It would be difficult for Hungary's government to yield ground on the issue of flat-rate income tax at negotiations for financial assistance from the International Monetary Fund and the European Union, Minister without portfolio Mihaly Varga said in an interview on public television late on Monday.

"I don't see too much room for manoeuvre on the matter of flat-rate tax, but obviously we will listen to what the problem, what the objection to this tax system is," the chief negotiator at talks with the IMF and EU said on Hungarian m1 television's Az Este programme.

He noted that the flat-rate 16 percent proportional tax would be in place in a "pure form" for the first time from 2013, following a three-year transitional period.

Entirely eliminating the practice of adding payroll contributions to the personal income tax base may reduce tax revenue, but it could support economic growth as the extra money is used for consumption or investments, he added.

When asked about whether the government would refuse to introduce a tax on real estate or assets if asked to do so by the IMF, Varga said if such questions come up, the government will review them, but he added that it is more than certain that the answer would be no for the time being.

The Hungarian economy is on a path on which the aim is to implement tax cuts, not tax increases, he said.

Varga said questions to clarify the financial transactions tax were sure to come up at talks with the IMF and EU, but he added that the duty did not violate the independence of the Central Bank.

The tax, approved by parliament on Monday, applies to some central bank transactions. The independence of Hungary's chief monetary authority was a key issue in preparations for negotiations on the precautionary financial assistance from the IMF and EU.

Varga recalled that in recent years, there had been many cases when the state had to refund the losses generated in the Central Bank and it had not affected its independence. The state does not intend to decide for the Central Bank on the implementation of the tax, he added.

The IMF-EU delegation will stay in Budapest until 25 July and they will continue discussions with the Hungarian government at the end of August.

(MTI; Prime Minister’s Office)