THE TAX SYSTEM: BOTH HANDS IN THE STANISHEV MONEY-BOX
It is certain already that Bulgaria is not going to become a tax oasis for people who pay their taxes to the state treasury regularly. Next year the tax authorities will keep collecting the same amounts from the incomes of people and the profits of companies. While the prices of all goods fly headlong, the money-box of the Government will be pumped with revenues - mostly coming from value-added tax (VAT) and excise duties.
It is hardly surprising for anybody that
the tax revolution in the country
is to be delayed again. That became clear as the MPs from the majority voted part of the package of tax laws in Parliament on second reading. This time they justified the maintenance of the status quo with the deficit on the current account of the balance of payments. It already approximates 14% and threatens the financial stability of the budget. That is why the Government will have to listen once again to the imperatives of the International Monetary Fund. Traditionally, the Fund pleaded for budget discipline. Here is what they recommend for the future treatment of the trade balance in the budget - shrinkage of consumption through an increase of duties.
But whether the topic about the good Bulgarian Government and the bad creditors from Washington will again become an alibi for the local financiers? As far as they calculated, the prices of alcoholic drinks and cigarettes are growing by 60%, fuels, electricity, central heating, etc. are growing expensive, too.
At the same time
incomes are up by millimetres allegedly
The Parliament already blessed the 2006 tax burden. Next year incomes up to BGN180 will become untaxable, whereas the level currently needed is BGN130 per month. In this case revenues to the treasury due to the tax on total income will decrease by BGN390MN. Rates for upper levels remain 20% (for amounts between BGN180 and BGN250), 22% (for incomes ranging from BGN250 to BGN600), and 24% (for those above BGN600). That means there will be a modest (2-3.2%) reduction of the tax burden for medium income - between BGN250 and BGN400. According to the statistics, 79% of the people working on labour agreements (about 2.2 million of the working people) in Bulgaria are paid salaries up to BGN400. On this item of the revenues there is usually overfulfillment. For example, for 2003 the treasury collected 106.5% of the tax on total income due, e.i. citizens directly paid BGN67.51MN above the amount planned by the government. In 2004, overfulfillment reached 112.5%, or BGN138.3MN. According to the financial experts' forecasts, this trend keeps deepening in 2005, but it is still early to say the final tax on total income figures.
At the final stage the National Movement Simeon II (NMSII) withdrew its proposal for a single 21% rate on income ranging from BGN180 to BGN600, since it failed to get support from the Bulgarian Socialist Party (BSP) and the Movement for Rights and Freedom (MRF). It is curious that the former minister of finance, Milen Velchev, excited the left-wing financiers again implying that nothing is considered adopted until everything is adopted. The yellow party may still launch its proposals for new tax amendments and ask for additional resources on the education item from the treasury. However, that will happen during the discussions of the 2006 budget on second reading in the plenary hall, it became clear from Velchev's statement.
The election promises of all political parties suffered complete failure as the MPs voted to leave VAT unchanged at 20% next year. A clause in the agreement among the three political forces in the ruling coalition which stipulates that within the mandate of the current cabinet the killer tax might fall if there is fiscal possibility remains in the past, too. Such perspective is obviously no longer on the agenda, since the Deputy Minister of Finance Georgi Kadiev announced from the parliamentary tribune that the country suffers
huge pressure from the IMF to raise VAT
Meanwhile, the hunters of budget revenues in the past years registered impressive achievements on that item. In 2003, VAT overfulfillment was 104.7%, or BGN137.5MN collected above the budget. Four times higher is the amount poured by VAT in the treasury in 2004 - overfulfillment is 116.3% and the money above the plans amounts to BGN540MN. According to the 2005 still unconfirmed figures, VAT revenues above the plans will exceed BGN1BN.
The 2% VAT reduction with which all political parties went shopping for votes before the elections is equal to BGN551MN, financiers calculate. And it is just a third of the budget surplus planned for next year.
