MR VLADISLAV GORANOV
MINISTER OF FINANCE
COPY:
MRS MENDA STOYANOVA
CHAIRMAN OF
THE COMMITTEE ON BUDGET AND FINANCE
MRS LUDMILA PETKOVA
DIRECTOR OF TAX POLICY DIRECTORATE
IN THE MINISTRY OF FINANCE
REGARDING: Draft law amending and supplementing the Law on Excise and Tax Warehouses (ZID on ZADS), published for public discussion on 12.07.2019.
DEAR MR GORANOV,
On behalf of the Confederation of Employers and Industrialists in Bulgaria (KRIB), we express the following opinion in connection with the ZADS zoning notice published for public discussion:
KRIB, as the inspirer of the national campaign "Business in the light for a better future!" basically supports every initiative of the government to shed light on the gray economy and to improve the quality of the control of administrative bodies in this direction. We believe that any such initiative is equated with the imposition of clear rules and equality for all economic operators, regardless of their size, taking into account the particular specifics of each individual type of economic activity.
We believe that the same treatment of different economic activities or the different treatment of similar ones only leads to inequality, discrimination and ensuring an unfair competitive advantage of some business entities over others.
In this regard, from KRIB, we have always called on the fight against the gray economy and in general any legislative or administrative measure related to economic activity to be carried out within the established framework of EU law and in a way that does not put Bulgarian business in a less competitive position compared to European competition.
Nevertheless, we believe that the proposed ZID of ZADS, in the form in which it is published for public discussion, will make business turnover more difficult than becoming a working tool for achieving the goals stated in the reasons for it.
The proposed legislative changes concern the activities of an extremely wide range of branches and industries important to the Bulgarian economy:
- Production, storage and trade of fuels;
- Production, storage and trade of wine, high-alcohol beverages and distillates of agricultural origin;
- The brewing industry;
- The tobacco industry and in particular: the production and trade of tobacco products;
In the part regarding excise-exempt end users (OACP): a wide range of industries: energy companies, incl. companies for combined production of thermal and electrical energy, pharmacy, cosmetics, auto cosmetics, production of paints and varnishes; household and industrial chemistry, etc.
First of all, the proposed draft law makes the impression that the measures proposed by it treat the different excise goods in the same way, without taking into account the unique specifics related to the production, storage and trade of each of them. There is no real assessment of the extent to which the proposed instruments would produce the corresponding beneficial effect for the needs of excise control in view of the relevant excise branch, the current and potential risks for the fiscal that it generates.
We believe that the proposed approach is inexpedient, and in certain aspects also in contradiction with existing legal provisions, and the examples in this direction (non-exhaustive) are the following:
Regarding par. 1 of the draft law supplementing Art. 24a, para. 3 with m.p. 8-11.
The application of the foreseen changes to introduce an automated reporting system with means for measuring and controlling excise goods in excise-exempt end users for plants with combined production of heat and electricity not only contradicts the current regulatory framework and the logic of fiscal control, but and is not related to the achievement of the objectives specified in the Motives for the ZADS zoning agreement.
Under the current regulations (Art. 28, para. 2 of the ZADS), the tax base for using energy products for the combined production of heat and electricity is comprehensively and specifically fixed at 30 percent of the total amount of energy products used for the combined production of heat and electricity. That is why the proposed normative texts for the heating sector, not only are not applicable for determining additional revenue from excise duty, but also do not lead to "real-time control of the quantities of energy products" simply due to the fact that there is a fixed tax base in the amount of 30 percent of the incoming quantities of natural gas (code 27112100 "natural gas in gaseous state)".
The proposed changes do not comply with the regulations laid down in the Energy Law, where it is clearly stated that the means for commercial measurement of the entrance to the power plants are the property of the licensed operator of the National Gas Transmission Network with the main purpose - transmission of natural gas on the territory of Bulgaria ( "Bulgartransgaz" EAD), and not to the taxable persons holding a Certificate of OAC, whose responsibility it is to provide access to these funds.
The social effect of the mentioned changes related to the additional costs for establishing an online connection of the cogeneration companies has not been accounted for, if, possibly, the changes regarding the implementation of control are accepted. This effect will ultimately be borne by the final consumers of heat and electricity through the prices for citizens.
In the part of heating companies with combined production of heat and electricity, the most logical proposal is their exclusion from the scope of the proposed current changes and additional analysis, both for the need and for the way of implementing measures to implement control by the Customs authorities.
Also, the proposed change introduces an automated reporting system with means for measuring and controlling excise goods in excise-exempt end-users (OACP).
