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Fri, Feb 10 2012
Taxman on the warpath
National Revenue Agency head Krassimir Stefanov
Photo: Надежда Чипева
Bulgaria’s National Revenue Agency (NRA) chief Krassimir Stefanov, who took office five months before Boiko Borissov became Prime Minister, seems keen to earn his boss’s confidence.
Stefanov so far has been one of the few top public officials inherited from the previous administration that Borissov has not fired. Not only that, Borissov has praised him.
Borissov, and his deputy and Finance Minister Simeon Dyankov, have identified the tax authorities and Customs Agency as key to fighting Bulgaria’s grey economy – and to getting more money into the state Budget, especially given the economic crisis.
Against this background, Stefanov and his staff were told to show quick results. More so because the NRA had bad press when Stefanov’s predecessor, Maria Mourgina, was axed amid allegations of serious abuse of office.
On August 19, Stefanov said what was expected of him."The NRA has to collect 500 million leva more than its previous projected revenue by the end of the year," he told Bulgarian National Radio (BNR).
This, Stefanov said, would happen through stricter control and fighting tax evasion, but "without ruining the business of law-abiding taxpayers". The Customs Agency and the NRA have to collect almost 1.2 billion leva more this year, which, together with the 1.15 billion leva that ministries are intended to save through budget cuts, will allow Bulgaria to cover its projected 2.5 billion leva Budget deficit.
The Turkish cargo
Responding to calls for an end to tax fraud, one of Stefanov’s first moves was to go after the so-called "Turkish cargo" entering Bulgaria, mainly meaning trucks full of clothing imported from Turkey.
It was a good public relations move, too, because for years it has been a public secret that clothing bought at cheap prices in Turkey has been sold on at prices sometimes 10 times higher in Bulgaria’s luxury shops.
Stefanov confirmed this widely-held belief when he announced that a scheme had been uncovered by which Turkish-made clothes were declared at customs at a price of 0.28 leva each, only to be sold later in Sofia boutiques at prices of between 300 and 500 leva each with the difference being unaccounted for. If reported, this difference would have been levied corporate tax and VAT.
But bringing the scheme to light would not automatically translate into the collection of hundreds of millions of leva more, because importers would simply stop the scheme, which had brought them profits of sometimes 300 per cent.
One reason that had made the scam possible was the lack of a joint information system between Customs Agency and the NRA. The two agencies signed an agreement in August to set up a shared information system.
The big fish
After tackling the Turkish cargo and the joint information system, Stefanov – supported by Finance Minister Simeon Dyankov – announced staff cuts at the NRA, along with structural changes to improve revenue collection and the agency’s efficiency.
The plans include laying off 630 NRA employees by the end of 2009. Of those losing their jobs, 260 are heads or deputy heads of NRA regional units.
The NRA’s new structure will have five regional directorates, each of which will have a unit working with middle-range taxpayers and social security contributors.
The NRA will also have a national directorate working solely with large-scale taxpayers and social security contributors. The aim is for NRA to improve its dealings with companies that provide for 90 per cent of tax revenues.
A further aim is to stop any conflict of interest and corruption, especially at small municipalities where the risk has always been high because tax inspectors could develop close relationships with local companies and be subject to pressure.
NRA staff will be relocated from one regional directorate to another to deal with companies not represented in their region. If this reform succeeds, it will be a major accomplishment, given that local lobbies have always had an influence on tax authorities.
The football money
The most recent action taken by Stefanov and the NRA was aimed at Bulgarian football clubs and their incomes.
On September 23, Stefanov announced the results of a check started a year ago into the finances of football clubs, the Bulgarian Football Union and the Bulgarian Professional Football League, which organises and administers the championship.
He said that eight football clubs owed close to four million leva in overdue taxes, which added up to 7.8 million leva with other fees and interest factored in.
The debt emerged while NRA was going through BFU records, which showed that a number of players had annexes added to their contracts, stipulating salary increases of 10 000 to 15 000 leva a month, while clubs’ records said that the players were paid 220 leva a month.
"I just want to know how these players can afford brand-new luxury cars with their 220 leva monthly salaries," Stefanov told television station bTV.
With the exception of some of the top teams, all had said that their football players were paid the mandatory minimum salary of 220 leva a month, he said.
