BUSINESS WITHERED BY FISCAL FRAMEWORK FOR 2002
The postponed introduction of a zero corporate income tax for reinvested profit is the least of the disappointments, suffered by the Bulgarian business over the last two weeks. The fiscal framework for the budget year 2002, published in the web-site of the Financial Ministry withered the Bulgarian Industrial Chamber (BIA) and the Bulgarian Chamber of Commerce and Industry (BCCI). Their twelve proposals for improvement of the business climate in the country, presented by experts of the two organisations last week, simply remained hanging in the air on the background of the Government's fiscal policy, projected for next year. Bulgarian economy is in a very difficult situation, and the expected recession in the developed countries will create additional difficulties. The opposition of the International Monetary Fund (its refusal to accept the introduction of a zero tax rate for reinvested profit) blocked the very first step of the Government, meant to encourage business, but the Cabinet could try to find other resources, BIA's Deputy Chairman Dikran Tebeyan motivated the proposals of the two big employer organisations. However, cold comfort remains for them that the new Government is more open to dialogue than the former one, but the new Cabinet's intentions have not been rendered concrete yet. We met a well-meaning attitude - the Government accepted 80% of our proposals, but it did not become clear when this good-will would be realized. Therefore, if the Cabinet does not help us, we would like it not to put obstacles at least, BCCI's Chairman Bozhidar Bozhinov commented.The Cabinet overthrew all proposals in the sphere of tax policies, and namely:- zero tax on reinvested profit;- VAT refunding within 15 days:- revocation of the regulation of poor capitalization of interests on bank credits in article 26 of the Corporate Income Tax Act;- the possibility for voluntary registration under the Value Added Tax Act;- reduction of the ceiling for voluntary registration of greenfield investors from USD1MN to USD75,000.According to Bozhidar Danev, Chairman of BIA, the refusal to accept the first proposal could be swallowed, although its approval would had beenq according to himq a good impetus for the investment activity of business. The reduction of the profit tax to 15%, however, would be only felt by big companies, while entrepreneurs who pay excise duties will not at all feel it, as these indirect taxes have already been raised for some goods, whose consumption will go down and will therefore influence the profits of their manufacturters. Mr. Danev said that the planned increase of the dividend, to be received by the State for its participation in limited liability companies and joint-stock companies from 20% and 30% respectyively to 80% for both types of companies, would reduce the enterprises' investment activities.Mr. Danev's deputy Dikran Tabeyan, on his part, is certain that the projected measured would not at all cut down the revenues into the State budget if they were accepted. On the contrary - they would had increased them. VAT refunding within 15 days is an entirely reasonable term, but only if all firms were entitled to that. Under the currently efficient law, the taxation administration first of all checks if it has grounds to refund the VAT, and gives a permission after that. Why not change that philosophy? VAT should be first refunded according to a presented declaration, and the administration should afterwords inspect the firms. And sanctions for wrong data should become severe. If VAT refunding was not delayed and if the money was recirculated in the economy (especially in the current situation of difficult bank crediting to business and chronic lack of turnover capital), both the state budget and business would gain, while the cases of tax frauds would steeply go down, BIA'a and BCCI's experts are adamant.The budget would lose a total of BGL300MN if the term for VAAT refunedng is reduced from 4 to 3 months. The business organisations' requirement for cutting down that term to 15 days is impossible to fulfiill, Deputy Premier and Minister of Economy Nikolai Vassilev said. He also announced the Government's stance on the introduction of voulntary registration under VAT Act. The Cabinet accepts the idea, but is certain that it should be carefully implemented. According to Mr. Vassilev, the tax cannot be differentiated for the various branches as employers want, because it would be difficult to say which of them are of a priority importance to the country's economy.Voluntary registration under the VAT Act was meant to encourage large greenfield investors, investing less than USD1MN. It is known that their funds are blocked for a certain technological period, in which the capacities are constructed, and they cannot declare a turnover of BGL75,000. This limit is neecssary, because the present administration wants to decide in advance if a company has or does not have the right to register under the VAT Act. Our proposal projects that small and medium-sized enterprises could also register under the VAT Act, Mr. Tebeyan explained. The other measure that could promote business was the revocation of regulation of poor capitalization of interests on bank credits. The charges on bank credits impedes further investments in the enterprises, whose turnover capital is anyway blocked by the slow refunding of VAT.Instead of limiting the amount of fees, charged from businesses and which, according to BIA's representatives, is in fact hidden taxation, the Government's fiscal policy project their updating in 2002. The sums under the State and Court Fees indicator in the national budget are projected at BGL234MN for 2001, up from BGL197MN for 2000. Under the Constitution, the taxes are introduced by parliament, but the currently effective legislatsion introduces fees, which do not correspond to the real expenditures, experts of the two employer organisations claim.The 10% charged on the final tax on the increased number of telephone impulses, the introduction of VAT on packages of tourist services sold abroad, the increased advance VAT installment from 15% to 20%, and the change of the basis for calculating the tax on real estates, paint in dark colours the picture awaiting the Bulgarian buisness next year. On the background of the 15 limitations to entrepreneurs the four promised gains - a 15% corporate income tax, a 3-month term for VAT refunding, the elimination of excise duty label for wine, and the setting aside of BGL20MN for micro-crediting are simply trifling, BCCI's and BIA's representatives were unanimous. As Mr. Danev grimly noted, the score from the first dialogue with the Government was 15:4 for the Cabinet.