Банкеръ Weekly

Briefs

MINISTRY OF ECONOMY DRAFTS THE STATUTE OF ECONOMIC ZONES

The establishment of economic zones in Bulgaria is among the hits in the economic strategy of Deputy Premier and Minister of Economy Nikolay Vassilev. The idea was launched in the pre-election programme of the National Movement Simeon II. Today, a year and a half later, a special draft has been worked out to embody the idea.The undertaking is aimed to create something like the free zone Shannon in Ireland, set up in the 1950s. According to publications in the British press, today it accounts for more than 30% of Ireland's export; 8,000 people are working on its territory, and its annual turnover amounts to USD2.3BN. The draft, prepared by the Bulgarian Ministry of Economy projects that its Bulgarian equivalents should be special parts of the country's territory, where investments by local and foreign natural and juristic persons would be encouraged. The idea is good, but as per the old Bulgarian tradition, it seems that what has been achieved so far would be destroyed in order to create something new. One cannot but notice that the attribute free is missing from the name of the future regulatory document.Deliberately or not, the Government will again fail to provide a legal framework for the existing six duty-free zones in Bulgaria, whose activities are regulated by the archaic decree 2242 of the extinct State Council. The decree stipulates that the import and export of goods through these zones would be duty-free, VAT-exempt, and no excise duties would be charged, and payments should be effected in convertible currency. As it can be seen, the scheme is the same as that of the new time zones and they are intended to attract foreign investment.The operation of duty-free zones was most seriously injured by the Customs Act (based on the European model), passed in 1998, which practically placed their statute on an equal footing with that of free warehouses under customs control. All this made investors withdraw from Bulgaria and move their business to the neighbour countries.A panel of experts, chaired by the Deputy Finance Minister Gatil Al Djeburi, and including representatives of the tax administration, the customs, and business, is to say the decisive say about the future of these zones. One of the most serious questions is if their existence is compatible with Bulgaria's candidacy for EU membership. According to Aneliya Angelova, head of the group of experts, responsible for the negotiations on chapter 25 - Customs Union - Bulgaria has entirely harmonized its legislation with that of Europe, and the furure of zones should not be doubted if they comply with the EU requirements. However, the EU's Customs Code contains the terms free zones and free warehouses but the word duty-free can be met nowhere it it. In this connection, Vasiliy Skripka, curator of the duty-free zone in Bourgas, commented for the BANKER weekly that with the infrastructure these zones have, at a later stage they could easily become free zones or technological parks. He pointed out as an example the Czech Republic and Poland, which are in the first wave of the EU's enlargement, but have won from the EC the right to protect the investments that have already been made in their duty-free zones. Following European tendencies, the Economy Ministry's draft projects that the investors in the new economic zones would be paying the lowest taxes under the Corporative Income Tax Act, independent of the stipulated terms for its application. But there is no hint whatsoever about customs preferences. Experts of the Customs Agency believe that if the draft remains unchanged, the investors in question will be treated under the general provisions of the Customs Act. That means that when importing machines and equipment into the future free zones, they will be paying customs duties and VAT as any other ordinary trader. In this situation, the only way for the western companies to evade the heavy payments on their import is to register the goods as temporary import. The problem in this case is that the goods should be re-exported within 24 months after their entrance onto Bulgarian territory and any serious businessman could be hardly expected to take such pains. Officials from the customs' Regimes and Procedures department believe this inconvenience could be avoided if Nikolay Vassilev's idea is combined with that of the duty-free zones, and the free warehouses are explicitely mentioned in the Customs Act. The other way is to redraft the legislative document. According to experts, much argument has been caused also by the projected threshhold of EUR5MN for investments in the economic zones. In the beginning of November the Director of the World Association of Free Zones Robert Heywood took part in a seminar on the issue in Varna, and he openly remarked that this amount seemed to him quite high for Bulgarian standards. Mr. Heywood recommended when voting the draft bill in Parliament to include a requirement to the investors for opening a certain number of working positions. Meanwhile, the Director of Duty-free Zone Rousse AD Yordan Kazakov said for the BANKER weekly that a large part of the zone's warehouses have become desolate after the enforcement of the Customs Act. The situation is similar in Bourgas. Political agruments and legal proceedings are going on regarding the biggest duty-free zone of the six - that in Plovdiv. Prospects for the duty-free zones to come out of the dark seem trifling. And we should wait to see what investments the economic zones will bring us.

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