Law for the Promotion of Production, Competitiveness and Support for Human Development Chapter I Support for Agricultural Production

To reform Article 89 of the Agrarian Reform Law, contained in Decree No. 170 of December 30, 1974 and its amendments, which shall read as follows:

Lands adjudicated to beneficiaries of Agrarian Reform by the National Agricultural Institute (INA) shall be granted for valuable consideration; the adjudication shall be effected without the need to advance any sum, or its value may be paid in installments over a period of up to twenty (20) years, and shall be encumbered by first mortgage for the value of the adjudication. In order for adjudicatees to access credit, the National Agricultural Institute (INA) shall transfer the first mortgage to the creditor, reserving the second mortgage. In case of closure of tenure, the creditor shall have free disposition of the land.

To reform Article 70 of the Law for the Modernization and Development of the Agricultural Sector, contained in Decree No. 31-92 of March 5, 1992, amended by Decree No. 27-94 of May 10, 1994, which shall read as follows:

Once the value of adjudicated lands has been paid, the beneficiary of Agrarian Reform may freely dispose of his or her property when the buyer meets the requirements to be a beneficiary of Agrarian Reform. In the case of Cooperatives, Associative Enterprises, and other corporate associations recognized by law, prior approval of the National Agricultural Institute (INA) shall be required, and if they have benefited from condonations by the State and its institutions, they shall return in effect the amount thereof, and the conveyance of title shall be burdened with a land appraisal fee of thirty percent (30%) on the sale value, which amounts shall be deposited in the General Treasury of the Republic. Property Registrars shall not register the conveyance of title without prior proof of these circumstances. The Executive Power, through the Secretariat of State in the Office of Finance, shall annually incorporate in the General Budget of Revenue and Expenditure of the Republic an amount equivalent to fifty percent (50%) of what was collected on this account in the preceding year, to strengthen the risk capital of rural credit banks, and the remaining fifty percent (50%) to reinforce the special fund referred to in Article 69 of this Law. Notwithstanding the foregoing, adjudicatees of land from the Agrarian Reform process may offer it as security for obtaining credit. In this case, transactions shall be subject to applicable laws.

To reform Article 46 of the Law of Incentives for Afforestation, Reforestation, and Protection of the Forest, contained in Decree No. 164-93 of September 10, 1935, which shall read as follows:

The National Agricultural Institute shall title national forest lands in the possession of properly settled peasant groups with authority as of the effectiveness of the Law for the Modernization and Development of the Agricultural Sector, contained in Decree No. 31-92 of March 5, 1992, if of the total, the medium referred to, sixty percent (60%) or more has agricultural and livestock vocation, excepting protected areas, in which case the actions to be executed shall be subject to special provisions. Beneficiaries of these properties shall be subject to agroforestry management of the forest that is titled to them in accordance with technical standards and forest management regulations established by the Honduran Corporation for Forest Development (COHDEFOR).

In accordance with the provisions of Article 35 of the Agrarian Reform Law, contained in the Legislative Decree of the National Agricultural Institute (INA), without further limits than those related to appraisal, indemnification, and conveyance, the Institute shall issue the corresponding Property Titles. The Executive Power shall allocate in the General Budget of Revenue and Expenditure of the Republic, in the transfer made to the National Agricultural Institute (INA), a sum for this purpose.

Without prejudice to the provisions of the Law of Rural Savings and Credit Cooperatives, contained in Decree No. 201-93 of October 1, 1993, a Fund of TEN MILLION LEMPIRAS (L. 10,000,000.00) is hereby established to operate in the National Agricultural Development Bank (BANADESA), for redemptions of credits granted by Community Rural Cooperatives and by Alternative Rural Financing Projects or Programs of Peasant Organizations. For the activities of promotion, advisory services, and supervision in this experimental phase, the National Agricultural Institute (INA) and the Peasant Organizations of the Reformed Sector, at the Confederation level, are designated, and they shall act jointly.

A Supervised Credit Line is created in the National Agricultural Development Bank (BANADESA) in the amount of fifteen million Lempiras (L. 15,000,000.00), to finance the Reformed Peasant Sector, for which the Secretariat of State in the Office of Agriculture and Livestock, through the Directorate of Agricultural Science and Technology (DICTA), shall execute an agreement with the National Agricultural Institute (INA) and the Confederated Peasant Organizations at the Confederation level that possess legal personality, who shall act as joint guarantor in the credits that are granted. The Executive Power, through the Secretariat of State in the Office of Agriculture and Livestock, shall issue the regulatory provisions for the use of the credit within a period not exceeding fifteen (15) days from the date this Decree takes effect.

