EU says Hungary's revamped telecom tax is illegal

* EU challenges Hungarian tax on phone calls, text messages

* This is Hungary’s second telecom tax questioned by EU

* Hungary’s economy ministry defends tax in present form

BUDAPEST, Jan 24 (Reuters) - The European Commission on Thursday launched a formal challenge to a Hungarian tax on phone calls and text messages, saying it breached European Union law.

The EU executive wrote to the Hungarian government giving notice to start a second infringement procedure concerning telecommunications taxation, Commission spokesman Ryan Heath said.

A ruling on Commission objections to a previous special tax on the sector is now pending at the European Court of Justice. If the government loses this first case, it might have to pay back about 180 billion forints levied on telecommunications revenues between 2010 and 2012.

The Commission spokesman said the tax breached a requirement that any administrative charge must be proportionate to the state’s costs in running the system. Budapest maintains this is not relevant as the levy is a tax, not an administrative charge,

Responding to the Commission’s action, the economy ministry said in a statement it did not intend to modify the tax law, arguing that it was fully in line with EU rules, and Hungary stood ready to defend itself in an infringement proceeding.

Hungary has struggled to keep its budget deficit within the EU’s limit of 3 percent of gross domestic product, and its 2013 budget foresees revenues of 44 billion forint ($198 million) from the latest tax.

The new tax replaced the telecom tax in a flurry of measures unveiled in May 2012 to keep the budget deficit under control and after controversial older taxes on a variety of big business sectors are phased out.

Hungary has been at odds with its international partners over a host of other measures as it eschewed international loans and opted for unorthodox policy measures to keep its finances in order, including Europe’s highest bank tax and renationalising billions of euros worth of private pension fund assets.

“While the contested tax is levied specifically on telecom operators, the Commission has concerns that its proceeds will cover costs beyond those incurred in the management and enforcement of the general authorisation system,” Heath said in an emailed reply to Reuters questions.

Major telecommunications companies active in Hungary include Magyar Telekom, a unit of Germany’s Deutsche Telekom AG, as well as local units of Britain’s Vodafone Group Plc and Norway’s Telenor ASA. ($1 = 221.96 Hungarian forints) (Editing by Stephen Nisbet)