Tax on real estate could now soar to as high as 0.3 per cent of a property’s tax valuation.

The possibility has arisen after Parliament approved the third and final reading of changes to the Local Tax and Fees Act.

On December 14, MPs vested municipalities with the right to set tax rates on real estate, alongside on inheritance and donation of real estate, as well as on patents.

However, the newly adopted law says that municipalities will have to set the rates within prescribed limits, the upper cap providing for as high as a double increase. The same principle will apply to the tax on real estate, which has a current rate of 0.15 per cent.

Mayors, meeting on December 15 within the framework of the National Municipalities Union in Bulgaria (NMUB), said, however, that they would refrain from as radical a hike.

When real estate passes to the ownership of heirs, each new co-owner will be required to pay an individual tax ranging between 0.07 and 0.14 per cent for an estate worth more than 0.25 million leva. To date, heirs paid a single tax. When the real estate has been donated, the beneficiaries will have to pay a tax ranging between five and 10 per cent.

On purchase of real estate, the tax rate can vary between two and four per cent of the property’s tax valuation, while in the case of property exchange, the rate will depend on the tax valuation of the more expensive real estate.

MPs also agreed that from 2008, buildings that are close to collapse or are hazardous from a hygienic or sanitary point of view will for the first time be subject to a building tax.

The legal changes are interpreted as a step toward fiscal decentralisation, yet opposition MPs said that increasing the caps would disproportionately increase the tax burden on individuals.

Municipalities will also be entitled to levy a tax on vehicles.

It was also agreed that the first instalment in the payment of local taxes would be made between March 31 and June 30. Moreover, early taxpayers will get a five per cent rebate on the sum filed in their tax declarations.

A further step toward fiscal decentralisation is the transfer of the patent tax from state to local level. The rate will be within a range that will have the existing minimum rate as the low and the existing maximum rate as the high.

These being the municipalities’ mini-victories, much lies ahead before reaching full fiscal decentralisation, the December 15 meeting of the NMUB agreed.

At a December 15 meeting, mayors voiced their disapproval of Parliament’s decision to assign municipalities fixed subsidies instead of entitling them to a share of the income tax collected locally, as has been the case until now.

Mayors agreed that the percentage of the tax stimulated the development of local economies.

Municipalities also called on the Government to assign them 140 million leva from the 1.4 billion leva budget surplus that will be at the Government’s disposal in 2008. The money would be used to cover municipal budget shortfalls.

The Government is yet to itemise municipalities among beneficiaries of this budget surplus pool. However, the Cabinet said earlier that it planned to allocate money for water supply, sewerage and environmental projects.

Mayors said that schools were not yet ready to handle budgets on their own, as is to happen from next year. They forecast a gloomy picture of schools going bankrupt and school masters facing court actions.