Банкеръ Weekly

Briefs

DUTY-FREE CONTROL SWAMPED WITH CONTRADICTIONS

Where are the Minister of Finance Milen Velchev and the Crown Agents consultants to see the huge amounts of imported and even Bulgarian cigarettes that are sold without excise labels? The question was put by Ergin Emin, member of the National Executive Council of the Union of Democratic Forces (UDF), during the party's press conference on July 27. Then the blue activist spilled about a dozen unpacked boxes on the table. Some of them had no excise labels, others had a label saying the boxes were for sale in duty-free shops only. The demonstration resembled another similar occasion that took place three years ago during the parliament's election campaign. In a TV debate with Muravey Radev Mr. Velchev took out a box of Davidoff cigarettes without an excise label and threatened that when the National Movement Simeon II (NMSII) came to power, smuggling would be restricted.Political populism aside, in every larger Bulgarian town today there are well-known commercial outlets where people can buy cheaper alcohol and cigarettes allegedly meant for duty-free sale. Great expectations for tightening the control have not been justified so far. As far as the BANKER weekly learned, discussion of the new bill on duty-free trading goes on sluggishly because of considerable differences between the Ministry of Finance and the companies that occupy with this business. The preparation of the law was defined as a priority task by Minister Velchev at the end of last year. He then issued duty-free operator permissions to 14 companies, but threatened that the state would introduce stricter rules for their operations. The members of the Duty-Free Traders Association were invited to participate in consultations on the future texts.The traders opposed a proposition of the ministers that future state receivables from excise duties and value added tax on sales in duty-free shops should be guaranteed by a deposit on accounts of the respective customs establishment. Duty-free traders insist that just the excise, not the VAT, be guaranteed to the treasury when alcohol and cigarettes labelled FOR DUTY FREE ONLY are imported. Moreover, they want that to be a bank guarantee, not cash funds. According to the Chairman of the duty-free association Radostin Genov, companies in the branch intend to exercise their whole influence on the MPs in order to prevent voting the financial experts' text in plenary hall. They explain that if they are obliged to deposit cash funds as tax collateral, they will be deprived of significant amounts of working funds. According to Mr. Genov, considering the sluggish procedure to recover accumulated indirect taxes following the declaration of realized amounts (which takes 30 days), the state practically blocks about BGN20MN of the businessmen every month.The Ministry of Finance told the BANKER weekly that they would comment on the issue as soon as the project is approved by the Council of Ministers. According to Tanya Mitova, PR Director, a new round of negotiations will be held with the duty-free traders in early August. One of the problems to be discussed there is the government's intention to impose a single turnover tax on the duty-free operators. The tax is planned to be 4% of the sales revenues. The operators define this amount as too high and insist that it be reduced to 2 per cent. Currently, in return to the privilege to sell excise goods freely, traders pay 2% of their turnover to the account of the Customs Agency every month. Moreover, companies to which the licence is named submit declarations in accordance with the Law on Corporate Income Taxation. However, analyses of the financial ministry show that the companies usually exercise other activities apart from the duty-free trading. In practice, this allows them to assess depreciation and expenses and thus reduce the tax base.At present, the two negotiating parties find it difficult to reach an agreement on one more topic - the idea to install video cameras in the duty-free shops and to build an electronic system in them to link them with the Customs Agency. Therefore, customs officers will be able to monitor every sale in real time. At first sight, excise goods sellers do not oppose such measures, but they are not likely to pay for technical innovations and propose that the state pays the price itself.Minister Velchev's idea to introduce special excise labels for cigarettes in duty-free shops will hardly be realized as well. Unofficially, the financial ministry has received letters from Philips Morris and British American Tobacco informing the Bulgarian authorities that they are unable to produce separate batches with excise labels designed for the local market, mostly because of the relatively small amounts sold on it.Problems may also arise from the forthcoming concession of the airports in Bourgas and Varna, as well as of some of the country's sea ports. The future concessioners are expected to get permission for attendant activities, including opening free shops. Such course of events will mostly affect Transimpex which is the leader in sales among the companies occupied with duty-free trading, and Seacom which owns sites in these zones. That is why, Radostin Genov told the BANKER weekly, it would be reasonable that the Council of Ministers and the National Assembly review the duty-free trade bill only when the rights of the future owners are clearly known.Moreover, the bill proposed does not solve the problem with the ownership of the land and equipment used by duty-free operators in cross-border control zones. Confusion is total, because apart from the companies claims are also laid by the Cross-Border Police National Service, the Ministry of Regional Development and Public Works, and municipal rulers. After privatisation agreements were signed for the sale of Transimpex, Corecom, Aidatour, Sofcom, and Amfora at the end of the 90s, their new owners were ceded the right to use the shops run by the formerly state-owned companies (the issue was settled by signing special agreements with the Customs Agency). In 2002, the Council of Ministers adopted a special decree declaring all sites in the cross-border control zones public state property. It means that they cannot be let out, ceded, or run jointly with a third party. However, even today some duty-free operators keep paying a monthly rent to the Cross-Border Police for the right to sell alcohol and cigarettes on the cross-border line. On the other hand, there is a regulation in the Law on Excises obliging the Minister of Finance to grant a free right to use duty-free trade sites to traders for a ten-year term along with their licensing.In the meantime, however, the need to adopt a special law on duty-free control may well disappear. That is quite possible, considering that the country has committed in front of the EU to close the duty-free shops along its borders with Greece and Romania after 2007.

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