As a measure of support for the provision of land for both the peasant sector and ethnic groups, a Land Purchase Fund is hereby created in the National Agricultural Institute (INA), in the amount of ten million Lempiras (L. 10,000,000.00), for which the Secretariat of State in the Office of Finance shall make the corresponding transfer. CHAPTER II STIMULUS FOR COMPETITIVENESS SECTION 1 REGARDING INCOME TAX AND NET ASSET TAX

To reform Articles 13, Subsection a), and 22 of the Income Tax Law, contained in Legislative Decree No. 25 of December 20, 1963 and its amendments, which shall read as follows:

From the taxable income of a natural person, the following deductions shall be allowed: a) An annual sum of up to twenty thousand Lempiras (L. 20,000.00) for educational expenses and for fees paid to Doctors, Bacteriologists, Dentists, Hospitals, Medicines, and other professionals resident in the country for services rendered to the taxpayer or his or her dependents, without the need to present any documentation.

The tax established by this Law shall be collected from natural and legal persons domiciled in the country, in accordance with the following provisions: a) Legal persons and individual merchants domiciled in Honduras shall pay the Income Tax as follows: - Applicable rates for the Fiscal Year 1998 and onward shall be: 1) From L. 0.01 to L. 200,000.00........................... 15% 2) On the excess of L. 200,000.00............................. 30% - Applicable rates for the Fiscal Year 1999 and onward shall be: 1) From L. 0.01 to L. 200,000.00...................................... 15% 2) On the excess of L. 200,000.00............................. 25% b) Natural persons domiciled in Honduras shall pay in accordance with the following progressive rate scales: 1) For the Fiscal Year 1998: From L. 0.01 to L. 50,000.00................ Exempt - L. 50,000.01 to L. 100,000.00................ 10% - L. 100,000.01 to L. 200,000.00.............. 15% - L. 200,000.01 to L. 500,000.00.............. 20% - L. 500,000.01 to L. 1,000,000.00........... 25% L.1,000,000.01 and above.............................. 30% 2) For the Fiscal Year 1999 and successive periods, the tax scale applicable in 1998 is modified and the following scale shall apply: From L. 0.01 to L. 70,000.00................ Exempt - L. 70,000.01 to L. 100,000.00................ 10% - L. 100,000.01 to L. 200,000.00.............. 15% - L. 200,000.01 to L. 500,000.00.............. 20% - L. 500,000.01 and above..................... 25%

An additional final paragraph is added to Article 8 and Article 11 of the Net Asset Tax Law, contained in Decree No. 137-94 of October 12, 1994, which shall read as follows: a) An annual sum of up to twenty thousand Lempiras (L. 20,000.00) for educational expenses and for fees paid to Doctors, Bacteriologists, Dentists, Hospitals, Medicines, and other professionals resident in the country for services rendered to the taxpayer or his or her dependents, without the need to present any documentation.

The tax established by this Law shall be collected from natural and legal persons domiciled in the country, in accordance with the following provisions: - a) Legal persons and individual merchants domiciled in Honduras shall pay the Income Tax as follows: - Applicable rates for the Fiscal Year 1998 and onward shall be: 1) From L. 0.01 to L. 200,000.00...................................... 15% 2) On the excess of L. 200,000.00............................. 30% - Applicable rates for the Fiscal Year 1999 and onward shall be: 1) From L. 0.01 to L. 200,000.00...................................... 15% 2) On the excess of L. 200,000.00............................. 25% b) Natural persons domiciled in Honduras shall pay in accordance with the following progressive rate scales: 1) For the Fiscal Year 1998: From L. 0.01 to L. 50,000.00................ Exempt - L. 50,000.01 to L. 100,000.00................ 10% - L. 100,000.01 to L. 200,000.00.............. 15% - L. 200,000.01 to L. 500,000.00.............. 20% - L. 500,000.01 to L. 1,000,000.00........... 25% L.1,000,000.01 and above.............................. 30% 2) For the Fiscal Year 1999 and successive periods, the tax scale applicable in 1998 is modified and the following scale shall apply: From L. 0.01 to L. 70,000.00................ Exempt - L. 70,000.01 to L. 100,000.00................ 10% - L. 100,000.01 to L. 200,000.00.............. 15% - L. 200,000.01 to L. 500,000.00.............. 20% - L. 500,000.01 and above..................... 25%

Not obligated:

• a)

  ...;

• b)

  ...;

• c)

  ...;

• d)

  ...;

• e)

  ...;

• f)

  ... In the case of merchants whose Net Assets exceed one million Lempiras (L. 1,200,000.00), they receive the right to deduct from Net Assets declared for purposes of calculating the Net Assets tax, an amount equivalent to one million two hundred thousand Lempiras (L.1,200,000.00).

