After a few months of improvement, reimbursement of value-added tax (VAT) again has become a problem.

The National Revenue Agency (NRA) said that financial audits were being done of companies claiming back 520 million leva in VAT rebates.

This comes close to the record-shattering 560 million leva at the start of 2009, when the former government held back taxes to prop up its budget as revenue dipped. An average of 330 million leva has been held by the state each month in the past two years.

The delay in VAT reimbursement coupled with holding back payments for executed public procurements are cited as the key factor for the sharpest year-on-year decline in Bulgaria’s quarterly GDP.

The National Statistical Institute (NSI) said that economy had shrunk by 6.2 per cent in the fourth quarter and by 5.1 per cent for the entire year compared with 2008.

Alongside the VAT developments, more pressure on the Bulgarian economy could come from a possible decision to backtrack on plans for the swiftest possible eurozone entry.

Speaking to Bulgarian National Television's Panorama programme on February 12, Prime Minister Boiko Borissov said that adopting the euro remained top of the to-do list of the Bulgarian Government but it could be hard to attain this goal in the next two or three years.

He did not specify whether Bulgaria was putting on the backburner plans to submit an application for entry into the two-year currency stability test before the country can drop the lev and adopt the euro.

Neither did he indicate the government’s policy given the new circumstances.

At the end of January 2010, Finance Minister Simeon Dyankov announced that preparation and presentation of Bulgaria’s ERM II application would be on the agenda for this year.

Borissov said that the delay was caused by worries spawned by the financial turmoil in Greece.

Dyankov, who could not be reached for comment by Dnevnik over the weekend, told Nova Television on February 11 that support for Bulgaria’s eurozone entry was increasing.

"Twelve countries have already thrown their weight behind Bulgaria’s candidacy, three are undecided and only one is against," he said.

While the Greek turbulence is tipped as the main obstacle for Bulgaria’s ERM II entry, a Bulgarian Government source said that current economic developments could also be a problem.

The European Central Bank (ECB) and the eurozone countries want to see not only stable fiscal policy in Bulgaria but also a healthy and richer economy. Otherwise convergence will be a drawn-out process.

Experts said that VAT reimbursement delays and delayed private sector payments were directly depressing economic activity. They said the state was depriving Bulgaria's economy of liquidity that could be used instead to pay to private companies or deposit in banks, helping to encourage lending.

Source: Dnevni.bg