Банкеръ Weekly

Briefs

TAX PREFERENCES HAVE BECOME TOO MANY

Stamen Tassev, Deputy Finance Minister, to the BANKER weeklyMr. Tassev, how shall we interpret the fact that the reduction of corporate tax was preferred to the already promised decrease of the natural persons income tax?- The tax policy complies with the aim, set by the Government in the beginning of its mandate: to maintain the macroeconomic stability, establish prerequisites for a sustainable economic growth and improvement of the living standard. Each year the Cabinet plays the role of a balancing factor. No government in the world has ever managed to satisfy all, sometimes contradictory demands. For 2004 we proposed that the ceiling of pensions should go up to BGN420. Therefore, the natural persons income tax could not be cut down. On the other hand, after we achieved financial stability, time has come to focus on the promotion of economic growth. One of the instruments for doing that is the reduction of corporate tax to 19.5 per cent. Thus, about BGN150MN will additionally remain in the hands of Bulgarian business, which I hope will be invested in new equipment, innovations, and opening of working positions. It was discussed if sole traders should not be charged corporate tax instead of income tax. But this means an amendment to the Commercial Code, as with the present mixed statute of these no difference is made between personal income and profit of a compny. How do you estimate such proposales? - I support the idea on principle, but such a reform requires significant changes in legislation, which is a difficult and slow process. Why did you drop the idea for a 100% depreciation of machines and other assets, intended for the implementation of big investment projects, which was discussed several months ago?- Firstly, because the principle of treating tax subjects on an equal footing would be eluded. I don't think it would be proper to deepen further the differences between various investors. Such a change would additionally complicate the control. Moreover, the currently effective allowances for depreciation are reasonable. What has necessitated the steep increase of excise duties on fuels for 2004?- Steep is putting it too strong. The gradual increase of excise duties on fuels is a result of the Bulgarian Government commitments to bring our legislation in compliance with that of the EU. By the date of Bulgaria's joining the EU, the country should reach the levels of excise duties efficient in the EU member countries. In order to avoid a shocking increase in 2006, we assumed a policy to raise the excise duty smoothly, on a yearly basis. Frauds connected with VAT and other tax frauds have become quite frequent. In that respect do you rely on the establishment of a tax police for introducing some positive changes?- I am an ardent supporter of the idea for setting up a specialized body for taxation investigations. A political decision has already been made to establish a service for fiscal investigations, that would be subordinate to the Finance Minister. An expert panel has been set up to clarify the place of such a body and its rights in the structure of government. Have you got any ideas about how tax laws would become more understandable and easier to apply?- We have announced that our long-term aim is to simplify tax legislation. But according to me, the legislation regarding taxation of natural persons even at the present stage is not too difficult to understand. As far as their application is concerned, it is in a narrow connection with the changes in tax administration. You know that the reform has already started and after 2005 the National Revenues Agency is expected to begin efficiently functioning. The activities connected with the collection of tax, insurance and health care contributions, will be organized in a new way. The uptodate informational system will allow the quicker and simpler servicing of citizens and firms at one counter and will increase the possibilities for avoiding tax violations. How do you look upon the demanded tax preferences? What chance for approval do such ideas stand as the proposal for concessions when PCs are bought or the idea launched by you - to deduct from the taxable income 50% of the price for obtaining an electronic signature?- I think there are even too many tax preferences in Bulgarian laws. This complicates legislation, sets difficulties to the tax-payer, and makes administration more expensive. The idea about tax relief to those who buy a certificate for an e-signature was spontaneously born on the day when Finance Minister Milen Velchev presented through INTERNET the 2004 Budget Act Bill. Such a change would very much facilitate both the tax administration and the tax-payers when filing declarations. The idea is yet to be discussed and no such change is planned for 2004. Regarding PCs I believe that 50% annual depreciation is quite a sufficient relief for that business. About ten days ago an EU directive was approved, stipulating that excise duties would be charged on electricity, natural gas and coal. Will our country demand transition periods for the introduction of those excise duties in Bulgaria?- Directive 2003/96/……' dated October 27, 2003 of the Council of Ministers on the restructuring of the EU's framework for taxation of energy products and electricity has been published in Official Journal (the official paper of the EU) on October 31, 2003. Currently, the Finance Ministry experts are examinining the transitional periods and derogations, which it presents to the member countries. Afterwards, a final decision will be made on which points Bulgaria would want derogations or transition periods. Chapter 10 of the pre-accession negotiations with the EU - Tax Policy - has been closed in compliance with the currently effective European legislation. Additional negotiations will be called in accordance with the newly-approved European legislation without having to open the chapter again. It became clear that part of the Bulgarian legislation regarding VAT was not in compliance with Directive 6 of the EU - e.g. the requirement that the sale price on which VAT is calculated should not be lower than the purchase price of commodities, as well as the exemption of legal services from taxes. When do you think these differences would be eliminated? What can you say about the special order for charging VAT on tourist services (the so-called reduced rate), which is not in compliance with European directives?- In the negotiations under the Tax Policy chapter Bulgaria has undertaken a commitment to eliminate these discrepancies by January 1, 2007. (Editor's note: It has not been announced so far that we have undertaken to change the reduced VAT on tourist services.)

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