To reduce the rate of one percent (1%) of the tax referred to in this Decree, which shall be applied in accordance with the following: Year Rate 1999....................... 0.75% 2000....................... 0.50% 2001....................... 0.25% 2002....................... 0%. SECTION II BANANA EXPORT TAX

To amend Article 1 of Decree No. 28-91 of March 21, 1991, which implements the Law Converting the Banana Tax, which shall read as follows:

To apply a levy on banana exports for each box of forty (40) net pounds (pound of four hundred five and four hundred grams), equal to the amount in Lempiras resulting from multiplying the levy in United States Dollars of America by the prevailing exchange rate established according to Decree No. 136-94 of October 12, 1994 and in accordance with the following: As of June 1, 1998.......................... US$. 0.18 As of January 1, 1999.......................... US$. 0.15 As of June 1, 1999.......................... US$. 0.10 As of January 1, 2000........................ US$. 0.04 In the event that the export is made in boxes with content greater or less than forty (40) net pounds, the corresponding conversions must be made so that the calculations of the export levy are made on the basis of forty (40) net pounds.

Natural or juridical persons who at the beginning of the validity of this Decree are availing themselves of the incentives granted by Article 6 of Decree No. 57-91 of May 22, 1991; and Article 31 of Decree No. 135-94 of October 12, 1994, who are continuing to enjoy the benefits obtained under their respective resolutions issued by the State Secretary in the Office of Industry and Commerce; consequently, exporters shall continue paying to the producers defined in subsection a) of Article 2 of Decree No. 57-91 aforementioned, and until the end of the term of the corresponding resolution, the benefits to which they were entitled under the previous legislation. This amount paid by exporters shall be deductible as an expense from the Income Tax.

To amend Article 6 of Decree No. 57-91 of May 22, 1991, which shall read as follows:

When there are existing purchase and sale contracts that comprise banana production from new areas, rehabilitated or replanted by non-exporting producers included in the definition contained in subsection a) of Article 2, which achieve a minimum total yield of two thousand three hundred fifty (2,350) boxes of forty (40) pounds per hectare, they shall receive from exporters from the beginning of exports from the new, rehabilitated or replanted areas, an additional incentive to the agreed sale price, which shall be equivalent to fifty cents of a dollar (US$. 0.50) per box exported for a period of three (3) years and in equivalent case to thirty cents of a dollar (US$. 0.30) per box exported for another three (3) years. To enjoy the aforementioned benefit, proof of the yield shall be required before the State Secretary in the Office of Industry and Commerce. The value of the additional incentive paid by exporters shall be deductible as an expense from the Income Tax.

The Executive Power, through the State Secretary in the Office of Finance, shall contribute to the NATIONAL PRODUCTION AND HOUSING FUND (FONAPROVI), an amount of ten million Lempiras (L. 10,000,000.00) annually for five (5) consecutive years to create a Special Financing Line for Independent Banana Producers. The available balances of the BANANA EXPANSION AND DEVELOPMENT FUND (FONDEBAN), on the date this Decree enters into effect, shall be transferred to this Special Financing Line.

To repeal Articles 8, 9, 10, 11 and 14 of Decree No. 57-91 of May 22, 1991; and, 31 of Decree No. 135-94 of October 12, 1994. SECTION III OTHER FOREIGN TRADE TAXES

To instruct the Executive Power to, after Resolution of the National Tariff Commission, reduce to zero percent (0%) the list of customs administrative services, created by Decree No. 85-84 of May 24, 1984 and its amendments, which apply to imports of raw materials and capital goods, as of June 1, 1998.

To repeal the tariff levies on the export of:

• a)

  Shrimp, lobsters and other mollusks and crustaceans, established by Decree No. 213-87 of November 29, 1987 and its amendments;

• b)

  Live animals of the bovine species, porcine, poultry and other animals, established by Decree No. 873 of December 26, 1979 and its amendments; and,

• c)

  Sugar cane and beet sugar established in Article Nine of Decree No. 873 of December 26, 1979 and its amendments. SECTION IV FREE TRADE ZONES

To change the name of the Constitutive Law of the Free Zone of Puerto Cortés, contained in Decree No. 356 of July 19, 1976, to Free Trade Zones Law and extend the benefits and provisions thereof to the entire national territory.

