CABINET HAS REDISTRIBUTED ITS TAX PROMISES
In the days before the first and second round of the local elections the Government made a generous gift to Bulgarian companies. Surprisingly, the ministers approved a 4% reduction of the profit tax. Under the most important amendment to the Corporate Income Taxation Act, voted by the Cabinet at its extraordinary session on Wednesday (October 29), the profit tax for companies goes down from 23.5% to 19.5 per cent.Till the last moment the Finance Ministry was claiming that the profit tax should be 22% next year, despite its commitments to cut it down to 20% in 2004 as per the 2003-2005 Tax Policy document. But the Deputy Premier and Minister of Economy Lidiya Shouleva said she would firmly vindicate the demand for a 20% profit tax. Finally, the Government succeeded to find reserves and agreed to decrease the tax. The draft amendments to the Corporate Income Taxation Act also change the regime for taxation of insurance companies. Until now general insurance companies paid a 7% tax on their proceeds, and life insurers paid a 2% tax. In future, the companies selling property insurances and policies for accidents will pay taxes in compliance with the Corporate Income Taxation Act and additionally 3% on their premium incomes. Exception to that will be made for insurance of aircraft and vessels, on which 1% will be charged. Life, children, and health insurances won't be additionally taxed. Among the proposed amendments is also the reduction of the one-time tax on donations to the Bulgarian Red Cross, health care establishments and orphanages, from 20% to 15 per cent. Expenses of employers for transportation of their personnel will be also treated more favourably. But the preference will only apply to company vehicles with up to 8 seats (excluding the driver's one) which transport the employees from the place of work to their homes. However, this will affect the one-time tax on costs for the use of cars. Until now it was not paid for jeeps, but only for cars with less than 5 seats. In addition a one-time 4% tax on proceeds from economic activities of budget organisations has been introduced.However, the reduction of profit tax payable by companies will be compensated by maintaining the scale for taxation of natural persons. The tax-exempt minium will be again BGN110/month next year and the minimum monthly wage remains BGN120.Bulgarians who get up to BGN150/month will be paying 15% on the amount above BGN110. Citizens with monthly salaries up to BGN250 will be charged BGN6 plus 22% on the amount above BGN150. Those wgo get between BGN250-600 will pay to the Exchequer BGN28 plus 26% on the money above BGN250. The tax on the most affluent people with monthly incomes over BGN600 will be BGN119 plus 29% on the amount above BGN600. With inflation projected at 4% for 2004, the maintenance of the natural persons income tax rate practically means a decline of Bulgarians' real incomes. It should be noted that the above-mentioned document 2003-2005 Tax Policy projects the tax-exempt amount for 2004 at BGN120 and a 12% tax for people with the lowest incomes. In the words of the Finance Minister Milen Velchev, the good intentions of the Government have been frustrated by the necessity for the budget to cover the increase of the pensions' ceiling as of 2004. The most important draft amendment to the Natural Persons Income Taxation Act is the reduction of the threshhold from BGN75,000 to BGN50,000 for registration for payment of a patent tax.Amendments to the Value Added Tax Act (VAT Act) are also trifling. Among the new provisions is the relief from VAT of imports, necessary for the implementation of international projects. But VAT will be charged on the import of arms for the needs of the Defence Ministry.Changes in the excise duty rates are also expected in 2004. Closing the Tax Policy Chapter in the pre-accession negotiations with the EU in May 2002, Bulgaria undertook a commitment for gradual harmonization by the year 2007 of the currently effective excise duties with those in the EU countries. The ecology fees and road tolls for fuels will be transformed to excise duties. Under the Cabinet-approved draft amendments to the Excise Duty Act, production and sale of propane butane in 2004 will be taxed by BGN360/ton. The excise duty on unleaded petrol brands will jump from BGN490 to BGN1,000/ton. Excise duties on cigarettes will also go up from BGN0.002/piece plus 40% of the selling price to BGN0.004/piece plus 43.5% of the price.