Veliko Dimitrov, Economist, Institute for Market Economics, www.ime.bg

December is usually the time MPs work harder than ever. The number of draft bills is higher, the debates are more active and sometimes extraordinary meeting are held.

About 350 draft bills enter Parliament for discussion annually, or between 25 and 30 every month. During the last month of every year there are more proposed draft bills than the monthly average. The number of proposals for amendments between first and second readings is higher than the average as well.

This activity of Parliament does not happen by chance, it is due to two reasons: at the end of each year the tax framework for the next 12 months is voted on and, at the same time, MPs decide how and how much to spend of the budget surplus.

Some of the most important decisions taken by MPs in this period concern gambling – preserving the taxation on gambling activities from toto and loto games, betting on sport results and other random events, cigarette prices, VAT and personal benefits.

In the past December, MPs rejected the proposal of the Cabinet to change the taxation basis and the way taxes are paid on some gambling activities. Unlike draft bills proposed by opposition, which in most cases are rejected by the majority, this draft bill, proposed by the Cabinet, was rejected by Parliament. One of the reasons was that there was strong public pressure against the bill. The public did not see the draft bill as entirely moral or urgent and as a result none of the three ruling parties wanted to be seen as the initiator of the draft bill. However, initially the draft bill had been approved by the Cabinet; there had been a consensus between the parties on the draft legislation.

An important fact about gambling in Bulgaria is that gambling activities with mechanical means, that is casinos, get significant preferential treatment not only compared with the other gambling activities but also compared to all other economic activities. Taxes are levied on the number of gambling machines rather than financial results. As with previous years, however, MPs were not able to correct this “omission”.

MPs also considered taxes on cigarettes in December with the result that products at the lower end of the market will become more expensive over the course of 2008.

Between the first and the second reading of the draft bill on excise duties and tax warehouses, the MPs changed the taxation on cigarettes. As of January 1 2008, the specific excise duty was increased to 37 leva per 1000 cigarettes, the previous value was 6.5 leva, while the proportional excise duty was reduced from 54 per cent to 35 per cent of the sale price. The proposal initially passed by the Ministry of Finance was that the specific duty was raised to 14.5 leva and the proportional was kept the same. Both proposals would have led to higher prices of cigarettes in 2008, although the second proposal would have made cheaper brands relatively more expensive. The increase in specific duty on each “cheap” cigarette compared to its selling price would be higher than that of the more expensive brands. Only cigarettes with a current price above five leva a pack of 20 cigarettes could become cheaper, provided the producer or importer price remains the same.

Changes in the Value Added Tax Bill foresaw VAT being put on legal and notary services, as well as on private enforcement agents.

Levying taxes must be led by the principle of neutrality and equality. If VAT is applied to all other activities, then the logical thing is that a similar duty should apply to notaries and lawyers, whose services are a result of independent economic activity. These services also provide “added value” as well.

The need for VAT on the services provided by the private enforcement agents is questionable since there are also state enforcement agents, on whose services no VAT is levied. In that sense, according to the opposition, competition will be skewed because both state and private enforcement agents will have to operate with the same tariffs. Still, it is not very likely that there will be a mass migration in search of state enforcement agents simply because the stimuli for more effective work and the faster return of the dues of their customers will not exist. Here is the time to ask, however, the following question: since the institution of private enforcement agents has been operating well enough for the past two years – even Government institutions use the services of the private enforcement agents instead of the Government enforcement – why not move to solely private enforcement agencies rather than having a mixed system? If this happens, the differences in VAT treatment will be resolved by themselves.

The opposition Union of Democratic Forces put forward a proposal for returning VAT quicker, in a period of less than 10 days, to “the good merchants”.

According to the authors of the proposal, businesses whose last three VAT audits have shown a difference between the actual and declared obligations of less than three per cent or insignificant should be considered as “good merchants”. The idea and the initiative for the quick return of the funds to law-obeying-companies was a positive one indeed. Probably a small change would make it even better: VAT to be returned quickly to companies that have no financial violations. And, if on principal, the quick return works then the tax must be returned faster to all merchants, since if there were violations there would be sanctions.

On another matter, with 55 votes in favour, 57 votes against and 21 abstentions, Parliament rejected on first reading a draft bill to prevent gaining personal benefits from office. It was proposed by right-wing Filip Dimitrov and a group of MPs.

There are two ways the rejection of this bill can be viewed: either MPs do not see anything wrong with corruption, as well as hiding conflicts of interest, or they believed that such a bill was not likely to resolve the problem. If the second claim is true, then it is a direct recognition that laws are being broken in relation to corruption and, in addition, corruption is happening at a top level.

The Ministry of Agriculture put forward an “interesting” draft bill for land consolidation. The idea is not new since similar “solutions of some problems” were promoted by the previous minister in 2001. Back then a draft bill was even proposed for the consolidation of agricultural land. However the current situation is not comparable to six years ago. Today investment funds and private companies are buying and consolidating land, farmers are setting up co-operatives and there are other schemes for land consolidation. The biggest difference is that the idea of the current minister Nihat Kabil is more related to taking over the private agricultural business, and in a way nationalising the land and probably the subsequent sale of it, as oppose to the simple consolidation of separate lots.