AN ACCOUNTING BOOK OR A TAX LAW?
TAX PRIVILEGES FOR JEEPS REMOVEDAmendments to the Corporate Income Taxation Act (CITA) proposed by the Ministry of Finance seem to be bulky, but will not have any significant effect. Most of the provisions have just been rewritten. As a result, the newly-proposed art. 23 of the law, which regulates the taxable profit, looks like a book on accounting problems. Paradoxically, the complications are made at a time when the Natural Persons Income Taxation Act will force lots of small dealers to stop paying their patent tax and, by reverting to corporate taxation, to recalculate their profits.Two or three innovations make the tax labyrinth so complicated. The first one is the tax depreciation plan that had to be prepared for the first time in 2003. As the Finance Ministry failed in trying to give any instructions, requirements to the plan were included in the draft amendments to the CITA. A lot of changes also result from the new methods of mergers and acquisitions, introduced by the latest amendments to the Commercial Code. Everything changed as the rules were rewritten for correcting profits that contain mistakes related to previous dates. These amendments are important to the accounting experts, but it is too difficult to explain them in a simple language. That's why we'll only explain changes that refer to the calculations of company owners. A new category of intangible long-term assets has been introduced, which can only be used for a limited period of time (such as some licences). They will depreciate until their expiry date which comes no sooner than four years later.Only vehicles with less than eight seats (except the driver's one) will be considered cars. Until now, vehicles with up to five seats were included in this group (vans and some jeeps were not included in it). The change will reflect on the single tax on gasolene and maintenance expenses, which is due for using the cars for company operations (for example, for courier services). Many businessmen avoided paying the 20% tax by buying cars with more than five seats, but from now on they will not be able to use that trick.One requirement for acknowledging as costs the money spent on transportation of personnel will probably be removed. Currently, these costs are only considered necessary if there is no public transport services to the place of work. Workers will only be transported in company-onwed or rented cars - no agreements are expected to be signed with companies organizing the transport.Strong confusion will be provoked by another one-time tax - the one imposed on social expenses. Until now, the 20% tax was paid on the amount of social gains like free food, for example. The amendments stipulate that these expenses be transformed, as well as the profit. Moreover, the transformations will be made every month, whereas recalculations for the tax on profit are only made once - in the end of the year. Obviously, someone in the Ministry of Finance has realized there were employers who report lower depreciation rate of the local canteen equipment in order to pay lower taxes. It's dubious, however, that this trick will add money to the budget.Special attention has also been paid on expenses for scholarships to students who are not employed by the company or are on holiday during most of their school time. From now on, these costs will not be credited by the tax administration. But if the student works for the same company for two years after graduation, these amounts will be considered backdate expense. The proposal for deducting losses seems disputable. Both accounting and tax laws allow for covering of losses accumulated in previous years by the reported profit. Now, this will not be allowed to companies that have accumulated losses during the years they haven't paid a tax on profit. This group includes entities that paid a patent tax, insurers which paid tax on the premium received, gambling organizers. The aim of the Ministry of Finance is clear - during the period these losses were accumulated, it has not controlled their financial results.The amendments to the CITA introduce a new term - undistributable expenses. It will concern foundations and budget organisations which only pay a tax on their economic profit (including rents). They will not be able to reduce their taxable amounts by the size of expenses that are necessary for their economic activity. After the amendments are adopted, only a part proportional to the share of the economic revenues in the total revenues will be considered an economic expense.The new term will affect also companies to which the tax on profit from certain activities is ceded. A company operating in the agricultural sector (part of the tax on the profit from this activity is ceded) and trade will not be able to reduce its trade revenues on account of some agricultural expenses.There will be changes in the criteria that determine tax relieves for companies investing in municipalities with high unemployment. One of the preferences was that the taxable profit is reduced by expenses for obligatory insurance of additionally employed workers. Only small correction to the formula is proposed now. The other preference was that the tax is ceded 100% to investors whose assets are entirely located on the territory of poor municipalities and who have at least 80% of their workers from the local population. There were two lists of municipalities with high rate of unemployment for the two types of preferences. As of 2004, there will be only one list.