Банкеръ Weekly

Briefs

VAT - A HIGH BARRIER FOR SMALL COMPANIES

What kind of surprises should Bulgaria expect in 2007 when it joins the European Union (EU)? This is a question that already bothered Bulgarian entrepreneurs, but they still have only parts of the answer.Absorbed in schedules while trying to close the chapters of negotiations, Bulgarian rulers behave like obedient students (in Brussels) and bored teachers (in the country).That's why Bulgarians now pay taxes, patents, and excises equal to the European ones, even though the standard of living in Bulgaria is much different from that in the EU member countries. Many of the countries which are in a process of integration have negotiated transition periods in order to introduce the European tax rates. Cyprus, for example, settled a transition period in the course of which food and medical products will have a zero VAT rate and restaurant owners will pay lower taxes. The Czech Republic, Estonia, and Hungary reached agreements for lower heat supply rates. Slovakians settled a lower tax on heat, construction works, electricity, and natural gas. Poland negotiated a zero tax on the book-publishing business.All countries that will become members of the EU in 2004, as well as Bulgaria (which is expected to join the EU in 2007), delayed the introduction of a lowest treshold for VAT registration of companies. For EU member countries it amounts to EUR5,000 (BGN10,000), while in Bulgaria right now the lowest turnover is EUR25,000 (BGN50,000). Bulgaria has already secured a three-year transition period (by 2012) by the end of which it has to reach the lowest rate of the excise on cigarettes. All of these obligations have already been written in the closed Tax Policy Chapter 10.However, entrepreneurs claim more privileges could have been settled. Dairying companies, for example, complain of the high value-added tax on dairy products. According to Simeon Prisadashki, President of the Josy company, a great number of EU member countries charge these products with a lower tax rate. In England, dairy products are exempt from taxes. In Bulgaria, however, despite the numerous meetings of branch representatives with experts from the Ministry of Finance and the former Deputy Finance Minister, Gati al-Jebouri, nothing has been achieved in this aspect, Mr. Prisadashki said.However, a lower VAT rate for certain products will hardly be introduced. As soon as this tax appeared in Bulgaria, it has been the same for all market participants. In order to allow for assessing dairy products with a 12% tax and electricity - with a 20% tax, for example, the tax administration which must control all transactions in the process should possess huge resources. But even now this administration finds it difficult to cope with its duties. On the other hand, the introduction of a differentiated tax may create preconditions for fraud. That's why the owners of small enterprises will probably miss these tax privileges.Another problem that producers will face is the acquisition of an ISO 9000 quality certificate that proves the quality of the whole technological process. But in the textile branch, for example, it costs EUR15,000 to get the certificate, Ilko Ilkov, Dielsport Trade Manager, explained. And that's just the price of the certificate. Moreover, money will be needed for training the personnel, for acquiring new equipment, etc. And the entire programme for meeting the European requirements and for getting a Hassett quality certificate (a dairy product certificate similar to ISO 9000) costs about BGN1MN, the Josy President calculated. He added that after Bulgaria joins the EU in 2007, no more than 40% of all 400 companies operating in the dairy industry now will remain in the branch. A similar conclusion seems also applicable to the companies operating in other branches that are about to overcome the high barrier of the European standards.

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