The issue of football players’ salaries is not new, as players’ lavish lifestyles are no secret to anyone in Bulgaria. What is new, however, is that after all these years, Bulgaria’s tax collectors have decided to take steps to bring clubs’ finances into the light.
Stefanov so far has been one of the few top public officials inherited from the previous administration that Borissov has not fired. Not only that, Borissov has praised him.
Borissov, and his deputy and Finance Minister Simeon Dyankov, have identified the tax authorities and Customs Agency as key to fighting Bulgaria’s grey economy – and to getting more money into the state Budget, especially given the economic crisis.
Against this background, Stefanov and his staff were told to show quick results. More so because the NRA had bad press when Stefanov’s predecessor, Maria Mourgina, was axed amid allegations of serious abuse of office.
On August 19, Stefanov said what was expected of him."The NRA has to collect 500 million leva more than its previous projected revenue by the end of the year," he told Bulgarian National Radio (BNR).
This, Stefanov said, would happen through stricter control and fighting tax evasion, but "without ruining the business of law-abiding taxpayers". The Customs Agency and the NRA have to collect almost 1.2 billion leva more this year, which, together with the 1.15 billion leva that ministries are intended to save through budget cuts, will allow Bulgaria to cover its projected 2.5 billion leva Budget deficit.
The Turkish cargo
Responding to calls for an end to tax fraud, one of Stefanov’s first moves was to go after the so-called "Turkish cargo" entering Bulgaria, mainly meaning trucks full of clothing imported from Turkey.
It was a good public relations move, too, because for years it has been a public secret that clothing bought at cheap prices in Turkey has been sold on at prices sometimes 10 times higher in Bulgaria’s luxury shops.
Stefanov confirmed this widely-held belief when he announced that a scheme had been uncovered by which Turkish-made clothes were declared at customs at a price of 0.28 leva each, only to be sold later in Sofia boutiques at prices of between 300 and 500 leva each with the difference being unaccounted for. If reported, this difference would have been levied corporate tax and VAT.
But bringing the scheme to light would not automatically translate into the collection of hundreds of millions of leva more, because importers would simply stop the scheme, which had brought them profits of sometimes 300 per cent.
One reason that had made the scam possible was the lack of a joint information system between Customs Agency and the NRA. The two agencies signed an agreement in August to set up a shared information system.
The big fish
After tackling the Turkish cargo and the joint information system, Stefanov – supported by Finance Minister Simeon Dyankov – announced staff cuts at the NRA, along with structural changes to improve revenue collection and the agency’s efficiency.
The plans include laying off 630 NRA employees by the end of 2009. Of those losing their jobs, 260 are heads or deputy heads of NRA regional units.
The NRA’s new structure will have five regional directorates, each of which will have a unit working with middle-range taxpayers and social security contributors.
The NRA will also have a national directorate working solely with large-scale taxpayers and social security contributors. The aim is for NRA to improve its dealings with companies that provide for 90 per cent of tax revenues.
A further aim is to stop any conflict of interest and corruption, especially at small municipalities where the risk has always been high because tax inspectors could develop close relationships with local companies and be subject to pressure.
NRA staff will be relocated from one regional directorate to another to deal with companies not represented in their region. If this reform succeeds, it will be a major accomplishment, given that local lobbies have always had an influence on tax authorities.
The football money
The most recent action taken by Stefanov and the NRA was aimed at Bulgarian football clubs and their incomes.
On September 23, Stefanov announced the results of a check started a year ago into the finances of football clubs, the Bulgarian Football Union and the Bulgarian Professional Football League, which organises and administers the championship.
He said that eight football clubs owed close to four million leva in overdue taxes, which added up to 7.8 million leva with other fees and interest factored in.
The debt emerged while NRA was going through BFU records, which showed that a number of players had annexes added to their contracts, stipulating salary increases of 10 000 to 15 000 leva a month, while clubs’ records said that the players were paid 220 leva a month.
"I just want to know how these players can afford brand-new luxury cars with their 220 leva monthly salaries," Stefanov told television station bTV.
With the exception of some of the top teams, all had said that their football players were paid the mandatory minimum salary of 220 leva a month, he said.
The issue of football players’ salaries is not new, as players’ lavish lifestyles are no secret to anyone in Bulgaria. What is new, however, is that after all these years, Bulgaria’s tax collectors have decided to take steps to bring clubs’ finances into the light.
