_- 45 -_ 144. Just such a tax ha been creted in Hungay in the local tax on busnor. Unfortuately, this is a bad tax. Although the pesnt low rate (3 per mill) on business tumover is not likely to do much ecomiic damage, such a cumlative busuie tax of course poduces precisely the s- kind of tax cascading an Hugary has tied to eliminate at the naiooal level by adopting a VAT. This problem will become more srious if, a is lky, the increaing prsu on local finace leads to inea in tax rates in the future. Moreover, a premuly designed (with the explicit exclusion of retil sleo fiom the tax base) this tax encoraes both tax exporting and local attaemts to maipuate the tax sysmI for incentive reasons. Tax exporting is of cours the antitheis of aional local finance, and local fisca ;entives to production have a dml record tumghou the world, so nehr of thes features of the tumover tax is desirable.

145. Another bd tax that **has apped** in a umber of countries is some form of local Ourist. Touit establihmt (inluding second homs and cotta) should of couse be suvi*ac **t** o geneal local bunes and property taxes. And of coumes should be chaged fully for the costs they im on the envinmet ad on local public services. But tde seem no reason to encourage fiscal irsponsibility by maling it especia y aractive for local govemments to imprse taxes on noresidm: as a nle, they need to be restrained from such actions, not encouragedl.

146. Another possible local govenment tax, in contrast, deserves more atenion than it seem to have so far received in most trsnsitional economies: the taxation of motor vehcls. At present, it appers that only about 7 % of vehicles in Hungary, for inance, ar subject to the relatively small and not particularly well-desiged *duties levied by local gover_ments., Many counties similaly have widepd exemptions from their exing vehicle taxes e.g exempting not only aU vehicles used by public institutions finnced by the state but those used by war veteran and so on. None of these exemptions, of cours, mo.m any sene given the basic benefit rtinalo of this tax. As vehicle ownersip beomes more widespread vebicle taxes (tedesigned to be less vulneable to inflation and perhap more in line with envirnmeta needs) might in timo become an important revenue source for **at** least the larger localities. In principle, ul vehicles should be subjwcted to taxes designed to some extent to offset the social costs attributable to vehicles. While such taxes should probably be dosignd and imposed uniformly thrughout the nation to avoid obvious administatve problems, there is no reson why these revenues should not be assigned in whole or in part to the local governts in which the vehicles ar registered.

147. Although both vehicle taxes and espocially the property tax clearly have significant long-term revenue potentid, particularly in larger urban areas, on the whole the local tax packge bestowed on local governts in most transitional economies leaves much to be desied. Often, for example, local tax rates and tax bae are estblished in central govemment tax law, and at most a range of rates is provided within which local govenmts can choose. Many of the taxes thus established have rates fixed in nominal cunmcy, thus making them highly vulnerable to erosion through inflation. Others are minor nuisance levies which may weU yield less in revenue than they cost to colect. None pi .ides an adeque fihcd foundation for an active and viable local goverment WIt has been argued that tounsm taxes (krtaxeon or taxes de tournse) should be seen more as a globalized user charge than a fiscal levy. Resorts with annually widely fluctuating populations have to assume expenditure, both for operations and capital investment, of a type and amount that cannot and should not be recovered from the (often few) permanent residents but from the acual beneficiaries of these services. If not, the unavoidable consequence is that resort areas turn to the central government with a demand for increased fiscal resource transfers and that at the end tourism activities get, in one way or another, subsidized by the central govenment as, for instance, happens in Turkey.

ain Romania, in another undesirable hangover from the old regime, initialy, some motor vehicle taxes (levied at flat ates, by type of vehicle) went to the central govenment, depending on the nature of the taxpayer. Since August 1992, these now go to municipalities (individually owned cas) or to disticts (cars owned by corporations).