In contrast to previous years, the proposed draft Law on the State Budget of the Republic of Bulgaria for 2010 is sustained in the spirit of the realities determined by the global crisis, which seriously affected the Bulgarian economy. The critical analysis of the state of the Bulgarian economy and the realistic forecasts for its development in the coming years are most closely linked to the projected revenues and expenses of the 2010 Budget. The main the goal of the budget is to balance between stimulating the economy and preserving macroeconomic stability in the conditions of a monetary board is fully adequate to the crisis situation in which the Bulgarian economy finds itself. We find the pro-cyclical fiscal policy predetermined in the conditions of crisis for a country like Bulgaria with a currency board. We do not share the criticisms repeatedly made by some of the social partners towards the pro-cyclical nature of the 2010 Budget and we consider them unfounded, as they do not take into account the specifics and possibilities of the Bulgarian economy and its monetary system, which is the basis of preserving macroeconomic stability in the period of crisis. In this regard, we find them completely justified the set measures to achieve sustainability of the macroeconomic system: preservation of the monetary board and the fixed exchange rate of the leva to the euro until the entry into the euro area, maintaining a balanced budget, joining the ERM-2/ERM-II as soon as possible and introducing the euro after the fulfillment of the Maastricht criteria, constant and consistent struggle with fiscal theft and tax fraud. At the same time, KRIB calls for maximum effective use of all possible anti-cyclical measures and resources to mitigate the impact of the crisis on Bulgarian business and limit the growth of unemployment.
The analysis and forecasts for the macroeconomic parameters of the economy, as well as the revenue and expenditure part of the 2010 Budget are sufficiently conservative, but nevertheless they are outlined and the risks before the implementation of the budget, namely:
· a slowdown in domestic demand and economic growth and the related non-fulfillment of the revenue part of the budget,
· difficulties in financing the budget,
· potential need for capital support of the banking system,
· aging of the population, leading to pressure on the pension system.
We hope that the 10 percent buffer is fully sufficient to deal with the listed risks should they occur. The potential need for capital support for the banking system has been correctly identified as a risk and we want to believe that its specific and detailed addressing has already been discussed together with the BNB.
We would add one more to the listed risks. In spite of the already demonstrated determination of the Government to secure the revenues from the EU provided for under various programs, given the problematic history of Bulgaria from the recent past regarding their receipt and absorption, as a risk KRIB smooths out the danger of non-disbursement or non-absorption of the intended volume of funds from the EU. We believe that the consideration of such a risk is necessary, since with a total volume of capital expenditures under the consolidated fiscal program of 6.1% of GDP, more than half of them (3.1% of GDP) are the funds that are expected to come from the EU. The risk of them not doing so would condemn the investment costs to a significant reduction with all the resulting consequences both for the environmental and road infrastructure, to which they should be prioritized, and for the economy as a whole.
KRIB fully supports the goals set in the 2010 Budget tax and insurance policy, aimed at preserving the stability of the economy in crisis conditions, stimulating business and investment activity through:
maintaining the tax rates of direct taxes in combination with a lower insurance burden for employers to support economic growth and employment,
· the increase in tax collection and
· the reduction of the shadow economy.
The Tax Committee of KRIB basically supports the proposed package of tax changes, including those aimed at a higher degree of harmonization with European law, the wider use of electronic data carriers in the tax process, as well as more efficient control of excise goods and the fight against tax abuse. We support the increase in tax from 10% to 12% for the gambling activities of lotto, lotto, betting on the results of sports competitions and events of chance. We also accept the planned increase in excise rates for the various types of excise goods.
At the same time, when discussing the proposed changes in the tax law, we recommended a comprehensive review of the approaches to fight fraud and abuse in the field of taxes, and especially VAT. KRIB's experts believe that the rights of the NRA should be carefully measured. The current legislation, as well as some of the proposed changes, strengthen the rights of the NRA authorities to an extent that raises concerns that even honest taxpayers may be affected by the measures. We believe that an expert-level discussion should be held to seek consensus solutions to combat violations. It is important that every correct taxable person has clear and publicly available instructions for practical actions that eliminate the risk of him falling under the blows of Art. 177 of VAT. It is no less important that long tax revisions cannot ensure multi-month interest-free crediting of the budget at the expense of honest taxpayers.
The electronicization of the tax process should be introduced naturally and gradually, so as to avoid unjustified and untimely investments in electronic equipment. The NRA must have the necessary administrative resource to ensure the efficient use of the equipment (if all the information is not entered in the cash registers, the desired effect will not be achieved).
KRIB proposed to abolish withholding taxes, but we consider that the proposed possibility of recognition of expenses by foreign recipients of taxable income will give a more realistic idea of the potential of these taxes as a source of income in Bulgaria. KRIB expresses readiness for discussion at an expert level with the aim of refining the administrative procedure for this recognition.
