Lyulin Stamenov/Sofia Echo
Milen Velchev
Lower taxes and higher excise duties on liquor and cigarettes – often called “sin taxes” – are key elements of revenue changes planned for the 2003 to 2005 period, according to Finance Minister Milen Velchev.
Velchev detailed his ministry’s plans at a briefing on Tuesday.
Most of the planned amendments have been unveiled already, and are consistent with the Governmnt’s goal to shift from direct to indirect taxes and to comply with the EU directives on the tax policy.
Experts praised the Finance Ministry’s decision to announce the tax policy in advance. This would allow the business sector to improve investment plans and to adjust to the new tax legislation.
The tax changes also aim to increase investment activity through a lower tax burden on corporate profits and lower burden of taxes and social contributions on labour contracts.
Lowering taxes and social insurance as much as possible still allows for a low budget deficit, encouraging investment by reducing the profit tax, streamlining the tax system and its administration, introducing equality among taxpayers and expanding the tax base into the shadow economy.
These are at the core of the tax changes that make up the three-year tax strategy presented by Velchev and his deputy, Gati Al-Jeburi.
According to Al-Jeburi, all investors – foreign, local, small and big alike – should be treated on an equal footing and preferences should be available for those investing in areas with high unemployment rates.
The corporate tax that companies now pay both to the central and to the local budgets will be made only one and payable to the national purse. Also, it will be gradually reduced from the effective 23.5 per cent to 20 per cent in 2004 and 15 per cent in 2005. In areas where extra incentives are needed for boosting investment, the 15 per cent rate will be made effective as soon as the criteria are prepared.
The rate of depreciation of hardware and software will be changed from the effective 20 to 50 per cent, of machines and equipment from 20 to 30 per cent and of vehicles from 5 to 10 per cent. Also, expenses for repairs will be fully recognised as expense for the purpose of accounting.
In the insurance business, the tax for insurance premiums will be reduced from the present 7 per cent to 5 or 4 per cent in 2004. The 2 per cent tax for life insurance premiums remains unchanged.
A special scheme will be worked out for investment companies, where only the dividend will be charged but not the capital gains and the income from the dividend.
The lowest rate of the income tax for individuals will be reduced further from the effective 18 per cent to 15 per cent in 2003, 12 per cent in 2004 and 10 per cent in 2005.
The rates for those in the two middle-income ranges will be reduced from 24 per cent to 22 per cent and from 28 to 26 per cent.
As for the small businesses paying only a patent tax, the tax will be reduced to a par with the income tax rates in a bid to boost this sector of the economy.
The average monthly wage in the private sector in the country was 237 leva ($111), said Al-Jeburi. It was 383 leva ($179) in the public sector and, surprisingly, it was hard to recruit people in the public sector, he said.
“There is a phenomenon with a direct effect on the national economy. If the average private-sector wage is brought up at least to the level of the average wage in the public sector, the revenue into the national budget will be 468 million leva ($219 million) more from income tax and 780 million leva ($365 million) more from social insurance contributions, Al-Jeburi estimated.
To change that, a campaign will be launched towards registration of the contracts of employment so as to have more transparency about the wage and insurance levels and better protection of employees.
Clear criteria will be introduced for charging VAT for goods and services that are sold below their prime cost. There is a problem now where products and services go cheaper than the cost of production and pay a market value VAT.
Another thing that will change is the taxation of new vehicles for individual (not commercial) use: only a road tax will be payable for them rather a road tax plus a property tax. The system of taxation for cargo vehicles (over 12 tons) will gradually switch to the EU rules of charging the owners based on the vehicle’s weight, number of axles and manner of suspension.
The future changes to the law on excise duty will be aimed at introducing the EU standards. However, Al-Jeburi said, the Finance Ministry would try to delay as much as it can the hike to the highest levels that the EU requires from Bulgaria.
The road and environmental tax for unleaded fuel and gas oil will be dropped. They will be transformed into excise duty in keeping with the practice in most European countries.
The excise duty for fuels, which in the Al-Jeburi’s words is considerably lower than in the EU countries and other transitional economies, will be increased by 50 leva a ton in 2004 and by as much in 2005. Preferences will be available for industrial uses of certain fuels and gas oil will be marked to prevent abuses of the differentiated tax rates.
