Банкеръ Weekly


Ombudsman Should Intervene on Tax on Deposits

The loop around the neck of bank depositors continues to tighten. This became clear at the last meeting of the Committee on Budget and Finance on November 13. This day the Ministry of Finance submitted amendments on the tax on interest on deposits that cover also interests received in advance. Apparently Simeon Dyankov needs desperately this money, too. And the prospect that the estimated sum of 120 million levs from this new tax revenues to shrink dramatically forced officials to resort to extreme measures. Lawmakers from the ruling GERB party voted a text regulating that that income from deposits is taxed as when interest is calculated. Which means that no matter whether it is paid in an advance payment or at the end of the period. If we accept the rule that the tax is due on calculated interests, we may fall into a situation when the tax is withheld tax on unearned income, as the client may terminate the deposit earlier than the term of the contract says. Then who and under what procedure will recover improperly withheld tax said the general secretary of the Association of Banks in Bulgaria, Irina Martzeva.

Before the Parliament's budget committee Mrs. Martzeva said that the tax should be withheld on the real acquisition of the income. Therefore, the Association insists the word calculation to be discarded from the text. Chairman of the committee Menda Stoyanova submitted this amendment and it was voted by the members of the Committee. But the legislators accepted another correction which reads for the payment of income that is deemed to be acquired on the date of maturity of the deposit or the date of early termination. In this version, the law was passed on 15 November in plenary session on the second reading by the National Assembly.

According to this provision, it appears that if a deposit is maturing in 2013, but the interest on it is paid in advance in 2012 it will still be taxed. How so? The tax due must be withheld on the principal of the deposit. Even if the deposit is terminated earlier, there will be still a taxation you. But here comes a very important question on which the opposition and the Ombudsman of the Republic of Bulgaria, who is to protect the rights of citizens are obliged to consider. And it is that such taxation of income from prepaid interest is lawful. Because the income in this case is received in 2012 and the new tax law tax takes effect in 2013. Is this not a retroactive taxation? If so the question is whether this taxing is consistent with the Constitution? The President may also consider whether to veto the bill adopted on second reading because of the attempt to give the right to collect tax on income received during years already passed. Of course the opposition will defend their thesis that income is considered received on the date of maturity of the deposit, not when the interest is actually paid. But such a thesis is highly controversial from a legal perspective.

However the whole course of events around the legislative texts implementing tax interest on deposits showed that sometimes sharp public debate on a topic is not for the benefit of the society. The bill submitted by the government was so bad in the beginning, was just something that would not work. The first text omitted even the rate at which interest was to be taxed. There was no clear legal definition of what exactly would be taxed - deposits, deposits or anything else. Texts regulating the procedure were not even technically feasible. Outside the scope of taxation remained simple and easy financial schemes that could avoided the taxation (interest paid in advance). All these problems have been discussed by experts in the press and journalists and on this basis this the Government took all necessary adjustments. If the community has been quiet about these details, it would be a lame applicable law, which could immediately go into the bin, and the shame for the government would be enormous. But alas, this time the Government made the most of heated public debate.

The debates in parliament and the budget committee the nature of the taxation of interest income was attractive, but absolutely futile. Certainly the opposition's proposals to introduce a threshold for the amount of deposits, the interest from which is taxable, could not pass. This would mean a departure from the model of the flat tax and the majority of the MPs from GERD did not fail to actively take advantage of this argument.

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