Economic Policy Review ISSN 1313 - 0544

Legislation during December

Author: Veliko Dimitrov / 20.12.2007
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Traditionally during December, as well as during the previous month of November the representatives work harder - the number of proposed bills is higher, the debates are more active, sometimes even extraordinary meeting are called.   Annually, in the Parliament are introduced around 300 - 350 bills, or between 25 and 30 every month. During the last two months of every year the proposed bills are more than the monthly average, there are also more proposals for changes between the first and second readings of the bills. This higher activity of the Parliament is not by chance and is due to two very important reasons: firstly, at the end of each year the tax framework for the next 12 months is voted and secondly, at the same time it is decided how and how much to spend of the budget surplus. The decisions of the Parliament for December are basically the following:

  • Preserving the taxation on gambling activities from toto and loto, betting on the results from sport events and random events.

The Members of the Parliament (MP) rejected the proposal of the Council of Ministers to change the taxation basis and the way taxes are paid on the above mentioned gambling activities. Deferring from the bills entered by the opposition, it is an extremely rare event that a bill proposed by the cabinet is rejected by the Parliament. This time it happened under very strong pressure from society and also since neither party from the ruling coalition would not take responsibility that it was the initiator of that bill (however the proposal initially was approved by the Cabinet, i. e. there has been a consensus).   When we talk about taxing gambling in Bulgaria we must mention the fact that gambling activities with mechanical means, i.e. casinos, get a significant preferential treatment not only as compared with the other gambling activities, but also as compared to all other economic activities - taxes are levied on the number of gambling machines rather than financial results.  Like every other year, however the MP's could not correct this "omission". 

  • The currently cheaper cigarettes will become relatively more expensive from the beginning of next year.

Between the first and the second reading of the bill on Excise duty and tax warehouses the MP's changed the taxation of cigarettes. Starting 1st of January 2008 the specific excise duty is increased to 37 levs per 1000 cigarettes (currently 6,50 levs), while the proportional excise duty is reduced from 54% to 35% from the sales price. The initially passed proposal by the Ministry of Finance was that the specific duty is raised to 14,5 lev, while the proportional is kept the same. Both proposals would lead to higher prices of cigarettes begging from the New Year, however with the second the cheaper brand cigarettes will become relatively more expensive, since the increase in duty per one cigarette as compared to their selling price is higher, than of the more expensive class. Only cigarettes with a current price above 5 levs for a pack of 20 cigarettes could become cheaper if the producer or importer price remains the same. The most popular Bulgarian cigarettes "Victory" would sell at about 2,90 - 3,00 levs.

  • Changes in the Value Added Tax Bill foresee levying VAT on legal and notary activates as well as on the private enforcement agents

Levying taxes must be led by the principle of neutrality and equality.  If all other activities are levied VAT, than it is logical that similar duty applies to notaries and loyers, whose services are a result from independent economic activity, but are also services which represent added value. The need for VAT on the services provided by the private enforcement is questionable since there are still the state enforcement agents, on whose services no VAT would be levied.  In that sense, according to representatives from the opposition, competition will be tilted because both state and private enforcement agents must operate with the same tariffs.  Still it is not very likely that there is going to be a mass migration in search of state enforcement agents simply because the stimuli for more effective work and faster return of the dues of their customers their are completely non existent. Here is the time to ask, however, the following question: since already for two years the institution of private enforcement agents operates very well (even government institutions use the services of the private enforcement agents instead of the government enforcement) why not move to entirely private enforcement rather than a mixed system? Than the differences of VAT treatment will be resolved by themselves.

  • The opposition (UDF) entered a proposal for quicker return of the VAT "to the good" merchants - less than ten days

According to the MP's making the proposal, good merchants should be considered those, which during the last three VAT audits the difference between the actual and declared obligations is less than 3% or insignificant.  The idea and the initiative for quick return of the funds to the law obeying companies is naturally very positive.  Probably a small change would make it even better: VAT is returned quickly to companies, which have no financial violations.   And if in principal the quick return works, than the tax must be returned faster to all merchants, since if there are violations there would be sanctions.

  • With 55 votes "yes" and 57 votes "against" (21 "abstention") the Parliament rejected on first reading the bill for prevention of personal benefits from office (proposed by Philip Dimitrov - UDF and a group of MPs')

There two lines along which one can argue: the MPs either do not see anything wrong with corruption, as well as hiding conflicts of interest or believe that such a bill is not likely to resolve the problem. If the second claim is true, than it is a direct recognition that apparently the laws are violated, when we talk about corruption, and in addition it is at the high levels of power.  

  • "Interesting" idea of the Ministry of Agriculture and Food Supplies - Agency and a Bill for Consolidation.

The idea is not new, similar "solutions of some problems" were promoted by the previous Minister of Agriculture, in 2001 even a bill was proposed for consolidation of the agricultural land.  In all cases, however, the reality 6 years ago does not compare to the situation today - investment funds and private companies are buying land and consolidating it, farmers set up cooperatives and get the economies of scale, et set.  Something else is more important - the ideas of minister Nihat Kabil are more related to taking over the private agri-business and in some sense nationalize the land and probably subsequent sale of it, than a simple consolidation of separate lots. What apparently wants the State as represented by the Ministry of Agriculture is almost the same as what was done by one company and because of it the Parliament very quickly changed the Insurance Codex. Namely, to allow retired people to sell their land, but instead of getting cash, the state will give them additional pensions. Now, is it necessary that the State will become an insurance company?  

  • The big spending

May be the most heated debates during the month were related to how and how much funds to spend from the budget surplus. According to the Law on Budget, the Government could spend this year approximately 300 million levs from the surplus (1,5% from the planned expenditure in the consolidated budget) without having to ask the Parliament. Initially the Council of Ministers made a proposal for additional 570 million levs or a total of over one billion levs. Very soon after, at one of the meetings of the budget commission, minister Oresharski requested instead of 570 million, 700 million, since the surplus of the revenues in the budget is greater than expected.  During the discussions in the Parliament, the deputy chairman of the RFP Mr. Yordan Tzonev increased the requirement from 700 to 900 million levs, since "the situation had shown new opportunities".  The main part of the funds will be spent on infrastructure projects and to cover additional payments for disasters around the country. Taking into account the situation, the voting according to party lines of most proposed bills, we could say that to some extend the Parliament registers the decisions of the Government, unfortunately there is no progress in that respect in this area.