Банкеръ Weekly

Briefs

MPS BRING DUTY-FREE ZONES BACK TO LIFE

A group of MPs from various political formations took the responsibility for reviving the almost forgotten duty-free zones in Bulgaria, the BANKER weekly learned.A draft bill on duty-free zones was deposited in parliament a few days ago. If voted in plenary hall, the bill will replace the archaic Decree 2242 from 1987 passed by the old State Council. Curiously, this act keeps regulating the operations of duty-free structures, in which import is not assessed with duties, excises, value-added tax, and fees. The zones are run by commercial companies, in which stakes are controlled by the state, by municipalities, and by private companies, and the Ministry of Finance is the principal. Customers who keep their commodities in these zones pay the managing companies a rent in convertible currencies.The first two duty-free zones were established in Rousse and Vidin in the distant 1988. Others were created in Bourgas, Plovdiv, Svilengrad, and Dragoman a little later. In the early 90s, the zones attracted significant currency revenues from foreign customers. 60,000 square metres of storehouses and production grounds that are currenty used were built at that time, too.Hard times came for the duty-free zones, however, when the cabinet led by Lyuben Berov deprived them from tax privileges. Until then, companies operating in the zones had been exempt from paying a tax on their profit for a five-year period, at the end of which they had only been required to pay 30% of the taxes due.In 1998, the zones suffered another shock, when the government of the United Democratic Forces (UDF) banned them from storing excise commodities. All this forced the larger customers, including some respected western companies to move to Romania and Turkey instead.There's hardly someone who can remember a promise the National Movement Simeon II (NMSII) gave before winning the 2001 elections. The movement committed itself to develop high-tech parks on the basis of the duty-free zones. This is the third year in which the cabinet remains deaf for the requests of an association that unites the six zone managers. They asked that a law be passed in order to revive their activities. Vassiliy Skripka, Head of the Bourgas Duty-Free Zone, told the BANKER weekly that his colleagues and he were fed up with fighting against the negligence of the authorities which refused to create normal conditions for business in the zones. That's why, he said, they hired a team of legal experts to prepare the bill brought in parliament these days.Still, reading the text suggests that the bill has not great chances of getting approval in the plenary hall. It's also logical to think that it will inflame passions in both the budget and the European integration commissions of the Parliament.For example, there is a quite misbelieving proposal - that duty-free zones should pay a tax on profit or an income tax amounting to 50% of the taxes imposed in the country for a ten-year period. It's also too courageous to propose that investments exceeding BGN1MN in the acquisition of fixed assets in the zones should be exempt from taxation for three years, while investments exceeding BGN3MN should be exempt for five years. The bill also stipulates that the companies managing duty-free zones have a right to reduce their taxable profit by the amount of their investments or the amount of their bank credit payments.Obviously, all these ideas have little in common with the IMF instructions to the government advising it to apply a restrictive fiscal policy. They also hardly correspond to the warnings made by the European Union for more transparency in the launching of state financial assistance.There will be opposition to the privileges, Vassiliy Skripka forecasts. Still, he insists that they are an established world practice for attracting foreign investors: We hope that the economic experts in parliament realize the need of introducing such incentives in Bulgaria. According to Mr. Skripka, the duty-free zones bill complements a text already approved by the Council of Ministers for stimulation of investments. The variant proposed by the government is directed towards large investments, while the one for the zones gives advantage to small and medium-sized enterprises.The bill enumerates in details all commercial and industrial activities that might get tax privileges. Among them are the production, processing, and sale of commodities. The list also includes storing commodities, cargo processing, shipping, banking services, insurance, repair works, etc. It also regulates the order for establishing new duty-free zones - with an act of the Council of Ministers by request of the Finance Minister.It sounds reasonable, too, to make these zones accessable for companies registered in Bulgaria. According to the currently operating regulations, this right is only given to foreign companies or joint legal entities. This forces Bulgarian companies to seek loopholes in the legislation by registering in offshore zones or neighbour countries.Arguments will also arise if the bill cancels the ban for storing excise commodities in duty-free zones. Mr. Skripka does not accept the thesis that a possible cancelation of the ban will open new channels for smuggling alcohol and cigarettes as some experts now fear. He also wonders why the Bourgas duty-free zone is subject to incessant revisions for smuggled commodities by the National Service for Fighting Organized Criminality (NSBOP), by customs and tax inspectors, while nobody even tries to see the containers that enter through the port customs station without control.Anyway, the bill raises the frequently asked question about the future of the duty-free zones. Now, at least the motives of its authors seem to be noble. The bill is said to aim at attracting direct foreign investments to the Bulgarian economy, as well as at increasing the competitive power through introduction of high technologies and increase of the export.Unfortunately, almost all regulations adopted by the parliament in the past decade have taken similar commitments, but they never brought the expected miraculous results.

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