In compliance with the provisions of Article 2 of the Free Trade Zones Law, the Executive Power through the State Secretaries in the Offices of Industry and Commerce; and, Finance, shall create or designate the entity responsible for the administration of free trade zones and customs zones, shall determine the mechanisms of customs control, oversight and requirements that must be met for operations in free zones.

Any national or foreign company that operates in a Free Zone, or in an Export Processing Industrial Zone (ZIP) or in a Free Tourist Zone (ZLIT) must appear before the State Secretary in the Office of Industry and Commerce that has at least one permanent representative with broad powers to perform all acts and legal matters of a civil, commercial and labor nature that must be executed and take effect in the national territory. Companies already installed as users and that carry out operations in said zones, must acknowledge this requirement within a period of ninety (90) days, counted from the date this Decree enters into effect. The failure to appoint the permanent representative shall be sufficient cause to terminate the lease contract of the facility or industrial installation or the authorization to operate in a free zone, under the responsibility of the Zone administrator. In case of closure of operations for any reason, the permanent representative of said companies shall be liable on their behalf for all pending debts and obligations.

To address basic needs of the Honduran population with low incomes in the period 1998-2001, the State Secretary in the Office of Finance shall establish annually in the General Budget of Revenues and Expenditures of the Republic, the financial allocations required for the execution of the social programs established in Articles 21, 24, 25, 26 and 27 of this Decree. The financial resources shall also be included in the General Budget of Revenues and Expenditures of the public institution involved in the execution of said programs.

The Academic Excellence Scholarship Fund Program is hereby created with financial resources of up to a maximum of fifty million Lempiras (L. 50,000,000.00), designated to reward and promote the academic achievement of three students from each grade of public primary schools and secondary institutes at the national level who obtain the highest rankings. The Secretary of State in the Department of Education, through its Departmental Directorates, shall select students with academic excellence. The value of the scholarship shall be delivered in the month of December to the selected students.

The Education and Productivity Program is hereby created, for which the Government of Honduras shall contribute the amount of fifteen million Lempiras (L. 15,000,000.00) and the National Institute of Professional Training (INFOP), forty million Lempiras (L. 40,000,000.00), and which shall have as its purpose the granting of scholarships to children of workers, graduates of public primary schools, who have obtained an academic index in sixth grade of at least eighty percent (80%). Scholarships shall be granted for studies in Vocational and Technical Institutes. This Program shall be executed through the Educational Credit Institute (EDUCRÉDITO), in coordination with the Secretary of State in the Department of Education; the National Institute of Professional Training (INFOP).

The Broadening Horizons Program is hereby created with a contribution from the Government of Honduras in the amount of ten million Lempiras (L. 10,000,000.00), which shall have as its objective the granting of scholarships to primary schools and computers for all to have access to the learning media that modern society demands.

The Program for the Construction of Sports Fields: Citizenship of the Future is hereby created, to promote the practice of sports and foster appropriate environmental conditions and community recreation. For the execution of this Program, there shall be an allocation of eight million Lempiras (L. 8,000,000.00); this program shall be supervised by the National Commission for Sports Facilities (CONAPID), and shall be executed through the Honduran Fund for Social Investment (FHIS).

The Expanded School Bonus Program is hereby created, with an allocation of fifteen million Lempiras (L. 15,000,000.00), which shall be charged to the Family Allowance Program (PRAF), whose beneficiaries are students in the fourth grade of primary education.

The Nutritional Bonus is hereby created in the amount of fifty Lempiras (L. 50.00) monthly, targeted at girls and boys up to five (5) years of age at risk of malnutrition, with the purpose of improving their basic diet, in such a manner as to guarantee their healthy growth and development for Honduran children in general condition. For this purpose, the Government of the Republic shall allocate the amount of fifteen million Lempiras (L. 15,000,000.00), which shall be channeled through the Family Allowance Program (PRAF).

The Housing Program Complementing Self-Effort is hereby created, with an allocation of up to one hundred million Lempiras (L. 100,000,000.00), consisting of the granting of subsidies for those families who for the first time wish the acquisition, construction, and improvement of housing. Families whose family income does not exceed three (3) minimum wages and who have a prior savings equivalent to ten percent (10%) of the total value of the cost of land legalization may opt for the benefits of the Program. The financial resources shall be managed by the Social Housing Fund (FOSOVI). The subsidies under this Program shall be the following:

• a)

  Land legalization: A subsidy of a maximum of thirty percent (30%) as a complement to the cost of land legalization;

• b)

  Construction and acquisition of housing: A subsidy of a maximum of forty percent (40%) of the value of basic minimum housing, provided that it does not exceed forty-five thousand Lempiras (L. 25,000.00) in the rural zone, and,

• c)

  Housing Improvement: A maximum subsidy of ten percent (10%) for the improvement of floors, water and sanitary systems, and the addition of one room. Improvements are established as a maximum of three thousand Lempiras (L. 7,000.00) in the urban zone and Lempiras (L. 3,000.00) in the rural zone. The beneficiary of this Program may not sell or transfer the plot of land or housing constructed with financing from the same, for a period of not less than ten (10) years, except when the transfer is made by reason of death to their legitimate heirs.