We propose to discuss the idea of KRIB from the end of 2008 to create a favorable holding regime - a measure that can have a favorable fiscal effect and potential for attracting financial and management resources to the Bulgarian economy.
In connection with the proposed and voted decision of the Council of Ministers to cancel thethe tax credit for all passenger cars up to and including 8+1 seats, KRIB and the Association of car manufacturers and their authorized representatives in Bulgaria supports the effort to stop VAT fraud by installing additional seats in expensive jeeps, but also expresses some considerations and concerns. In addition to the expensive and luxurious jeeps, the 6-9 seat category also includes a number of work cars, which are widely used by small and medium-sized businesses for purely production activities - construction, repairs, deliveries, service activities, etc. Another significant group of cars with 6 to 9 seats are the small minibuses, which are used to transport passengers from hotels, travel agencies, agricultural producers as well as a number of personnel transport companies. If the proposed changes are accepted, many of the small and medium-sized companies in construction, tourism, agriculture and all those who provide transport for their staff with smaller cars will face huge financial difficulties. It should be noted that in addition to the installation of additional seats, conversion of passenger cars into cargo cars is also carried out by removing the rear seats in order to create cargo space. In itself, there is nothing wrong with such a conversion, if it is a cheap working car, which after the conversion is really used for transporting goods. However, when this is done only proforma, according to documents, and after re-registration the seats are returned back, then this becomes a tax fraud.
The inequality between companies engaged in security, courier services and taxi transport, on the one hand, and production companies, on the other, when transporting 5 workers, should also be taken into account. The first companies are legally entitled to a tax credit on any passenger car, including luxury cars. They will be able to deduct VAT from their costs of acquiring, maintaining the car and fueling it, while manufacturing companies will not be able to do so. In most European countries, all cars that are used for production purposes are entitled to a tax credit, regardless of the number of seats.
The Association of Automobile Manufacturers and their authorized representatives in Bulgaria are ready to offer several options for solving the problems presented without harming conscientious and well-intentioned taxpayers. They are available at any time to participate in a meeting with experts from the Ministry of Internal Affairs and the Ministry of Finance.
The Tax Committee of KRIB believes that business needs greater transparency when issuing instructions on the practical application of tax laws. Taxpayers and citizens should be able to ask principled questions and receive principled answers. They must be systematized and published on the Internet on the NRA website. This would reduce the administrative costs of business and the state and would be an important anti-corruption measure.
In view of all changes in the tax laws, we propose to adopt a minimum period of at least three months for the promulgation of changes before their entry into force, where the changes impose new obligations on taxpayers. We also suggest that companies, branch organizations and citizens be given more time to analyze the proposed draft laws.
The priorities in the expense part of the 2010 Budget are derived from the main challenges facing the Bulgarian economy and society at the present moment and in the future and are fully consistent with the possibilities of the economy and, accordingly, the budget in the conditions of crisis. KRIB accepts as completely appropriate the selected priorities - education, health care, social sector, ecology and road infrastructure and the alignment of budget expenditures with them. As a priority, education is listed first and 4.2% of GDP is set aside for it, or the increase is only 0.1% of GDP compared to the previous year. The development of higher education is closely related to the development of science. It is envisaged that the financing of the reforms in science and innovation will rely on the national budget, the structural funds of the EU, the Seventh Framework Programme. Some new initiatives and strategies of the EU should also be foreseen, such as the initiative for Joint Programming in the field of scientific research (Joint Programming in Research), the strategy Towards new frontiers in ICT - a strategy for research activity in the field of future and emerging technologies in Europe (Moving the ICT Frontiers – a Strategy for Research on Future and Emerging Technologies in Europe), the full implementation of which will start from 2010. Participation in them requires co-financing, which could be provided by the National Fund for Scientific Research, if any be foreseen in the 2010 Budget. Otherwise, Bulgaria will not be able to take advantage of the opportunity to participate in European research teams in scientific fields that are a priority for both our country and the EU.
KRIB welcomes the measures laid down in the 2010 Budget to increase the quality of public finances and the effectiveness of program budgeting by strengthening monitoring and introducing objective assessments of the activities of the departments. We support the proposed optimization of the structure of a large part of the public administration and the increase in the productivity and quality of the provided public services. We welcome the planned further reduction of ineffective spending in budget structures at the end of 2010, as well as the expected reduction in the number of ministerial seats from the beginning of next year. We believe that these measures, together with the intention to create an electronic government, will contribute to improving the environment in which business operates and will contribute to increasing the efficiency of the Bulgarian economy.
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