Банкеръ Weekly

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DUTY-FREE OPERATORS HAVE THEIR LICENCES EXTENDED

The argument between Bulgaria's Finance Minister Milen Velchev and duty-free operators about whether or not duty-free shops along Bulgaria's land borders should be closed has flared up political passions. Still, it ended rather peacefully. Despite his many declarations that he was determined to put an end to the duty-free business, Mr. Velchev found himself forced to extend the branch companies' licences.The solution came on the last working day of 2003, when Milen Velchev signed the new licences. So, instead of being closed, the shops branded as conduit of smuggled excise-duty commodities will be selling alcohol and cigarettes for other three years at least.The company that profited most by the re-licencing was definitely Transimpex AD which controls 15 sites on the territory of the country. Also satisfied are Sofcom OOD, Corecom Princess AD, and Seacom AD. Each of them will own four duty-free shops. Each of Amfora EOOD, Aidatour AD, and Belatour AD was allowed to run three shops, while Deneb AD, Panchatantra EOOD, and Vassilevi Brothers OOD - two. One shop but in the very strategic point of Kalotina will be controlled by B.N.K. OOD. There are also three state-owned companies - the Sofia Airport EAD, Bourgas Airport EAD, and Varna Airport EAD. They will own the duty-free shops at the airports. The only rejected candidate is Sofcom In Group which documents were turned down by the licencing commission at the Finance Ministry. Some of the applicants - such as Pautalia Tours AD, Izotimpex Kalotina Balkantourist, Air Via OOD, and the Plovdiv Airport EOOD, gave up participating in the competition. The conclusion of the sometimes boring debates was quite expected. It confirmed suspicions that power rarely strikes at its own sponsors.Even people not so familiar with the situation realize that duty-free trading in Bulgaria is only accessible to a few chosen people. For example, the leading company in this branch, Transimpex, is being associated with the name of Vassil Bozhkov, President of Nove Holding and member of the Vazrazhdane business club. It's well known that the intentions of Minister Velchev were also seriously opposed by the Movement for Rights and Freedom (MRF) - the coalition partner of the political rulers, and mostly of its leader, Ahmed Dogan. That's quite natural, considering the fact that Corecom Princess and Aidatour AD are respectively controlled by the famous Turkish businessmen Sudi Ozkan and Fuat Gyuven. According to unofficial information, the state and the operators reached an agreement in the very beginning of December. Representatives of the 14 approved companies were invited to meet the secretary of the Finance Ministry, Tencho Popov. During the talks, Mr. Popov informed the operators about the coming extention of their licences. He also told them about the plans of the Ministry not to hold a general competition but to apply section 20, paragraph 2 of the final regulations of the Excise Duty Act. The act stipulates the order for renovating duty-free trade licences issued by previous governments. However, it eliminates the potential appearance of new players on the market. In turn, the members of the Duty-Free Operators Association signed a gentleman agreement not to compete with each other. Therefore, each of the nominated companies applied for the sites it had already run.According to preliminary data of the association, in 2003 its members have paid EUR2.4MN to the budget. In 2002, that amount was EUR1.8MN. The Excise Duty Act obliges duty-free operators to transfer 2% of their monthly turnover to the accounts of the Customs Agency. According to Radostin Genov, Chairman of the Duty-Free Operators Association, the growth registered is due to the good management of the companies and the regulating effect of the numerous inspections made by tax and customs authorities in the last six months. As an example he pointed out Transimpex AD. The company reports an annual income of about EUR20MN. Another leader is B.N.K. which turnover goes beyond EUR12MN. Third in terms of sales is Sofcom.The relations between the Finance Ministry and the duty-free operators will probably continue in the future, taking into account the preparation of a special draft bill that will regulate duty-free trade in Bulgaria. The draft will be prepared by a working group at the Ministry of Finance guided by Lyudmila Elkova, Head of the Tax Policy Directorate.Bulgarian rulers already demonstrated willingness to go into discussion by saying they would consider some of the operators' requests in the preparation of the draft. Well-informed sources comment that the most important among them is to shorten the term for restoring excise duties and VAT accumulated for retail sales. According to information of the Customs Agency, every month the treasury receives and later restores to the operators about BGN84MN on the average from excise duties (in accordance with the current regulation, the sale of excise commodities in duty-free zones is considered export). As it is known, the process is related to exchanging huge amounts of information between customs and tax authorities. This is often a problem for the administration as it is unable to keep the one-month term to restore the tax credit. A possible outcome of the situation, representatives of the branch say, is to stop the tradition of shop owners paying duties to the budget and then taking them back.The operators propose that duties to the treasury be secured with bank guarantees or one-time deposits. If still they are not exempt from the obligation to pay a duty for the sale of cigarettes in the shops, duty-free operators insist that they pay taxes on the sale price, not on the price fixed by the Council of Ministers for the domestic market, as it currently happens. In duty-free zones, cigarettes are sold at prices lower than those in the country. If the requested change is really made, it will save significant working capital to the owners. The other question which is about to be cleared is whether VAT should be paid on excise duty commodities delivered by distributors to the duty-free shops.

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