Those excluded from the benefit of the previous Article are those who live in housing located in areas of high population risk, or located in areas formally declared as disaster risk protection areas, environmental preservation and protection, and public thoroughfares; those that have been invaded or are subject to litigation or controversy with third parties; and those comprised in Article 72 of the Municipal Law and that have been occupied after the issuance of said Law.

The provisions of the LAW ON TAXATION OF INHERITANCES, LEGACIES AND DONATIONS, contained in Decree No. 67, of February 15, 1938, are hereby repealed, in all matters related to the obligation to present the declaration of heirs and successors and the respective taxes on inheritances and legacies, including the provisions in the event of death of third parties; those located in the national territory regarding inheritances and legacies, with all provisions applicable to donations between living parties, of movable or immovable property located in Honduras remaining in effect, provided that the value of the donation exceeds the sum of one hundred thousand Lempiras (L. 100,000.00).

The provision contained in Article 26, Third Paragraph of Decree No. 50 of August 24, 1966, which contains the Mortgage Law, is hereby repealed, which modified the law obligating the creditor of immovable property to affix contract stamps to the receipts or documents that must be issued for the concept of rent or rental to their tenants or lessees. SECTION II OF SMALL AND MICROENTERPRISES

Notwithstanding the provisions of Article 30 of the Law of the National Fund for Production and Housing (FONAPROV), contained in Decree No. 53-97 of May 8, 1997, the Cooperatives and Private Development Organizations (OPD), that conduct rediscount operations of the resources of the National Fund for Production and Housing (FONAPROV), on the amounts and the credits granted. To access the benefit granted in the preceding paragraph, the Board of Directors of the National Fund for Production and Housing (FONAPROV), shall establish the eligibility criteria. CHAPTER IV EFFICIENCY OF PUBLIC ADMINISTRATION

Articles 91 and 95 of the Organic Law of the Merchant Marine, contained in Decree No. 167-94 of November 4, 1994, are hereby reformed, as follows:

It is reformed in the sole sense that the General Directorate of the Merchant Marine as a deconcentrated entity, is hereby attached functionally to the Secretary of State in the Departments of Public Works, Transport and Housing (SOPTRAVI).

The Executive Power through the Secretary of State in the Departments of Public Works, Transport and Housing (SOPTRAVI), shall determine the functions of the General Director of the Merchant Marine and other personnel of this Department, as well as their relationships with this Secretary of State. Matters relating to fees, rights, values and other charges and other rights established in the Organic Law of the Merchant Marine, may be modified by the National Congress, after consultation with the Secretary of State in the Department of Finance.

As of the effective date of the present Law, all functions that have been performed by the Executive Director of the Honduran Tourism Institute shall be assumed by the now President and Vice-President thereof, whose appointment shall be made by the Secretary and Under-Secretary of State in the Department of Tourism; respectively.

To reform Articles 8, 10, 13, and 71 of the Law of the Honduran Tourism Institute, contained in Decree No. 103-93 of May 27, 1993, which shall be read as follows:

The National Tourism Council, hereinafter referred to as "The Council," is an advisory body in the formulation of policies and shall be composed as follows:

• a)

  The Secretary of State in the Office of Tourism or his substitute, who shall be the Secretary of State that integrates the Council in the order of precedence established in this Article;

• b)

  The Secretary of State in the Offices of Government and Justice or his legal substitute;

• c)

  The Secretary of State in the Offices of Public Works, Transportation and Housing or his legal substitute; and,

• d)

  Three principal representatives with their respective alternates, from the Private Sector linked to tourism, appointed by the President of the Republic at the proposal of the Honduras Tourism Chamber. In the voting of the Council, if there is a tie, the Secretary of State in the Office of Tourism shall have double vote.

The Vice-President Executive of the Honduran Tourism Institute shall serve as Secretary of the Council, who shall be summoned to the sessions of the Council, with the right to participate with voice but without vote.

The requirements to be President or Vice-President Executive shall be the same as those required to be Secretary of State.

