VAT REFORM LAUNCHED
After a two-week delay the Cabinet approved the bill for a new VAT Act, drafted by the Finance Ministry. The law is to be enforced on the day Bulgaria joins the European Union (EU). Anyway, the Finance Ministry has undertaken a commitment to the IMF to pass the act by April 30, 2006.
The bill projects that each company could be registered under VAT if it wants to. Currently, there exists only obligatory registration, valid for firms with annual turnover of BGN50,000-plus. In that way, smaller traders below that threshold were not allowed to register under VAT so far and use a tax credit. The new rules give small enterprises a chance to decide themselves if it is advantageous for them to register or not.
Another reform is that lawyers and notaries will be obliged to calculate VAT on their fees. That will result in a price increase of juristic services. After Bulgaria becomes an EU member VAT will be also paid on the sale of tickets for sports events and on the proceeds from rents which agricultural cooperatives give to their members. The indirect tax will be payable on textbooks, too. VAT will be charged as well on deals in scrap, privatisation deals, and the so-called land for construction. As of 2007 the import of second-hand vehicles by natural persons from the EU member countries will be VAT-exempt. However, VAT will be charged on vehicles, imported from countries which are not EU members. Car mortuaries and car dealers will be paying VAT only on the difference in the cars' purchase and selling prices. The bill stipulates that the import of new vehicles will be regarded as a delivery within the European community and the VAT rate will be zero. But VAT will be charged for the purchase of new cars, and will be payable by disabled persons, too.
VAT-accounts, criticized by business as boring bureaucracy will be eliminated at last. The Finance Ministry has calculated 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.
It is written in the bill that the killer tax will remain 20 per cent. There is a little chance for the rate to be slightly lowered, but that will be known in the autumn, financiers claim. The fixing does not come as a surprise considering that in the past years the Treasury was registering significant achievements in terms of revenues on this item. These revenues already account for 56% of all tax receipts to the budget. In 2003, VAT overfulfillment was 104.7%, which means BGN137.5MN was collected by the Treasury in excess. Four times this amount entered the treasury due to VAT in 2004 - overfulfillment reached 116.3% and BGN540MN was received above the planned amount. According to unofficial figures for 2005, excess VAT revenues will exceed BGN1BN.
However, at the end of last year Finance Minister Oresharski and his deputy Georgi Kadiev announced that a 2-point increase of the rate may be necessary in the second half of 2006. They stipulated that this drastic measure would only be applied if the country's balance of payments gap keeps growing. A higher tax would cool the people's purchasing desire.