By Margit Feher

BUDAPEST--Hungary should revoke its plan to tax Internet traffic from Jan. 1 as the proposed levy would reduce the country's competitiveness, head of the U.K. mobile company Vodafone Group PLC's (VOD) Hungarian arm said on Thursday.

"A responsible government should be able to make the decision to revoke its mistaken plan since it would inflict a globally unique tax on a field that is key for the country and its economic development," Vodafone Hungary's chief executive Diego Massidda said in an emailed statement to The Wall Street Journal.

Hungary plans to introduce a 150-forint ($0.62) per Gigabyte tax from next year on Internet traffic, with limits on the tax per subscriber. The government amended the plan to have caps on the tax after tens of thousands of people took to the streets to protest over the weekend and on Tuesday night in Budapest and other towns.

The tax plan "was a major surprise and a big disappointment for us at the same time since it was submitted [to parliament] without any prior coordination, (or) industry consultation," Mr. Massidda said.

Under the government's revised plan, individual subscribers will have to pay a monthly levy of not more than HUF700 while business subscribers will have to pay up to HUF5,000 for each subscription they hold.

"Making the Internet accessible to an even wider circle is in fact part of the government's strategic plans," he added.

Vodafone agreed at the end of September to pay HUF30.2 billion to Hungary for various unused mobile broadband frequencies. Including the license fees paid by other mobile firms as a result of the tender, Hungary raised a total of HUF130.6 billion from selling the unused spectrum.

Vodafone also said it "wishes neither to confirm or deny" a recent report in Hungarian daily Nepszabadsag that it is considering not signing the frequency purchase contract.

The government should revoke its latest tax plan since "its introduction would be detrimental to Internet users, the service providers and the country's competitiveness," Mr. Massidda said.

Hungary already has a 27% value-added tax in place on Internet services. In addition to that, telecom companies will also have to pay a special tax on every text message and minute of land-line and mobile phone call, with a monthly cap per subscriber.

The new levy will be installed to make up for lost budget revenue since subscribers have in recent years substituted traditional phone calls and text messages with cheaper alternatives over the Internet, the government has said.

Write to Margit Feher at margit.feher@wsj.com; Twitter: @margitfeher

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