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The reason we were charged $500 for 2 pills is complex (that was some time a go, probably twice that these days).
It has to do with variety of factors:
I think the biggest is the aver all schizophrenic concept of US health care, in that it's market based just enough to allow abuse, but not enough to work as market. It's strange, because this is one of the few instances where the consumer, isn't the costumer, in that the person "buying" the service, isn't the one directly paying for it.
If you violate [...]
Read the full comment that relationship, you are injecting all kinds of abnormalities of which $500 for pills is but a small part of.
The "institution" paying for it is the US government, (medicare and all the others "cares") and various insurance companies - 60% of health care in the US is payed for by the government, as opposed to 80% in Germany for example.
That right there is the classic formula for disaster.
First the government is a bulk buyer, which allows it to dictate prices, and it usually underpays, which of course forces hospitals to milk insurance companies, which in turn milk corporations, which in turn milk the workers and costumers.
Then there is the liability issue. You can sue for completely disproportional amounts in case of doctor's mistake or negligence, and the jury system has turn your justice system into a wealth re-distribution skim, instead of rule of law enforcer.
The year of the Tobacco settlement, the US spent more on legal payoffs than it id on the Pentagon - that is an enormous mill's stone around the economy's neck, that's certainly dragging you down.
Also, and related to the last point is the, as you said, the almost 2 decade education plus residency your doctors have to go through before being allowed to hand someone that aspirin.
Large reason for the long education is namely the legal liability they may pose to the insurance companies ensuring the HMOs and such. So you have the liability insurance companies, loading up the health insurance companies, and the GP's forced to spend half of their life in school, superimposed over the consumer who isn't really a costumer - you realize the nightmare, right?
There is no way you can, nor should you, force Bulgarian doctors to spent 12 years in school, because the system is nothing like yours, and besides the financial rewards at the other side of school, just wouldn't be worth it.
BG has an over all less qualified workforce, so the average pay wouldn't support that, an it will be sometime before that changes, although I know some GPs in the State who make no more than $150K which is nothing generally, not to mention completely not worth all those years invested in school...
Or as Epami says "I hope this helps";)))
"Right but the revenues collected are the reason for the abuse"
Revenue is not a reason for abuse, rather its opportunity. The reason is lack of integrity on personal level (people). I am sure the law isn't perfect, or even good. But we all should be able to agree that law is better than lawlessness.
Getting kicked out after 2 days is normal if there are no problems, as for the pills, I have no words, this is outragous. But thank God for your healthy baby and Congrads.
BTW Have a good trip!
"I've seen it first hand, they Drs. here are so undertrained it's sad, the nurses in the states have more medical knowlage.."
... as opposed to that of policemen, or programmers, or what else?
BG simply doesn't have the know how on wide variety of areas, and that's a fact. So? It will take time. Just go to the Tokuda Hospital - it's first rate. I have to show you my bill for having our baby in the US - among it there's a $500 charge for two [...]
Read the full comment aspirins. I think it was something like $14,000 bill for a healthy baby and healthy mom with zero complications. They kicked us out the next day too.
Valeri,
There is no such thing as 'good' health care in Bulgaria. I know I work in the health care industry and I'm not talking about an American being unhappy with the care here or influenced by my girlfriend. I've seen it first hand, they Drs. here are so undertrained it's sad, the nurses in the states have more medical knowlage then the Drs. in Bulgaria. I could tell you some stories believe me. First they are undertrained, 6yrs after high school and you can put MD after your name? What is that all about? In the states [...]
Read the full comment you must go for at least 12 yrs before you can even touch a patient without a supervisor watching over you. I would love to chat more about this but I'm getting to return to the states for a month, I'll follow you while I'm gone Valeri, let me know if you need me to bring you anything back with me. I'd be happy to. Take care
Its true. Also doctors directly affect everybody's lives especially the poor but rich footballers dont
Having brought health into the issue I suggest they look at the doctors next (after the footballers). Show me a poor doctor!!! Check their waste bins for brown paper bags and new cars!! Everyone here will be able to tell you a story about the health system.
In my opinion there is better examples about countries collecting taxes than USA. Or where do you think things are going better in econonomy and other things: for example in Spain with average tax percent of 10 or in Nordic countries with average tax percent of 20?
"Its true public health system is flawed and often abused. That is a separate issue from tax evasion. Everybody should pay taxes according to the law."
