THE FINANCIAL REFORM TOES THE LINE AGAIN
Among the popular financial jokes that were invented during the mandate of the National Movement Simeon II (NMSII) there was one explaining the reason why the deputies of former finance minister Milen Velchev worked until late in the evening. They were said to remain in the office in order to explain the principles of the ongoing financial reform to their subordinates. Lectures did not finish until... the deputy ministers themselves came to realize the sense of the reform.This is what is going to happen, quite seriously, to the team of the newly-appointed guardian of the treasury, Plamen Oresharsky. As it is known, in early September the Prime Minister Sergey Stanishev appointed several deputy ministers in the budget departmentThey are Georgi Kadiev who is already known as the red yuppie, the deputy minister of economy in the previous cabinet Dimitar Ivanovsky, and Nihat Ziya who came back to the old post after a short mandate in parliament. Lyubomir Datsov and Kiril Ananiev remained on their previous posts.However, despite the demonstration of personnel succession it became clear that once again financial reform in Bulgaria is going to start from the beginning. There is hardly a more convenient occasion for the tripartite ruling coalition between the Bulgarian Socialist Party (BSP), the NMSII and the Movement for Rights and Freedom (MRF) (in which the left-wing is still running the show) to demonstrate its innovative approach in the fiscal field than the discussion of the amendments to the next year tax legislation. The fact that in early May the cabinet run by Simeon Saxe-Coburg-Gotha approved three draft bills for amending the Corporate Income Taxation Act, the Value-Added Tax Act, and the Law on Individual Income Taxation (developed by experts from the Chief Tax Direction) will probably remain for statistical purposes only. That suspicion was provoked by a series of statements by the Chairman of the National Assembly's Budget Committee, the Coalition for Bulgaria representative Petar Dimitrov, last week. In a number of interviews to the press he made it clear that his group was going to bring forward a new package of tax laws developed in accordance with the ruling concepts of the socialists. But what will be the exact amount of taxes next year remains a mystery even for the insiders. The vagueness results from the various signs that representatives of the financial team of the tripartite government give. For example, according to Minister Oresharsky, it is still early to talk about the concrete amount of tax rates in 2006. In turn, his deputy Georgi Kadiev was rather outspoken. Asked by a BANKER weekly reporter to comment on the government's intentions in the tax field, Mr. Kadiev replied shortly: Today is my first day at work (Wednesday, September 7) and I am not even free from my duties as a member of the parliament. So you shouldn't ask me about anything serious.The new rulers may need some time to adapt, but there are only three weeks left until September 30 when Bulgaria promised the IMF it would have new tax laws. During that time the partners will have to reach an agreement on whether or not they should introducea zero rate of the tax on profitwhen it is reinvested in the main business. They should also decide whether to reduce taxes on individuals' income and in the meantime they should raise the amount of the nontaxable minimum from BGN130 to BGN140 per month. Moreover, it is still to be decided whether the 20% VAT rate should be cut - discussions on the issue continued for a long time before the parliamentary elections last June.The only thing that can be predicted now is that the Parliament will vote smoothly the amendments to the tax legislation on which Bulgaria's membership in the European Union depends. One amendment that will definitely be adopted relates to the taxation of financial enterprises (banks, insurance companies, etc.). The rules by which tax authorities will calculate the taxable value of their financial results will be entirely harmonized with the specificity of their business. There will also be new regulation of the tax treatment of budget enterprises as well as of legal entities which are not traders as stipulated by the Commercial Act.One certain amendment to the value-added tax law refers to the method of calculating the BGN50,000 level for obligatory VAT registration. Accounting figures for the current year will be taken into account instead of the figures for the past twelve months, as it used to be so far. The new rulers will probably not change the reliefs proposed by the NMSII in the field of family income taxation.If the clauses of the material tax laws are still to be discussed, the new government seems to have found a solution to the delay of the adoption of the Tax Insurance Procedure Codewhich is of great importance for the start of operations of the National Revenues Agency. Rather than being published now (as it was initially planned), the regulation will appear on the Official Gazette in 2006. Before that (once again) the currently acting two separate codes - the tax procedure one and the obligatory social insurance one - will be amended.As to the brand new Excise Duties Act, chances to have it existing from the beginning of next year look more than real, since the Eurointegration Committee at the National Assembly adopted its draft on first reading on September 7. As the BANKER weekly wrote several times, this act will legalize the transfer of the right to collect excise duties in deals inside the country from the tax authorities to the customs. Until now customs officers were only authorized to collect duties on imported alcohol drinks, cigarettes, coffee and fuels. The futureExcise Duties Actis going to regulate the existence in Bulgaria of the so-called excise warehouses which operate in the EU member states. They will help for implementation of the principle of deferred payment (after the goods are sold). The document also describes in details the order of licensing warehouse operators. Another innovation that will appear in the beginning of 2006 will be the imposing of lower excise duties on fuels used for agricultural purposes. Fuels for household and industrial needs will be distinguished, too. A fuel marking system will be introduced to prevent frauds. It will probably be written in the transitional and final regulations of the Excise Duties Act that it will also be applied for duty-free shops operating in the country until a special regulation of their activities is adopted. As it is known, last spring the previous cabinet approved a draft bill on the duty-free business, but the then acting parliament failed to discuss it. The Government led by Sergey Stanishev has not yet decided whether to bring forward the draft in question for discussion by the 40th National Assembly.However, the MPs will soon discuss the draft for amending the State Budget Structure Actwhich was among the first acts the cabinet of the tripartite coalition approved. Along with the excise duties act, this one was voted by the Eurointegration Committee on first reading last week. If the amendments are confirmed in plenary hall, too, the Government will be able to launchadditional budget creditsof up to 1.5% of the expected GDP for the respective year. The parliamentary group of the Democrats for Strong Bulgaria opposed to the proposal immediately. The group led by Ivan Kostov insists that the National Assembly have full control on the overfulfilled budget revenues. As the BANKER weekly wrote on September 3, the dark blue group even plans to prepare a special draft that limits the right of the Council of Ministers to dispose of the surplus.The majority representatives will also work on the preparation of new financial legislation. According to Deputy Minister Lyubomir Datsov, a team of financial ministry experts is preparing three alternative acts that will guarantee the decentralisation of the financial control in Bulgaria. New auditors may soon be appointed to the ministries to assess the expediency of their spending. Few financial controllers will remain in the structure of the financial ministry in order to coordinate the work of the respective auditors. At present, the internal financial control is entirely carried out by the officers of the Public Internal Financial Control Agency.