The excise duty for wine will be dropped altogether in 2003. The rate for liquors, which is now 0.035 leva ($0.016) per volume of alcohol, will be increased to 0.05 leva ($0.023). The excise duty for cigarettes will be increased again in 2004.
Velchev detailed his ministry’s plans at a briefing on Tuesday.
Most of the planned amendments have been unveiled already, and are consistent with the Governmnt’s goal to shift from direct to indirect taxes and to comply with the EU directives on the tax policy.
Experts praised the Finance Ministry’s decision to announce the tax policy in advance. This would allow the business sector to improve investment plans and to adjust to the new tax legislation.
The tax changes also aim to increase investment activity through a lower tax burden on corporate profits and lower burden of taxes and social contributions on labour contracts.
Lowering taxes and social insurance as much as possible still allows for a low budget deficit, encouraging investment by reducing the profit tax, streamlining the tax system and its administration, introducing equality among taxpayers and expanding the tax base into the shadow economy.
These are at the core of the tax changes that make up the three-year tax strategy presented by Velchev and his deputy, Gati Al-Jeburi.
According to Al-Jeburi, all investors – foreign, local, small and big alike – should be treated on an equal footing and preferences should be available for those investing in areas with high unemployment rates.
The corporate tax that companies now pay both to the central and to the local budgets will be made only one and payable to the national purse. Also, it will be gradually reduced from the effective 23.5 per cent to 20 per cent in 2004 and 15 per cent in 2005. In areas where extra incentives are needed for boosting investment, the 15 per cent rate will be made effective as soon as the criteria are prepared.
The rate of depreciation of hardware and software will be changed from the effective 20 to 50 per cent, of machines and equipment from 20 to 30 per cent and of vehicles from 5 to 10 per cent. Also, expenses for repairs will be fully recognised as expense for the purpose of accounting.
In the insurance business, the tax for insurance premiums will be reduced from the present 7 per cent to 5 or 4 per cent in 2004. The 2 per cent tax for life insurance premiums remains unchanged.
A special scheme will be worked out for investment companies, where only the dividend will be charged but not the capital gains and the income from the dividend.
The lowest rate of the income tax for individuals will be reduced further from the effective 18 per cent to 15 per cent in 2003, 12 per cent in 2004 and 10 per cent in 2005.
The rates for those in the two middle-income ranges will be reduced from 24 per cent to 22 per cent and from 28 to 26 per cent.
As for the small businesses paying only a patent tax, the tax will be reduced to a par with the income tax rates in a bid to boost this sector of the economy.
The average monthly wage in the private sector in the country was 237 leva ($111), said Al-Jeburi. It was 383 leva ($179) in the public sector and, surprisingly, it was hard to recruit people in the public sector, he said.
“There is a phenomenon with a direct effect on the national economy. If the average private-sector wage is brought up at least to the level of the average wage in the public sector, the revenue into the national budget will be 468 million leva ($219 million) more from income tax and 780 million leva ($365 million) more from social insurance contributions, Al-Jeburi estimated.
To change that, a campaign will be launched towards registration of the contracts of employment so as to have more transparency about the wage and insurance levels and better protection of employees.
Clear criteria will be introduced for charging VAT for goods and services that are sold below their prime cost. There is a problem now where products and services go cheaper than the cost of production and pay a market value VAT.
Another thing that will change is the taxation of new vehicles for individual (not commercial) use: only a road tax will be payable for them rather a road tax plus a property tax. The system of taxation for cargo vehicles (over 12 tons) will gradually switch to the EU rules of charging the owners based on the vehicle’s weight, number of axles and manner of suspension.
The future changes to the law on excise duty will be aimed at introducing the EU standards. However, Al-Jeburi said, the Finance Ministry would try to delay as much as it can the hike to the highest levels that the EU requires from Bulgaria.
The road and environmental tax for unleaded fuel and gas oil will be dropped. They will be transformed into excise duty in keeping with the practice in most European countries.
The excise duty for fuels, which in the Al-Jeburi’s words is considerably lower than in the EU countries and other transitional economies, will be increased by 50 leva a ton in 2004 and by as much in 2005. Preferences will be available for industrial uses of certain fuels and gas oil will be marked to prevent abuses of the differentiated tax rates.
The excise duty for wine will be dropped altogether in 2003. The rate for liquors, which is now 0.035 leva ($0.016) per volume of alcohol, will be increased to 0.05 leva ($0.023). The excise duty for cigarettes will be increased again in 2004.
