Hungary has decided to shelve a proposed tax on internet data traffic after mass protests against the plan.
"This tax in its current form cannot be introduced," Prime Minister Viktor Orban said on Friday.
Large-scale protests began on Sunday, when demonstrators hurled old computer parts at the headquarters of Mr Orban's ruling Fidesz party.
The draft law - condemned by the EU - would levy a fee on each gigabyte of internet data transferred.
The protesters objected to the financial burden but also feared the move would restrict free expression and access to information.
The levy was set at 150 forints (£0.40; 0.50 euros; $0.60) per gigabyte of data traffic.
After thousands protested the government decided to cap the tax at 700 forints per month for individuals and 5,000 forints for companies. But that did not placate the crowds.
The BBC's Nick Thorpe in Budapest writes:
Viktor Orban does not often back down, but he has done so on this occasion for several reasons.
- He saw how unpopular the tax was. He managed with one stroke to do something which opposition leaders had tried and failed to do for five years: unify his opponents
- He took on the best-organised community in the country - internet users - and lost
- The government's communication methods failed again - as they have with almost every major decision since Fidesz came to power
- "We are not Communists. We don't go against the will of the people," he said - a sign that growing comparisons between Fidesz and the old Hungarian Socialist Workers' Party are hitting the mark.
What happens next? Mr Orban's decision to cancel the tax deprives his opponents of a valuable rallying cry. The big question for them will be whether they can use the momentum of two big rallies to create new forms of opposition to Fidesz.
They have proven that he can be defeated. Mr Orban has proven that he is more flexible than many analysts give him credit for.
'It should not be done'
Fidesz had said the special tax was needed to balance Hungary's budget in 2015.
Speaking on Kossuth public radio, Mr Orban said that "if the people not only dislike something but also consider it unreasonable then it should not be done...
"The tax code should be modified. This must be withdrawn, and we do not have to deal with this now."
He said a measure seen by the government as a technical issue had become "a fear-inducing vision".
There will be a national consultation on it in January, he said.
A European Commission spokesman, Ryan Heath, said the tax was "bad in principle" because it was a unilateral measure applied to a global phenomenon.
He said it was "part of a pattern... of actions that have limited freedoms or sought to take rents without achieving wider economic or social interest" in Hungary.
The Commission has previously criticised Mr Orban's government for constitutional proposals seen to be cementing the Fidesz party's political dominance.