According to the final texts adopted by the National Assembly, the term provided for VAT refund remains 45 days. Again, there is an excuse - the information system of the National Revenues Agency is not ready yet. On the other hand, the barrier for voluntary VAT registration is reduced from BGN50,000 to BGN25,000 (of the company's annual turnover) from April 1, 2006, even though businesses insist on removing it entirely.
At the end of the Parliament's extraordinary session dedicated to the 2006 tax laws, the majority MPs also blessed
the increase of the excise rates
because of Bulgaria's integration into the euro zone in the distant 2010.
By quickly pushing the excise levels up to the European ones, Stanishev's Government will not just provide Bulgaria with a place in the club of the euro states, but will also force the majority of local people give up smoking and drinking - by burdening cigarettes and alcoholic drinks with European taxes and making them unsellable. That is why after the amendments the best sold Bulgarian cigarette brands will add about BGN1 to their price because of the earlier increase of the excise duties in 2006 instead of 2008. A box of Victory cigarettes will therefore jump from BGN1.50 to BGN2.75. Another old practice is returning, too - the Government will again set a price ceiling for cigarettes - both Bulgarian and imported ones. The Parliament also voted the new higher rates on oil products. The propane butane, natural gas and biodiesel used for heat supply and household needs will be assessed with zero excise duty, but no sooner than July 1, 2006. However, this is the date on which petrol rates will go up. The excise duty for lead fuels will amount to BGN670 per 1,000 litres and for non-lead petrol - to BGN530 per 1,000 litres. According to the Ministry of Finance, the excise raise will cause just 1.5% additional inflation. On the other hand, excise duties on tobacco and alcohol alone will help the treasury collect BGN311MN above the plans. Additional BGN60MN will enter the budget because of the new rates on fuels next year.
Still, as the country's top financier says, 2006 public finances are planned so that the budget is the biggest reimbursement.
The first steps in the promised family income taxation project a reduction of the tax base as follows: by BGN360 for families with one child, by BGN780 for families with two children, and by BGN1,140 for families with three or more children. Tax relief has been stipulated for the father or mother of underaged children. The same will be valid for parents whose children were born in 2005 or will be 18 years. The parents themselves will decide who will be using the tax relief. For example, a family with two children and taxable annual incomes of BGN8,400 the taxes will be reduced by BGN187.20. If the couple is not married only the mother will enjoy the tax relief. But if the father owns the child he may also has enjoy the tax relief. It's more advantageous for the parent with the higher income to avail of the tax relief.
- Real estates valued under BGN1,400 won't be taxed as of next year. In 2006 the tax evaluation of real estates will go up by 30% in big towns, and by 45%-60% in the resorts. The real property tax will increase by the same rate as of next year. These amendments have been projected in the Local Taxes and Fees Act, approved on second reading by the parliamentary Budget Commission. By February 28 the municipalities may cut down the base for calculating the garbage collection fee, so that it does not increase drastically after the real estates' evaluations go up. According to forecasts, due the updating of property evaluations municipal budgets will gather additional proceeds of some BGN19MN, which is a commitment to the IMF.
- It is not yet clear how much will the so-called alternative taxes under the Corporate Income Tax go down in 2006. The BSP and the NMSII want the currently effective 17% to be reduced to 7.5%, in which case the Treasury would lose BGN63.5MN. The UDF has proposed a reduction of the tax to 10%, in which case budget revenues would be BGN45MN down. Finance Ministry's calculations projects a tax below 12% only for social expenses for organized catering and recreation.
- In 2006 firms will be able to use for representative purposes up to 0.1% of their proceeds and they will be acknowledged for taxation purposes.
- Employers' costs for transportation of workers and personnel will be tax-free as of next year. .
- No tax will be paid either when an employee uses a company vehicle for his work, but the preference does not include driving the boss.
- Corporate managers who are at the helm of investment funds won't pay a profit tax on their trade in securities. The relief has been stipulated as well in the Natural Persons Income Taxation Act. According to projections, the scope of tax-exempt deals in securities, effected on the regulated domestic market of securities, should include also deal in the shares of contract funds. Thus, in terms of taxation, such deals will be treated on an equal footing with the transactions in investment companies' shares and the present inequality between them will be eliminated.