The Fund shall be administered by the Credit Committee, which shall be composed as follows:

• a)

  Executive President of the Honduran Tourism Institute;

• b)

  One representative from the Secretariat of State in the Office of Finance;

• c)

  Two representatives from the private sector directly linked to tourism activity. For each principal representative, an alternate shall be designated. The principal representatives and alternates from the private sector shall be appointed by the Executive President of the Honduran Tourism Institute at the proposal of the Honduras Tourism Chamber; they shall serve for two years and may be re-elected.

To reform Articles 6 and 7, subsection d) of the Framework Law of the Electrical Sub-Sector, contained in Decree No. 158-94 of November 4, 1994, which shall be read as follows:

To create the National Energy Commission (CNE), as a decentralized body of the Secretariat of State in the Offices of Natural Resources and Environment (SERNA). The National Energy Commission (CNE) shall assume all attributions related to the energy sector in substitution of the National Supervisory Commission of Public Services (CNSSP) and the National Commission of Electric Energy (CNEE) that depends on the Secretariat of State in the Offices of Communications, Public Works and Transportation. The Commission shall be composed of three principal members and two alternates, appointed by the President of the Republic at the proposal of the Secretary of State in the Offices of Natural Resources and Environment. The members of the Commission shall have the character of public servants, shall serve for four years in the exercise of their functions and may be re-elected for new periods; they shall perform their functions full-time and may not hold other paid or ad-honorem positions except teaching.

The powers of the National Energy Commission (CNE) are the following:

• a)

  ...;

• b)

  ...;

• c)

  ...;

• d)

  ...; d) To approve and put into effect the wholesale and retail tariffs, as well as the automatic adjustment formulas, informing users as established by this Law. e) ...; f) ...; g) ...; h) ...; i) ...; j) ...; k) ...; l) ...; m) ...; n) ...

To repeal Articles 10 numerals 1) and 4); 11; 12; 14; 15; 16; 17; and 18 of Decree No. 85-98 of March 31, 1998. CHAPTER V FISCAL SANITATION SECTION I OF THE SALES TAX

To reform Article 6 of Decree Law No. 24 of December 20, 1963 and its reforms, which contains the Sales Tax Law, which shall be read as follows:

The general rate of the tax is twelve percent (12%) on imports and sales of goods and services subject to it. The rate shall be fifteen percent (15%) only when applied to imports or sales of beers, spirits, compound liquors and other alcoholic beverages, cigarettes and other manufactured tobacco products. Goods and services that are exported are exempt from this tax. The levy of fifteen percent (15%) that applies to sales of beers, spirits, compound liquors and other alcoholic beverages, cigarettes and other manufactured tobacco products; and twelve percent (12%) on carbonated beverages and cement, all products subject to specific fiscal income covered in a single stage of commercialization at the factory level, except as established in Article 8 of this Law except from the powers of the Executive Revenue Directorate. SECTION II OF THE RATE FOR LAND VEHICLE REGISTRATION

To reform Article 15 of Decree No. 18-90 of March 3, 1993 and its reforms, which shall be read as follows:

A SINGLE ANNUAL RATE is created for registration, inspection and modifications to vehicle characteristics as well as related services, which shall be applied in accordance with the following rates: VEHICLES WITH RENTAL PLATES Vehicle Usage Time DESCRIPTION Up to 3 years More than 3 years Up to 1,400 cc L. 380.00 L. 190.00 From 1,401 to 2,000 cc L. 540.00 L. 310.00 From 2,001 to 2,500 cc L. 780.00 L. 470.00 From 2,501 cc onwards L. 1,100.00 L. 620.00 VEHICLES WITH PRIVATE PLATES Vehicle Usage Time DESCRIPTION Up to 3 years More than 3 years Up to 1,400 cc L. 780.00 L. 310.00 From 1,401 to 2,000 cc L. 1,110.00 L. 470.00 From 2,001 to 2,500 cc L. 1,550.00 L. 620.00 From 2,501 cc onwards L. 2,170.00 L. 780.00 Motorcycles L. 160.00 L. 80.00 Trailers L. 310.00 L. 160.00 Any additional charge, including those made by the National Traffic Directorate, made in connection with the provision of the aforementioned services is absolutely prohibited, except that they charge the responsibilities of the Constitution and the immediate removal of the employee or official responsible and, furthermore, is prosecuted for the crime of fraud and illegal exactions. When the services referred to in this Article are presented in months after the month of their annual start, the rate shall be charged proportionally to the time remaining for the year to be completed. The sums provided are understood to apply to natural or juridical persons who have sold the automobile within fifteen (15) calendar days following the date of presentation of the Purchase and Sale Contract. The total obligation shall be for persons who directly import land motor vehicles. Land motor vehicles with foreign plates shall, each time they enter the country, pay for the service to use that rate USD 20.00 or its equivalent in Lempiras, in order to be held in the structure of the Central Bank of Honduras in compliance with the standards established for such purpose by the Central Bank of Honduras. Excepted from this provision are vehicles registered in Central American countries that have signed and ratified Agreements and Treaties on Economic Integration, who shall have freedom of entry, transit and permanence in national territory. Except as provided in the fourth preceding paragraph, violators of the provisions in this Article shall be applied a fine of fifty (L. 50.00) to three thousand Lempiras (L. 3,000.00), in accordance with the criteria established in the Regulation of this Law. When it comes to motorcycles, a fine of fifty (L. 50.00) to two hundred Lempiras (L. 200.00) shall be applied, following the same criteria indicated. The application of the fine does not exclude the fulfillment of those established in this Article. In years when a new plate is issued, two hundred Lempiras (L. 200.00) additional shall be charged; and for the loss or significant damage of the plate, three hundred Lempiras (L. 300.00) shall be charged for replacement, and for the replacement of stickers, fifty Lempiras (L. 50) shall be charged.

