THE STATE ALMOST PROMISED TO PUT AN END TO THE CAT-AND-MOUSE PLAY
If reality and bureaucracy do not again turn out more powerful than the intentions, the Finance Ministry's team may boast of its first attempt at a more long-term planning of the future revenues into the Treasury. The ideas for the taxation policy do not only concern 2003, but three years ahead - till 2005, Finance Minister Milen Velchev underlined when presenting the consecutive reform. The accent was laid on the reduction of direct taxes, but the schedule for the decrease showed that the relief of the tax burden on the business would be postponed by at least a year. The reduction, it seems, will relieve the employees to a larger extent. The latter, however, are expected to declare higher wages.The second accent of the package of changes in the taxation and social insurance laws is the pressure on the shadow economy and mostly on the inofficial labour market.The general impression is that the declared intentions for a future decrease of income tax rates are quite cautious. A pleasant surprise was the Deputy Finance Minister Gati Al Djeburi's inclination to clear the tax basis from sanctioning increases. The readiness to drop the present policy, marked by the ghost of bad tax-payers, was also confirmed in connection with the new accounting standards, giving more liberty. If we start changing the taxation legislation and do not acknowledge some expenses, which are acknowledged by international standards, we'll begin contradicting them, the Deputy Finance Minister was adamant. If Mr. Gati Al Djeburi succeeds to defend his stance, the change in the attitude towards tax-payers might turn out to be a more significant relief than the reduction of tax rates.The cautiousness of the Government-proposed reforms was most evident in the taxation of corporate incomes, where the nosiy pre-election promises for zero taxes were quietly dropped.The profit tax rate shall not be cut down next year, but this may be done for companies, operating in regions of high unemployment. The profit tax will decrease to 20% in 2004, and to 15% in 2005. Those who expected speeded depreciation of equipment were disappointed. The only more serious relief will be for investments in computer hardware and software, that will depreciate in two instead of in five years. Practically, there will be no relief for machines because there will be no speeded depreciation for them. The depreciation rate for transport vehicles goes up slightly, from 8% to 10 per cent.The most substantial relief in the taxation basis will concern the regulation of low capitalization and expenses for repairs, which shall be unconditionally acknowledged for taxation purposes. The possibility for manipulating the financial results through ficticious deals on the stock exchange will be limited as well. Capital losses in the future can be deducted only to the amount of the capital profits, and not from the company's entire profit.No taxes shall be charged on the dividends paid by a foreign shareholder if he owns more than 25% of a Bulgarian company's capital. This would facilitate the transferrence of profits to offshore zones, but Mr. Al Djeburi's motive that one way or another that tax could be evaded, deserves consideration.The lowest rate under the Natural Persons Income Taxation Act will be reduced from 18% to 15% in 2003, to 12% in 2004, and to 10% in 2005. The decrease of the rate on a real basis for the three years will be by some 1.4% according to assessments of the BANKER weekly.No substantial changes in the VAT regime are projected, at least for the time being. The good news is the drop (or at least the reduction) of sanctioning regulations for the sale of goods and services below their prime cost.The size and basis for setting the road taxes will be changed as well. The excise duty taxes will continue to go up, and the excise duty on wine will be lifted.