TAX AND INSURANCE REMAIN AN OBSTACLE FOR INDUSTRIAL ZONES
AUTHORITIES EXPECT USD500MN IN GREENFIELD INVESTMENTS It seems that the idea for establishing industrial zones (recently transformed into districts) is doomed to face opposition. The ministers approved the idea last October, but it failed to enter Parliament. When it seemed that everything would end with another bill drafted by the Economic Ministry to stimulate production investments in certain industrial districts, new obstacles appeared. This time the role of a black cat was played by the Finance Minister Milen Velchev, and Lidia Shouleva, Minister of Labour and Social Affairs. The two ministers opposed to the provisions of the draft bill which stipulates tax and insurance privileges to businessmen who invest in these special districts. The objections became known at a press conference, when the Foreign Investment Agency (FIA) announced its operating results. Should these objections be taken into consideration, investors will be deprived of the biggest temptations proposed by the Vice Premier and Minister of Economy Nikolay Vassilev and his team. As the BANKER weekly wrote, the Economic Ministry proposed that for a ten-year period, the State would exempt from 50% of the due profit tax companies which invest over BGN10MN in the Bulgarian economy, and 30% of the due insurance payments for workers employed in the future industrial districts.According to FIA Director Pavel Ezekiev, the ministers Velchev and Shouleva opposed to these privileges when the Government was discussing the draft bill. The document will replace the currently effective Foreign Investment Encouragement Act, adopted in 1998. The news that there has been a governmental debate on the issue appeared surprising, as the topic had never been included in the Council of Ministers' official agenda. The Cabinet's press service commented the event as an informal discussion. The ministries are currently coordinating the bill, the press service explained later.Milen Velchev has hardly changed his opinion since the time he said no agreement on tax preference in the zones had been reached with the IMF and the European Union. In turn, Lidia Shouleva told the BANKER weekly she was not acquainted with the bill in detail and could not comment on it. She neither denied nor confirmed the information that she disagreed with the exemption of companes from insurance installments. She explained that the issue was not currently on the agenda. She did not sound convincing, though, since she attended a working meeting with businessmen, organized by Albena Invest Holding on June 24. (Before assuming her post as a minister Ms. Shouleva was executive director of the holding.) The draft bill on industrial zones was presented at the same meeting.Representatives of the Ministry of Economy claim they are ready to make a compromise and withdraw the clauses that stipulate return of insurance installments paid by investors. Regarding the tax incentives, they will obviously concern only investments in any of the 100 municipalities with high unemployment, where the tax on profit is zero. If the zones are established in a more developed area of the country, investors will have to pay the entire amount of the tax.Regardless of such insignificant disagreements, authorities seem optimistic about the amount of foreign investments that may come by the end of 2003. FIA Director Pavel Ezekiev told the media that he expected foreign investments to reach USD500MN this year. In case of successful privatisation deals, direct investments in the remaining months may come to the record level of USD1BN (which was registered in 2000), Mr. Ezekiev forecast. According to information from the Bulgarian National Bank (BNB), some USD182MN has been invested in Bulgaria in the first quarter of 2003. This is 40% up from the money invested for the same period of 2002 (USD126MN).The growth is entirely due to greenfield and equity investments. One reason for that is the failed privatisation of Bulgartabac and the Bulgarian Telecommunication Company (BTC).A significant part of the cash flow is expected to come from the Turkish Sisejam company, which is planning to build a glass plant in Rousse. At the beginning of last March the Cabinet approved a letter in support of the project. The so-called offset programmes play an important role in FIA's strategy, too. They are connected with public procurement when the suppliers commit to invest in new production capacities or infrastructure. This model will be mostly applied in the field of power engineering and defence industry.