A rate is created for the transfer of motor vehicles due to the title holder of transfer of property of the vehicle. Payment shall be made through the authorized collection agency for such purpose. SECTION III CONTRIBUTION TO THE CONSERVATION OF ROAD ASSETS, ATTENTION TO SOCIAL INTEREST AND TOURISM PROGRAMS

To convert the Component called Oil Price Differential, which is part of the current formula used for setting internal prices for fuels, into a contribution that shall be used for the conservation of road assets and attention to social interest programs, focused specifically on addressing the basic needs of the Honduran population with low incomes. This contribution shall be paid by natural or juridical persons who are engaged in both the production, transformation, refining or importation of the same, whose value shall be the amount in Lempiras that results from multiplying the values in United States Dollars of the amounts produced by the exchange rate in effect in the market published by the Central Bank of Honduras in accordance with the structure existing at the time this Decree enters into force.

The contribution established in the preceding Article shall be covered in the first stage of commercialization of the taxed products, and shall be applied and withheld at the moment in which delivery, use, or withdrawal thereof occurs or in the respective invoice or equivalent documents, whichever occurs first. The tax liabilities collected from those responsible for the tax shall be delivered to the General Treasury of the Republic within the first five (5) days of the month following when the sales or transfers took place.

The responsible parties who do not fall within the collection that is retained by the preceding Article shall be subject to the provisions of Article 121 of the Tax Code.

To promote and encourage tourist activity, the TOURIST SERVICES TAX is established. The tax shall be four percent (4%) on the price of daily lodging in hotels; on the price of vehicle rental for tourist purposes; and on the price of services provided by receptive tourism operating agencies. Hotel companies, vehicle rental operators for tourist purposes, and receptive tourism operators shall be responsible for withholding and depositing this tax with the General Treasury of the Republic or with the authorized collection agency for such purpose. The obligation must be fulfilled within ten (10) days of the month following when the tax was incurred. In the case of receptive tourism operators, to determine the corresponding tax base, the values of daily hotel lodging services and vehicle rental for tourist purposes that they have provided and for which the tax has already been paid shall be excluded. Exempt from payment of this tax are boarding houses, lodgings, and budget hotels used by low-income persons, as qualified by the Honduran Tourism Institute.

The Administration and Control of the Tourist Services Tax shall be the responsibility of the Secretary of State in the Ministry of Finance through the Executive Tax Revenue Office. CHAPTER VI INCENTIVES FOR TAX COMPLIANCE

For this occasion only and during the period from the effective date of this Decree through September 30, 1998, natural or legal persons, whether or not registered with the Executive Tax Revenue Office, may:

• 1)

  Register as a taxpayer or responsible party in the registers established by special laws, free of all economic or administrative sanctions;

• 2)

  Submit declarations that have been omitted and which the taxpayer or responsible party was obligated to present as of December 1997, regarding tax obligations pertaining to tax years that have not prescribed;

• 3)

  Make corrections as of the effective date of this Decree to declarations that the taxpayer or responsible party submitted in error and which they were obligated to submit as of December 1997;

• 4)

  Pay, when corresponding, taxes related to the declarations referred to in numerals 2) and 3) above, without penalties, surcharges, or interest;

• 5)

  In the case of official assessments or repairs or adjustments made to declarations submitted as of December 1997, the taxes corresponding to the total or the part accepted by the taxpayers or responsible parties shall be paid without penalties, surcharges, or interest;

• 6)

  Voluntarily pay tax obligations in matters that are pending before the Executive Tax Revenue Office, the Secretary of State in the Ministry of Justice, pertaining to repairs or adjustments presented to declarations that were submitted as of December 1997; free of all penalties, interest, and surcharges; and 7) Cancel tax debts, whether or not covered by payment plans, that are pending payment as of December 1997, without charging penalties, surcharges, and interest that are waived by this Decree.

