THE introduction and use of value added tax (VAT) accounts has not prevented the siphoning of VAT and they will most probably be revoked.

This was announced after a meeting on January 26 between Finance Minister Plamen Oresharski, his deputy Georgi Kadiev and representatives of the National Revenue Agency, with the parliamentary anti-corruption committee. The meeting was held to discuss the implementation of measures against corruption and VAT frauds.

Under Article 20 of the VAT Act, VAT accounts were introduced in 2001 for all VAT registered companies. They are to be opened in any commercial bank and their holders use them to either receive or pay VAT on any deal it signs. However, the opening of a VAT account is not mandatory.

The accounts were introduced for a number of reasons but mainly to prevent VAT frauds and to enable the tax administration to reimburse the deductible VAT (which comes as a difference between purchases and sales).

“It is quite obvious that VAT accounts have not been able to prevent frauds and therefore we are considering scrapping them,” said Kadiev. 

Mainly two sectors emerged as risk zones for VAT siphoning - agriculture and more specifically grain production, and construction, Kadiev said. He said that a new bill on VAT was being drafted, and suggestions of companies were being collected, about 20 of which have already been received.

In Kadiev’s words, in this case the ministry has decided to act in reverse order - instead of offering a ready draft, collect the suggestions of business first, summarise them and after that hold a discussion of the draft.

According to the commitment undertaken in the agreement with the International Monetary Fund the law should be passed by April 30.

A survey by the Centre for Economic Development was also presented at the meeting in Parliament on January 26. It showed that bribes were most frequently given for illegal reimbursement of VAT, while according to World Bank data, diverted VAT revenue amounts to about 900 million leva.

The survey recommended restriction of the opportunities for registration and transfer of companies to fictitious owners, introduction of mandatory tax audits at change or ownership or management of companies, blocking of goods with prices deviating from the market ones and streamlining the principle of responsibility in solidarity.

According to the representatives of both the Finance Ministry and the National Revenue Agency, however, the application of these recommendations will not solve the problem.