Bulgaria's Finance Ministry is considering a special rise in excise duties on fuel from January 2010 as a way to boost next year' Budget revenues, Government sources told Dnevnik a day after reports revealed a similar increase on cigarette excise is in the pipeline.

The ministry, which is already debating the draft 2010 budget, is concerned that proceeds from value-added tax (VAT) on imports will be scanty if crude oil prices stay at their current level of $70 a barrel, prompting the idea of a spike in fuel and cigarette excise to lessen the ill-effects of the VAT revenue decline in the current economic downturn.

However, the move hangs in the balance because of its side-effects such as pumping up fuel prices and inflating private sector costs.

Economists are doubtful of the beneficial impact of the initiative amid the economic slowdown.

The better route to fiscal stability, according to macroeconomist Georgi Ganev of the Centre for Liberal Strategies, would be a more serious reduction of spending, rather than through a excise hike.

On September 26 2009, the ministry declined to comment on the proposal.

Indirect taxes (VAT and excise duties) are the major source of revenue for Bulgaria's national Budget, which produced a huge surplus in 2008 because of costlier petrol.

The medium-term fiscal framework of the current Government repeats the commitments of the former Stanishev government by providing for a flat excise on fuel at 685 leva on each 1000 litres in 2010 and an upward revision to the EU's bottom level of 710 leva in 2011.

The Government sources did not say whether the change would be gradual, or the targeted level should be reached at the start of next year.

Nor did they mention plans, if any, to raise the excise on diesel.

A rough calculation shows that an increase of fuel excise to 710 lev a 1000 litres from January 2010, given that fuel consumption stays intact, would bring 65 million leva more in revenue, an improvement that hinges on the Government's ability to curb the grey sector as well.

The budget will swell by 100 million leva if earlier plans to hike the cigarette excise to 64 euro a 1000 pieces are put into practice.

On September 26, however, the Finance Ministry put forward a different rate of 76 euro a 1000 units, a proposal the cash effect of which has not been estimated yet.

VAT revenues tumbled 45.68 per cent to 1.340 billion leva in January to July 2009, from 2.467 billion leva in the same period of 2008 when the economy peaked.

At the same time, fuel excise receipts shed 10.67 per cent to 1.013 billion leva in the reviewed period.

As the fuel excise rate was flat, the decline was partly attributed to illegal imports and base oil processing which thrive in times of crisis.

Determined to plug Budget leaks and cut down on illegal fuel imports and trade, the Cabinet headed by Prime Minister Boiko Borissov, the former Sofia mayor who came to power in July 2009, unveiled a set of measures including an online connection between the Customs Agency and the National Revenue Agency and sweeping reform of the revenue collection administration.

Source: Dnevnik.bg