The legislation throughout November
During the first days of November a bill was introduced[1] to amend the Law on Commerce to reduce ten times the minimal requirements for capital to register a Limited Liability Company (Ltd.) and a Joint Stock Company (JSC) – form 5 000 to 500 and respectively from 50 000 to 5 000 levs. The basis for this proposal is that the lower required minimal capital reduces the cost of registration and could lead to increase in business activities, employment and incomes. Although the currently existing legislation offers certain flexibility, for example a Ltd. could be registered with 70% entered capital, based on the average income for the country, the requirements for minimal capital are really high. According to the study „Doing Business"[2] by the World Bank, the minimum required capital in Bulgaria represents 56,30% from the gross national income per person, which is placing us at 136th place among 178 countries. Another peculiarity of the Bulgarian practice is that the capital is withdrawn immediately after registration of the company, which logically leads to the following question: since the requirement for a minimal capital does not serve any other purpose than registration/administrative, is it necessary to exist and burden with additional expenses exactly those which are at the beginning of their development?
After the bill for the State Budget and the Budget of the State Social Security for 2008, entered at the end of the previous month, as a logical continuation of forming the fiscal policy for the next year, specific changes[3] in the material tax law had to materialize. The following fundamental changes are foreseen:
1) Law for the corporate income tax
It is proposed to reduce the tax on dividends from 7 to 5 percent. Although the change is in line with the policy in recent years to reduce the direct taxes, one opportunity to eliminate this tax entirely has been missed. Against the background of the overall budget revenues and the surpluces achieved, elimination of the dividend tax would not lead to misbalance or danger, but will have the role of a positive sign to the direct and portfolio investors. The proposed bill envisages that, companies with a net revenue from sales for the previous year of up to 100 thousand levs would not make advanced tax payments, but will pay their corporate tax once a year before March 31st of the subsequent year. From the reduction of transaction costs such as preparation of bank payment documents and bank charges, according to the Council of Ministers, about 146 000 companies are expected to gain.
2) Law on the personal income tax
In the first place the bill proposes to replace the existing proportional tax with a progressive tax and a singe rate of 10% is being proposed. This is a very positive and long awaited development, which in addition to bringing to "light" part of the grey incomes, will lead to increase in the productivity of labor, particularly in places, where the pay is related to the achieved results. In second place, from the beginning of next year it is proposed that the tax breaks for children and donation are eliminated, as well to reduce the size of some of the legally recognized costs before taxation. For activities for which at present the officially recognized costs have been 70, 60 and 50%, the bill proposes 40%, respectively from 35 to 25 percent and from 20 to 10 percent. Although the changes are prepared and initiated by the Council of Ministers they could be amended until the time when published in the State Gazette. There is a possibility to keep the family income taxation because of the claims that the planned increase in the child benefits will not compensate entirely its elimination for next year. This is not going to be a precedent – the Government changed its position with respect to the legally recognized costs, which initially should have been eliminated completely. In that sense, the proposed a few months ago idea for an "ideal" flat tax – neutrality and simplicity – with each modification, loses more and more from its attractiveness in both directions – with respect to the people and the administration.
3) Law on municipal taxes
The main changes are two: from 2008 the municipal councils could determine the size of local taxes but within limits, defined by the central government: minimal – as the existing local taxes at the end of 2007; and maximum – up to two times (real estate tax, donation tax, tax on purchase of real estate, inheritance tax); or up to three times (car tax) higher than the minimal. We would like to point out at two things: the financial decentralization is extended, which is a positive development, however the conditions under which this will take place are not very well thought out, which could lead to undesirable consequences. Placing an upper limit on local and municipal taxes is a very good idea, but the limitation from below is not a good one. The idea of the fiscal decentralization is to allow the municipalities to compete on a level of taxation, but it has to take place on the basis who will propose a lower tax, not on a basis who will offer less higher tax (compared to the current situation). In second place, the final annual (patent) tax which applies to individuals and one person companies on the provided by them patent activities, becomes from national a local tax and beginning from next year will be a revenue to the municipal budget (as a result the clauses are transferred in that bill). Although these are steps in the right direction, the new rights of the municipality must help to reduce taxation, not to increase or only redirect tax revenues. The law should not place minimal limits on local taxes, which will help financial decentralization itself and it will not be compromised in its first year.
Around the middle of the month we became witnesses how an absolutely unnecessary bill reached the floor of Parliament – this time the Law on managing condominiums[4]. The proposal includes together with the detailed rights and obligations of the people living in a block of flats, the election of a general assembly, management council or a manager, audit council, cashier, the definition of the monthly payments, creation of funds, acceptance of plans, acceptance of an annual budget of revenues and expenditures, … following the example of the Parliament or even of the State. The question about who would finance the staff required remains open (I suppose that no one would audit, plan, administrate, at cetera – without salary) and whether or not would want to do it. As a continuation of the bill's logic, it is necessary to prepare a new bill which to introduce mandatory tax, which should be collected and than passed along to the managers of the condominium, since even if the proposed bill is passed, we do not expect that the entire structure would become operational due to the "lack of financial resources". The next natural step will be to incorporate in the Public Procurement Acts articles which mandate that the management councils of the condominiums spend the funds collected only through the procedures of public tenders, since that will improve their efficiency…. it is necessary to know that at present respective regulations already exist (two-story) that regulate the relations within the condominiums – The Law of Property and the Regulation for Management, the Order and Control in the Condominiums The efforts of the law makers should not be directed towards its expansion and creation of a separate bill, but towards its reduction or total elimination as it is not necessary. The possibility for voluntary association and resolving common problems functions satisfactory at present (even though this relations are not strictly institutionalized) although there are some exceptions, this is not a reason to create a bill. As if areas, regulated by laws function perfectly – for example: the legal system, the state administration, the public tender system, customs, …
From the beginning of November until now a number of other bills have been entered to change and complement the Penalty Code, The Traffic Law, The Law of Storage and Commerce with Grains at cetera. Since the vicious practice not to publish some of the proposed bill continues, it is difficult to comment. During all the years since "the Proposed Bills" register exists and the Internet site of the Parliament, always a part of the proposals are being "missed" and become known only after they are published in the State Gazette (if they have been rejected, it is possible that it would never become clear what is all about in those proposals). These (in)actions violate the principle of public and transparent introduction of bills and does not assist the preliminary public discussions and do not support the right of every one to express his/hers informed opinion and position.
[1] Proposed by Martin Dimitrov (UDF)
[2] http://www.doingbusiness.org/ExploreTopics/StartingBusiness/
[3] Proposed by the Council of Ministers
[4] Proposed by the Council of Ministers
