VALUE-added tax (VAT) will remain at 20 per cent under a new VAT Bill that has been prepared by the Finance Ministry.
Under the bill, made public on February 2, the state will continue using the VAT accounts as a measure for preventing frauds with this indirect tax.
Finance Minister Plamen Oresharski told media that the 20 per cent VAT rate might be slightly reduced, but the possibility for such a move would be sought this autumn.
During last year’s parliamentary elections, most of the political forces, including the members of the three-party ruling coalition, were promising that the rate would be lowered to 18 per cent. This January however, Oresharski and one of his deputies, Georgi Kadiev, said there might in fact be a need to increase the rate to 22 per cent. The only reassurance was that such a drastic measure would be taken only if the current account deficit continues to grow.
The idea is that the higher VAT rate may cool the shopping enthusiasm of Bulgarians for foreign goods, which has allegedly led to the gap in the country’s current account.
In spite of the many complaints by businesses about the VAT accounts, the Finance Ministry has kept them in the new bill.
In late January, Kadiev said the use of VAT accounts has not prevented the siphoning of VAT and they would most probably be revoked.
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).
According to Kadiev, two main sectors have emerged as risk zones for VAT siphoning - agriculture - more specifically grain production - and construction.
Kadiev said the Finance Ministry had decided to act on the VAT Bill in reverse order. Instead of offering a ready draft, they would first collect the businesses’ suggestions, summarise them and after that hold a discussion of the draft. It is highly probable that the ministry will again change its opinion on the matter of the accounts. However, it does not have much time to stick to the businesess’ proposals, if, as, according to the commitment undertaken in the agreement with the International Monetary Fund, the new act should be passed by April 30.
The bill also envisages that each company can register for VAT whenever it desires. Currently, only mandatory registration exists and it comes after a company passes the 50 000-leva annual turnover mark. This way, smaller entrepreneurs that cannot reach such a turnover are left out of VAT territory and are not eligible for what is called tax credit (reimbursement of the difference between paid and received VAT).
Another novelty is that lawyers and notaries will be obliged to charge VAT on their fees. This, according to experts, will inevitably lead to higher prices of legal services.
The new VAT act should enter into force on the day Bulgaria becomes a full member of the European Union.