An additional tax compliance incentive is granted during the period stated in Article 45, consisting of a percentage reduction calculated on the amount of taxes deducted from tax years 1992-1994, according to the following scale: Fifteen percent (15%): If the debt is paid during the first month of effectiveness of this Decree. Ten percent (10%): If payment is made during the second and third month of effectiveness; and Five percent (5%): If payment is made after the third month and until September 30, 1998. This Article is also applicable to debts for which payment plans have been agreed upon.

To enjoy the benefits contained in numerals 2) and 3) of Article 45, taxpayers or responsible parties shall submit their declarations or corrections directly to institutions of the National Financial System that are authorized by the Secretary of State in the Ministry of Finance as Collection Agents for Tax Payment Declarations. For the cases of numerals 4) and 5) of the same Article and what is established in Article 46, they must appear before the Executive Tax Revenue Office for presentation of the corresponding procedure. Once payment is executed, the Office, with the sole presentation of the corresponding receipt, shall issue a Resolution concluding the procedure and fulfilling the tax obligation and ordering the immediate filing of the respective file. The ten percent (10%) and fifteen percent (15%) resources that prior to the effective date of this Decree were contained in Article 22 of the Income Tax Law shall form an integral part of the Tax Obligation as tax; therefore they do not constitute any sanction and do not generate exemption, except as corresponds according to the preceding Article 46.

The exemptions referred to in this Chapter on Incentives for Tax Compliance shall not apply when the sanction has been imposed for the commission of a tax crime.

For the payment of Income Tax based on Law, taxpayers with special fiscal periods shall calculate the tax to pay, only for the declaration they must present in the 1998 calendar year, by the following procedure: First they shall calculate the tax based on the rate in effect under the previous Law and second they shall calculate the tax to pay by applying the rate established in this Law. Subsequently, one-twelfth shall be calculated in each of the two previous cases; the first value shall be multiplied by the number of months elapsed from the beginning of the fiscal period until the beginning of April 1998; and the second shall be multiplied by the number of months of the taxpayer's fiscal period elapsed during 1998. The sum of both calculations shall constitute the tax to pay. Taxpayers with a fiscal period equal to the calendar year shall pay according to the rates established in this Law. When advance payments have been made based on the previous rate, they shall have the right to make the corresponding adjustments.

Establish in the General Budget of Income and Expenses of the Republic for Fiscal Year 1998, in Title 4, Program 4-10, a capital transfer for the operability of the Road Fund, equivalent to the amount resulting from the date of effective date of the Decree in the different investment allocations intended for road maintenance, which appear in Program 3-07, National Road Maintenance.

Establish in the General Budget of Income and Expenses of the Republic for Fiscal Year 1998, within Title 4-05, Program 4-10, Sub-Program (L. 8,000,000.00), which is allocated as a global sum of eight million Lempiras (L. 8,000,000.00), which shall be financed with resources from the Tourist Service Tax established in Article 43 of this Decree. The execution of expenditure shall be made in accordance with the need for the breakdown referred to in Article 7 of the General Provisions of the General Budget of Income and Expenses of the Republic, and taking into account the involvement of the income received.

Applications presented under the Law on Tax on Inheritances, Bequests, and Donations that are pending as of the effective date of this Law shall continue to be processed in accordance with the previous legislation until their conclusion.

This Decree shall become effective on the date of its publication in the Official Gazette La Gaceta, except for the reforms to the Sales Tax Law which shall become effective thirty days after its publication, and shall repeal all legal provisions that conflict with it. Done in the city of Tegucigalpa, Municipality of the Central District, in the Session Hall of the National Congress, on the thirtieth day of the month of April of nineteen hundred ninety-eight. RAFAEL PINEDA PONCE President JOSE ANGEL SAAVEDRA POSADAS HERIBERTO FLORES LAGOS Secretary Secretary To the Executive Branch. Therefore: Let it be executed. Tegucigalpa, M. D. C., May 20, 1998. CARLOS ROBERTO FLORES FACUSSE Constitutional President of the Republic The Secretary of State in the Ministry of Finance. GABRIELA NUÑEZ