WED, 07 NOV 2001 00:46:05 GMT
What We Wanted and Whta We Got
AIM Sofia, October 22, 2001
Only four months ago, young experts from the Simeon II National Movement
were boldly promising a new tax policy, adapted to the present reality.
Today, now that the new government is about to mark its first 100 days
in office and these same yuppies have become part of Simeon of
Sax-Cobourg's economic team, reality looks entirely different, at least
the part of it directly affecting businesses and individual taxpayers.
The promises of an adequate and consistent tax policy that was to boost
economic growth and reduce direct taxes are now a thing of the past. Now
it appears that plans for boosting income to increase demand, while
causing a surge in investment and economic activity, was merely dust
thrown in the voters' eyes.
Under pressure to sign a new agreement with the International Monetary
Fund (IMF) and put its 2002 budget in order, the cabinet of Simeon of
Sax-Cobourg decided to pursue the same tax policies used by the
government of Ivan Kostov. Its visions had to yield to the demands of a
concrete budget, and the choice between higher taxes and greater
economic efficiency coupled with more purchasing power had to be
The government deviated from its campaign promises for the first time
during negotiations with the IMF mission. At the start of the
negotiations, Finance Minister Milen Velcev was unyielding, but after a
subsequent visit to Washington he betrayed almost every promise given to
the voters. He said that plans to not charge profit tax on reinvestment
would have to be postponed for at least one year, despite the fact that
in his inaugural address to the nation, Prime Minister Simeon II
announced the project would start on Jan. 1, 2002. The IMF mission,
headed by Gerald Shiff remained firm and uncompromising.
Another election promise -- that a public debate on reforms would be
held -- had the same fate. Deputy Finance Minister Atanas Kacarov listed
some fifty novelties that were surprising, to say the least. The tax
reform project contained none of the promised measures for boosting
economic growth. There was no reduction of direct tax to increase
citizens' purchasing power either. This promise was instead supplanted
by a host of complex measures that not only will fail to increase the
income of the average Bulgarian, but will even further deplete his
already desolate wallet.
Business circles which supported the ruling party because of its
reform-minded ideas and platform, now have no reason for enthusiasm. The
new tax policy's positive effects are less than few. Corporate taxes are
lower for companies whose profit exceeds DM50,000, but only from 28 to
23.5 percent. This was meant to make up for the abandoning of the idea
of charging zero profit tax on reinvestment. The deadline for
reintroducing VAT is now three instead of four months, but this does not
simplify or speed up the procedure. Corporate tax is not charged on the
securities' trade, and software exporters are eligible for tax loans.
And that is all.
The government has introduced radical measures to curb capital flight --
financial transactions with off-shore companies are subject to a 25
percent tax. "The idea is to keep money from leaking to the off shore
zone," said Deputy Finance Minister Atanas Kacarski.
As far as small businesses are concerned, satisfaction with the new
measures is equally low. Many fees have been increased, such as those
charged for licenses to sell alcoholic beverages and cigarettes.
Kacarski said the reason was that many such stores had sprouted, but
failed to explain why the government sees this as negative.
Ordinary Bulgarians are not satisfied either, and will certainly not
revel in the prospect of spending their extra cash on luxuries. If they
survive the winter and manage to pay their higher bills for heating and
electricity, in the spring they will have to pay a series of higher
taxes -- local, on cars, and some other goods. Their income tax will
also go up from 15 to 20 percent, and if they are lucky enough to win in
lottery, they will also have to share that with the state, at a higher
Car owners will in the future pay two types of taxes -- one linked to
the age of their car (the older it is the less they will pay), and the
other for roads. This measure is a typical example of shortsightedness
because it is boosting the purchase of used cars. Appeals from car
importers that the purchase of new cars should be encouraged given that
the average vehicle in Bulgaria is 20 years old, remain unanswered.
Therefore, Bulgaria stands a good chance of turning into a car
The additional burden should be compensated by a lower income tax rate.
The effects of this measure, however, will be minimal because the
reduction is 2-4 percent.
After everything it is only logical to ask: how is the loudly announced
economic growth to come about? Businesses, obviously, have not been
given a singe incentive, and nothing has been done to increase the
population's purchasing power. What is it, then, that makes the ruling
party's young economic experts any different from their predecessors?