Right but the revenues collected are the reason for the abuse. You need to look at the big picture - I am never happy when some one is made to pay taxes. It's shortsighted (being happy that is).
The thinking is that if some else pays (usually "the rich"), the government will have more money for everything, and I don't have to pay. It's a flaw [...]
Read the full comment theory because it doesn't account for the essence of government.
The problem is that in order to spend the money they collect, with minimum waste/loss and the most effect, they need to build institutions - remember, in the end of the day, every government institution has only two functions - that of spending/allocating wealth in hopefully most beneficial way, and that of ensuring it's own survival. Well, as in anything in nature, survival means growth. Human nature is such, that no head of a government Department will ever want to leave his institution less important than he/she found it.
So if "the rich" are milked today, that only means they are being forced to create the society that will enslave the next generations, because the institutions built now, will need to grow then too... The more any government gets, the more they'll need tomorrow, and before you know it, they will come to you for more. There's no such a thing as enough, otherwise the US government wouldn't be broke, with all the money they collect...
Its true public health system is flawed and often abused. That is a separate issue from tax evasion. Everybody should pay taxes according to the law. Cheaters should be prosecuted. Keep the good work!
"Valeri, I don't understand you sometimes, on one hand you complain about the lack of decent services that are not provided by the BG govt and then you say that money in the hands of govt is evil."
I never complained about services in BG - that's your girlfriend talking. Some Bulgarians can't wait to see a foreigner to start bitching about life in BG - it's a national sport of sorts. The truth is that most the problems are inflicted by the same people complaining, only we never see ourselves as part of the problem. [...]
Read the full comment
I have the best health care in BG because I work smart enough to be able to pay for private care, which in BG is dirt cheap and very high quality - you know that BG is becoming a health care outsource destination, right? Foreigners come here for various procedures, for a fraction of what they pay at home. Poorer Bulgarians may not have access to it, but I've personally have had enough Socialism in my lifetime, so don't see how that's my problem..
Besides I am a sports and health freak, and as you know, 70% of health problems are unnecessary and a product of life style choices - (US stats - for BG probably you add to that larger % cigarettes and alcohol abuse) .
The last thing I want to do, is pay for other people's poor health culture, food and alcohol abuse, and lazy lifestyle habits... if human specimens are bend on offing themselves, who am I to stop them?
Call me "Darwinist";)
Valeri, I don't understand you sometimes, on one hand you complain about the lack of decent services that are not provided by the BG govt and then you say that money in the hands of govt is evil. Well how do you expect the govt to paid for schools, pensions, street repair and all the things that a govt does. It's obvious to me that BG needs to collect the taxes from the people in this huge grey ecomony, just look at the conditions of the roads and schools in BG and the horrible health care system. But yet you [...]
Read the full comment don't think that the govt is capable of depersing this money in the proper way? I'm sorry but at this rate BG will not have the resources to even treat the sick even with the 19th century health care system you do have. Look, I never said America is perfect, it's far from it but we have a great highways, wonderful,(best in the world) health care that is available to everyone no matter what you may hear. If you think that BG must not do something and do something fast then I'm disappointed in you, you're a smart guy and the obvious is hitting you in the face my friend. We could go on and on about this subject and debate it for hrs but it's 6AM and I need to get back to bed, but we'll talk later I hope.
P.S.
What is "gray" economy?
Not taxed income?
It sounds like more money in the hands of the people and business, instead of the government.
Don't rejoice Stefcho.
It's never good. Money is power. The more money the government has, the more power they have too. Not always a good thing. Besides, for an unproductive institution like a government, money will never be enough. The more they collect, the more they need. Look at your country - do you think that the US hasn't collected enough?
Every thing you buy, every $ you make the US government takes a cut - hell - you give money to your children - the government splits it with them! You die, they owe half [...]
Read the full comment of what you've earn after you payed your taxes, to the government.
You'd think the US government would be rolling in green, instead, they are broke and not only that, but the fact that they collect so much from you today, will ensure that your children will be forever enslaved by your government. Why?
Because you've been feeding a monster that has gotten so big, that the amount of food it will need in the future will only increase.
In effect you have created institutionalized feeding chain that your children will have to support in their lifetimes...
It's about time someone had the balls to go after such people. This country is going under because of the grey economy. Good Luck Mr. Stefanov I wish you success.