HUNGARY DETAILS TAX REFORMS FOR 1988
Value added tax (VAT) and personal
income tax are to be introduced next year, alongside price
reform and a modified wage system, the official Hungarian news
agency MTI said in its Weekly Bulletin.
    A draft act divides goods into three groups for VAT. Most
will be taxed at 20 pct, although basic foods, urban transport,
fuel, pharmaceuticals and probably homes and building materials
will be zero-rated. Non-basic services will be taxed at 10 pct.
    Several other taxes will be abolished when VAT comes in
next January 1 and the effect will be to cut producer prices by
between five and 10 pct, MTI said.
    Consumer prices will rise by about eight pct as result of
cuts in subsidies, including those on milk and dairy products,
MTI said. It did not say what effect the VAT would have.
    Basic changes in company taxation were necessary as varying
taxes and subsidies gave a confusing picture, and minor steps
taken so far had only improved things temporarily.
    MTI said inefficient firms were still being maintained at
the expense of efficient ones, whose profit incentive was
blunted by an average profit tax of 80 pct. The idea was to
give all ventures equal chances and eliminate distinctions.
    "Valid preferences or supports are to be withdrawn, or at
least reduced," MTI said.
    The tax changes will be a further step in a recent line of
economic reforms designed to boost company efficiency.
    Management of 75 pct of all state enterprises passed from
ministries to elected enterprise councils in 1985 and 1986, and
a bankruptcy law in force since last September limits the duty
of the state to save loss-making firms.
    MTI said yesterday state subsidies to enterprises and
industrial cooperatives rose 16 pct last year, while profits
rose 4.6 pct. It gave no absolute figures.
    The number of small private ventures rose 4,000 to 39,000
in 1986. Their turnover rose 27.5 pct and net income 16.2 pct.
They now employ 443,000, nine pct of the workforce.
    Hungarians now pay no tax on their primary income, and
relaxation of central economic controls has led to large
disparities in earnings, almost entirely in the private sector.
    MTI said the introduction of personal income tax for all
workers would lead to a fairer bearing of the public burden. It
gave no details of the tax structure except to say that it
would be progressive and embrace all legal income.
    All measures are due to go before parliament this summer.
 REUTER