This proposal treats in the same way two separate categories of OACP: those that use one type of excise goods for the needs of their activity (fuels) and those that use essentially non-excise goods for the needs of their activity (denatured ethyl alcohol). In this regard, we believe that the introduction of a similar system in relation to OACs using denatured ethyl alcohol is not justified, insofar as the denatured ethyl alcohol product is exempt from excise duty (it does not represent a product fit for human consumption due to a denaturation process in accordance with Art. 4, item 12 of the ZADS). In other words, the proposed changes unreasonably introduce the application of a system for automated reporting of excise goods for persons who use goods that are not subject to excise duty.
Moreover, in the application of European and national legislation (regardless of whether the denatured ethyl alcohol used by OACP is of origin - the territory of the country or the territory of another member state), the process of denaturing the ethyl alcohol is carried out before the entry of this product in the OAKP. According to the current provisions of the ZADS, before entering the OACP, the alcohol is denatured in a licensed tax warehouse (Article 97, paragraph 1 of the ZADS), in the presence and under the control of a customs officer (Article 97, paragraph 2 of the ZADS), according to a method and under conditions that are strictly regulated in European legislation and/or in national regulations.
We believe that the proposed requirement to introduce an automated system for the reporting of individuals represents an unjustified and disproportionate measure, both in view of the interests of the tax authorities and in view of the administrative, financial and technical difficulties it will cause to economic operators.
This proposal also does not meet any European standards regarding the proportionality of national provisions in the field of tax and excise control, since the costs that economic operators will have to make for the implementation of these rules would exceed many times the additional revenues that the state would collect from the application of such a measure.
Regarding the proposal to introduce video surveillance and control systems in the licensed tax warehouses for the production and storage of tobacco products (paragraphs 2 and 3 of the ZID of the ZADS)
The proposed introduction of a video surveillance and control system in the premises of licensed warehouse keepers of this category is an unjustified and disproportionate measure that does not take into account the fact that as of May 19, 2019 (less than three months ago), all enterprises in the sector production, storage and trade of tobacco products are obliged to apply the so-called "Track and Trace" tracking system according to the requirements of Directive 2014/40/EU and its transposing provisions of the Law on Tobacco, Tobacco and Related Products. For this purpose, in the last year, each of the economic operators in the territory of the country, operating in this sector, was forced (due to regulatory requirements) to invest hundreds, and some even millions of BGN in adapting their productions and activities to these European requirements. The purpose of the "Track and Trace" system for tobacco products is precisely for the purposes of control, to generate and transmit information in real time about each produced and stored consumer packaging, information about all operators in the supply chain of this product, transport and any other information necessary to track it.
The introduction of an additional control system through video surveillance in this case, without evaluating the effect of the implementation of the "Track and Trace" system, is unjustified.
Given that the sites of these operators also have automated reporting systems in the sense of ZADS, which each operator also built at its own expense, the introduction of video surveillance and control systems is not only disproportionate and unjustified, but also nothing will contribute to improving control, provided that the information that will allow to be generated with these video systems is already received remotely and in real time through digital data from the Customs Agency.
General notes regarding the proposed introduction of video surveillance and control systems in excise warehouses.
Apart from the above-mentioned considerations, we consider that, in general, the introduction of video surveillance and control systems proposed by the ZID of ZADS poses a number of problems of a legal nature and conflicts with other branches of law, namely:
The Constitution of the Republic of Bulgaria (Art. 32, Para. 2 and Art. 17, Para. 3)
The Law on Limitation of Administrative Regulation and Administrative Control over Economic Activity;
The Personal Data Act and the GDPR.
In the reasons and the partial preliminary assessment of the impact of the draft law, a number of statements are presented that do not correspond to the objective reality. There is also a lack of real justification or at least estimated data regarding the resource (financial, technical and human) that will have to be allocated by the affected economic operators, on the one hand, and law enforcement authorities (Customs Agency), on the other, for the needs of the introduction, functioning , the maintenance and efficient operation of the offered video surveillance systems for the needs of excise control.
A serious challenge that is not addressed in the bill and its accompanying documents is related to the storage, access and exploitation of the sensitive data that will be generated by video surveillance and control systems.
The proposed texts lack sufficient precision and clarity regarding the technical characteristics of such proposed systems, delegating powers to an executive and administrative body (not the legislature) to define the same at its own discretion at a later stage, which is also a certificate for lack of a sufficient level of transparency and predictability in the introduction of such heavy regulatory regimes, to the detriment of economic operators.
In conclusion, we express our readiness, and accordingly appeal to you, for the issues raised above to be discussed at an expert level within a necessary debate between the institutions in the system of the Ministry of Finance, of which you are the principal, and the representative employer and branch organizations , whose members are affected by the proposed legislative changes.
With respect,
Eugene Ivanov
Ex. Director and member of the Management Board
http://www.turbulence.tech