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No widening of preferential VAT rate

The scope of an 18% preferential VAT rate the government wants to apply to some basic foodstuffs as well as district heating from July 1, cannot be expanded in the short term, but it could be applied to tourism or even construction activities later on, Finance Minister Péter Oszkó told MTI.

A supplementary budget is not on the agenda, Oszkó said. We have to stick to our priorities, which is first of all managing the crisis.

The preferential VAT rate could be applied to labor-intensive, locally-based services or products later on, but in the short term its scope cannot be widened because of budget considerations, Oszkó said.

The government plans to raise the main VAT rate from 20% to 25%, also from July 1, but a reduction in state expenditures will prevent a big jump in inflation, he said, putting annual average CPI at 4.4%. Austerity measures will cause household consumption to drop 6%-7% as real wages fall 2%-3%.

The government can only take the first steps in the direction of applying personal income tax to total wage costs, because introducing such a system would create technical problems for which there is neither the capacity nor the time to solve in a crisis, Oszkó said.

Oszkó said it was possible the system of family subsidies would not change this year, but noted it was sure to change in 2010.

The simplified business tax (EVA), which allows small companies to pay a flat 25% of revenue instead of corporate tax and VAT, though without allowing any write-offs, as well as EKHO, another simplified tax for some professions, will not be changed in 2009, but only when the entire tax system is modified, Oszkó said. EVA cannot be changed until there is no longer a danger of those companies who now pay the tax disappearing entirely as taxpayers, and EKHO cannot be scrapped until those who pay it no longer have an incentive to choose the tax form over conventional forms, and this cannot be achieved until 2010, he added. (MTI – Econews)