Economic Policy Review ISSN 1313 - 0544

What Is In The News For Excise Duties?

Author: Metodi Lazarov / 29.08.2007
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The hassle, incited by the possible introduction of a flat tax, has diverted the public's attention from noticing the excise duty measures that the government plans on implementing in the next two years. “Europe says so” is one of the favorite excuses of the governing coalition to justify a painful policy that is on the way of being conducted. That being the case, the government feels at ease increasing the excise duties for the period the minimum levels of the European Union are reached and thus, budget revenue also to increase more than proportionally to the insignificant losses from tax cuts. Bulgaria has committed itself to fulfilling the requirements from Chapter 10 “Taxation” of the official negotiations in which the Commission (and to which the Bulgarian side has agreed) has recommended a schedule for the corrections in excise duties. The state, however, is reluctant to be keeping pace to that schedule and does not plan on relieving the whole timing of the process but even will be introducing higher than the required levels. The 2008 Budget which is now in sight confirms that observation and officially pronounces the state's inadequate intentions.

Media have streamed different interpretations of the government's ideas on excise duties. The main plan of the coalition is to level out the excise duties on cigarettes, fuels, coal and coke and energy to the minimum of the EU during the next two years. According to information in newspapers “the excise duty on cigarettes will be increased in two steps – in 2008 and 2009, while fuels will be twitched only once next year”, “0.05 leva will be the upward change for fuels in 2008, while cigarettes and alcohol the increase will be halved to what the EU requires”. Again according to journalists “next year will surprise us with an increase of 5% of the prices of alcohol and fuels.” Confusing indications of the changes in excise duties in the next few years.

l        According to Chapter 10's schedule, “Bulgaria could delay the introduction of the minimum excise duty on cigarettes for retail sales (including tax) of the most popular brand till December 31st, 2009”. That excise duty is currently 42,5 euro for a thousand pieces while the required level is 64 euro. The plan of the government is most likely to increase it to 50 euro in 2008 and to 64 on January 1st, 2009. According to our estimations that increase in cigarettes' retail price would add 0.60% to inflation in 2008 and about 1% for 2009. We base our calculations on the sound effect of the 65% increase on retail price in 2006 which blasted the year's inflation with additional 2.25%. Why the government wants to lose a whole year (January 1st – December 31st 2009) in the supposedly gentle increase of excise duties?

l        According to another paragraph of Chapter 10, “Bulgaria could undertake [the following gratis period] till January 1st, 2011 for unleaded petrol...of minimum level of EUR 359 on 1000 litres as the effective tax base on January 1st, 2008...must not be lower than EUR 323 on 1000 litres. Currently we are charged 322.12 euro and if the official schedule is to be followed, the excise duty will be fixed on 337.5 euro in 2008 (which is equal to a 5% increase), 350.2 in 2009 and completing the process with 363 euro in 2010. That would mean 4 euro higher excise duty than the minimum or a stotinka unnecessary higher retail price for all of us. If the increase is to be with 0.05 leva in 2008, as some media have announced, then the excise duty would jump up to 347.7 euro which would mean that the government is again wasting a whole year.

l        Bulgaria is surpassing with 2% all minimum levels of excise duty on alcohol products while the government is planning on another increase of 5% in 2008, and yet another one in 2009. The minimum level on ethyl alcohol is 550 euro while we are currently being treated with 562.43 euro. The EU has decided to increase the minimum level to 575 euro for next year which equals to a 2.2% correction of our excise duty if the government were not looking for extra tax revenue.

l        There is not much information on the plans for coal and coke but the government will most likely increase the excise duty on non-economic uses (local and central heating) from 0.15 up to 0.3 euro which is again a step back from the schedule. That is a direct blow on all users who use the products as means for heating.

l        The government also considers increasing the excise duty on energy (non-economic use) from 0.5 euro up to 1 euro either in 2008 or 2009 – a clear contradiction to the scheduled 2010.

It is quite relevant to ask ourselves why the government is being so hasty with excise duties, considering the fact that the European Monetary Mechanism seems to be put away in time. The coalition is probably trying to squeeze the inflation, inflicted by excise duties, in 2008 and 2009 and eventually go through ERM-II in 2010 and 2011 which will clear the way for an acquisition of the euro in 2012. We wonder who will bear the political responsibility for the unnecessary higher excise duties for a couple of years if we are postponed to let's say 2014. Most likely that will be forgotten as surprisingly easy as this year’s increases. Then what should you expect in the next two years – fasten your income belts because the state budget needs to be filled with who-cares-what taxes.