Tax authorities have started tightening the loop around the necks of recalcitrant taxpayers by announcing a check of people who have reported more than 50 000 leva of annual income, other than their salary.

This means that rich Bulgarians will be screened by authorities so as to clamp down on any attempt to evade paying the full amount of tax due. By law, every person who reports more than 50 000 leva of income for the year other than his or her salary must register under the Valued Added Tax (VAT) law and pay the required fee. However, the National Revenue Agency (NRA) discovered that more than 90 per cent of them have failed to do so, NRA head Krassimir Stefanov said on February 21.

As part of the swoops, a total of 4814 individuals who in 2008 reported an income of more than 1.1 billion leva will be investigated. Checks are supposed to establish whether these people had to register under the VAT act or not. This does not necessarily mean that all of the 4814 taxpayers will be sanctioned, the NRA said, perhaps in a bid to assuage concerns that thousands of Bulgarians could end up paying substantial fines because they had not registered under the VAT act.

Part of the blame lies with the NRA itself because this is the first time people are being checked to see if they have complied with the VAT act. That way many taxpayers might end up in a position where they have documents stating that they had paid all their taxes and still be charged by the NRA for not registering under the VAT act. Stefanov’s words to Bulgarian-language Dnevnik daily that the NRA lacked the capacity to start these probes sooner will hardly console those who might end up paying additional taxes.

This group will include the self-employed – freelancers, lawyers and architects – among others. It will also include people who had reported extra income in the form of consultancy services, a tendency that has become fashionable recently in Bulgaria when reporting income tax. In some cases, NRA analysis showed that young people in their late 20s reported tens of thousands of leva of income from consultancy services, NRA’s Rossen Bachvarov told bTV.

"For us it is obvious that such services hardly cost that much," he said, noting that because the NRA had neglected this part of the VAT act, many found it a useful way to avoid paying VAT on their extra incomes.      

Recent events suggest that the wake-up call for citing consultancy schemes was not the NRA initiative but the spectacular February arrest of alleged mafia boss and former undercover agent Alexei Petrov. Days after his arrest, Interior Minister Tsvetan Tsvetanov said that Petrov owed 1.5 million leva in unpaid taxes to the state. Petrov, who is still under arrest, said in court that indeed he had a large-scale business working as a consultant to a number of companies he previously owned.

The 1.5 million leva of unpaid taxes calculated by Tsvetanov was the VAT he should have paid if he had registered under the VAT act. Following this development, the NRA was criticised in the media for not launching information campaigns over the years advising and informing people that they must register for VAT instead of being alerted by the Petrov case.