the government levied a HUF700 (€2.1) litre tax on home-distilled palinka. Industry players say many home distillers also produce above the 50-litre limit and sell it on the market without paying taxes.

This unfair practice is impossible to eliminate due to the lack of proper control, the Palinka Association said, which represents industrial users. Some 23,662 private persons asked for registering equipment for brandy distillation, but less than 7,000 were used, at least on paper in 2018.

The government had to backtrack on another discriminative legislation. Palinka and liqueurs that contain at least seven different herbs, which was tailor-made for Zwack Unicum, the famous family-owned liquor maker was exempt from the public health tax. The government extended the tax to these product types after the EU said Hungary's taxation rule was discriminatory.

At beginning of this year, the issue of taxing brandy was the agenda again during Slovenia's presidency, Tallai said, adding that the government joined the initiative and proposed that that household and industry players could produce 100 litres of concentrated beverage a year without paying taxes. The proposal enjoyed the support of some Central European states, but other members were unwilling to make the change.

The opportunity for meaningful discourse was lost after Finland took the EU's rotating presidency, he added.