TAXES ENTERED THE CABIN
A week ago Finance Minister Plamen Oresharski snapped: No matter what we say about taxes, the most certain thing is they have existed before the European Union (EU) and they will probably outlive it. Thus, Bulgaria's financier No 1 launched the discussion on taxes, initiated by the Government of the tripartite coalition. Mr. Oresharski explained also that his highness the tax-payer in Bulgaria needs a stable taxation policy and simplification of the taxation system. It is still early to hold a debate on the size of tax rates, the Finance Minister said. But he added something very important - that the year 2007 will be extremely difficult for the budget as it will be the first year of our EU membership. The reason is that the Treasury will suffer a loss of revenues from the value added tax (VAT). On the other hand it will make bigger expenditures because of the country's instalment of about EUR300MN to the EU. Larger spendings are forthcoming as well due to investments in infrastructure and co-financing of projects from the European funds. A budget deficit within the range of 1% to 3.1% of the gross domestic product (GDP) will be probably projected. All that naturally means that the government financiers will again wage a battle for limiting the public budgetary expenses.
It is already clear that Bulgaria will not become a taxation oasis next year, neither will taxes be considerably reduced. However, business representatives and the population will be hardly surprised at that.
The only news is that the Government
has a new alibi for postponing the tax revolution - the European Union
Otherwise, the budget procedure for 2007 is already in progress and some major moments in the taxation policy are already known. It's another question if they will be applied in practice. Only two rates for taxation of natural persons incomes next year - 20% and 24% - are being discussed in the Finance Ministry. Thus, the currently existing average threshold of 22% will be eliminated. Two scales for taxation of annual incomes will be probably introduced - an individual one and one for households. The latter will take into account the aggregate income of the entire family. Moreover, citizens will be allowed to freely choose one of them for calculation and payment of their taxes.
With such a change the Treasury will lose some BGN100-150MN, experts say. And as the average 22% scale is paid by people with monthly taxable incomes of BGN250-plus, most of the taxpayers will be relieved as the growth of their net incomes will be by about 2 per cent.
The reform in the personal income taxation projects also an increase of the tax-exempt minimum from the current BGN180 per month to BGN200/month in 2007. That would mean that the incomes of everybody who get more than BGN200 per month will grow by BGN4 per month.
The vaguest perspective at present is that concerning the corporate tax.
The profit tax might not go down by 3%, from the present 15% to 12%, as was projected, Finance Ministry insiders commented. Such a reduction would result in about a BGN160MN loss of revenues to the Treasury. On the other hand, a reduction of the corporate tax is as a rule very stimulating to the influx of foreign investors. It is important as well that by a 12% profit tax rate Bulgaria will occupy a satisfactory position in the competitive tax medium of South Eastern Europe.
In fact, much more tangible for Bulgarians will be
the new increase of excise duties in the 2007 taxation year
The consecutive hike of excise duties on spirits and fuels and the introduction of an excise duty on electricity is forthcoming by schedule. Additional revenues to the budget from the jump of excise duties are expected at some BGN200MN.
In 2006 the excise duty on lead petrol rose from BGN495/1,000 litres to BGN670/1,000 litres, and that on unleaded petrol - from BGN495/1,000 litres to BGN530/1,000 litres. No matter if we are accepted in the EU next year or the date of Bulgaria's membership is postponed, the size of excise duty on lead and unleaded petrol will become BGN830/1,000 litres and BGN585/1,000 litres, respectively. Diesel will be hiked from BGN430/1,000 litres to BGN485/1,000 litres. In fact, the excise duty on unleaded petrol will be increasing each year until reaching BGN710/1,000 litres in 2011, while diesel oil should reach BGN645/1,000 litres in 2013.
The novelty in the excise policy is that in 2007 an excise duty will be introduced on the electricity for industrial and household purposes, BGN0.5/MWh and BGN1/MWh, respectively. A schedule will be approved later on for increasing that excise duty to BGN1/MWh for economic and BGN2/MWh for other purposes. Consumers would be also paying VAT on these prices. That means that the hike will be by another 20% higher (if VAT rate remains unchanged from the present level).
A significant and expected reform is in store regarding the VAT
and a new law on that tax will be enforced as of the date of Bulgaria's EU membership. It will eliminate the notions of import and export, introducing a regime of deliveries and acquisition of goods within the community. Calculations show that upon the introduction of that regime the EU members lost between 15% and 30% of their proceeds from VAT.
A major change is the elimination of VAT accounts as well, which were severely criticized by business as boring bureaucracy. Calculations show that the aggregate amount of all VAT-accounts' balances totals BGN560MN. And 70% of the companies in whose VAT-accounts considerable amounts remain are small-sized firms. Commercial banks get BGN1.3MN monthly for keeping and using the VAT-accounts. After the elimination of that mechanism these funds might be used as turnover capital, but the term for restoration of the tax credit will remain 90 days. Currently, the firms with VAT-accounts may restore it within 45 days. The idea for that change has been circulated for a long time by the Finance Minister's team, but it has already found its place in the new VAT Act.
For the time being the hot' traces in the statements of financiers from Mr. Oresharski's team show there will not be a change of the VAT rate in 2007 and it will freeze at the present 20 per cent. The Finance Minister himself said it was still too early to discuss the individual tax rates. They are yet to be coordinated with Brussels and with the IMF, he underlined.