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UPEE proposal for some changes in the VAT regime

The Union for Private Economic Enterprise submitted to the Minister of Finance proposals for some changes in the state tax policy regarding the value added tax regime, as follows:

1. To regulate the legal possibility for deduction of VAT on the purchase of off-road vehicles, electric cars and hybrids and the subsequent overhead costs for their maintenance and fuel in the following two hypotheses :

– in regard to electric vehicles and hybrids with the possibility of direct charging from the electricity grid (Plug in hybrids) – for all tax subjects with mobility in their activity. Currently, investing in electric mobility is unprofitable and without significant support or subsidies from the state or local government. The benefits can be a fact both for users in terms of fuel economy and for citizens and for nature with less noise and zero or close to zero harmful emissions. In other countries, subsidies of up to EUR 8 – 10,000 are provided directly, and in our opinion in Bulgaria a VAT deduction will be a real motivation for electrification of the car fleet of the tax subjects with mobility in their activity;

– in the case of off-road vehicles, for taxable persons operating off-road. In a number of sectors (providing geodetic services, agricultural producer, builder, etc.) it is necessary for the trade subjects to reach hard-to-reach places in connection with their activity. Many of these dealers would prefer to invest in more compact off-road vehicles instead of seeking registration with 6 + 1 seats and other forms of truck under the law.

  • At present, a quarter of total EU greenhouse gas emissions are generated by transport emissions. In December 2020, the European Commission presented its Sustainable and Intelligent Mobility Strategy, together with an action plan of 82 initiatives that will guide the Union’s work over the next four years. Within these priorities, the Strategy envisages that at least 30 million zero-emission cars will be in service on European roads by 2030, and that by 2050 almost all cars, vans, buses and new heavy-duty vehicles will be in service. zero emissions.

According to the EC, in order to make transport sustainable, this means in practice encouraging the entry of zero-emission vehicles, vessels and aircraft, renewable and low-carbon fuels and related infrastructure – for example by installing 3 million public charging stations up to 2030.

The introduction of financial measures plays an important role in order to encourage consumers to make their choice in favor of greener cars.

Currently in Bulgaria a very limited range of regulatory incentives is applied to users of electric cars:

  • According to Art. 58, para. 2 of the Local Taxes and Fees Act, electric cars, motorcycles and mopeds, as well as electric vehicles of categories L5e, L6e and L7e, defined in Art. 4 of Regulation (EU) № 168/2013.
  • According to Annex № 2 to Art. 3, para. 1, item 2 of the Ordinance for determining the procedure and amount for payment of product fee for all-electric vehicles (categories M1 and N1) product fee (the so-called “eco fee”) will be paid from 01.01.2022.
  • Free parking in the paid parking zones in the large municipalities (blue and green zones) – for example, electric cars park for free in the separate zones for hourly paid parking on the territory of Sofia Municipality only with a duly issued sticker according to Art. 107 of NODTSO.

Experts consider direct incentives such as tax credits on the purchase and use of ENPs, direct subsidies on the purchase of new ENPs and progressive taxation to encourage the use of ENPs to be the most effective in promoting the use of environmentally friendly cars.

Sales of electric cars and hybrid electric vehicles in Europe will increase significantly in 2020, although overall car sales in the region are declining significantly.

The number of electric vehicles sold in Bulgaria is also growing. This segment reported an increase in 2020 from 63% to 1933 electric vehicles. At the same time, the interest in hybrid vehicles is growing – for the same period there is an increase of over 41% to 11,868 vehicles.

At the moment for using a tax credit for 4×4 cars according to the regulations in the general case they have to be with 6 + 1 seats or N1, ie. as light trucks.

  • In carrying out the main subject of activity of many companies, which are an essential factor in the country’s economy, it is necessary to use off-road or off-road vehicles. As the amount of VAT is an essential part of pricing, as well as a consequence in maintenance, investments in legal entities require a choice, which is a more expensive total amount of investment, as well as more expensive maintenance, but the use of the tax credit creates a relative advantage of – 20%. In practice, the regulations create conditions in which investments are made in larger cars, more expensive maintenance, more resource-intensive, more polluting and using more space on the road and in parking. In addition, mountain features probably create additional conditions for a more aggressive road environment.

In practice, the needs of the business require a lower level of equipment, for example less than 6 + 1 seats or no larger cargo compartment is required not to be N1. However, the rational economic strategy of the active business makes an irrational choice due to the regulatory framework or other complicated circumstances related to it.

Sectors where it is necessary to operate outside the developed road infrastructure should be able to use the mobility tax credit according to the needs and not according to the distorted need.

Examples of activities where this is applicable and will have direct significant savings in investments in the car fleet are: construction, agriculture, geodetic measurements and many others. The technological process is becoming more and more fast and in many activities tools and technical means are applied, some of which are too compact, which require to be transported not in a cargo open compartment, but in the relatively protected environment of a compartment or trunk.

In the areas of work described above, modern tasks require an ever-increasing degree of mobility, modularity and a wide range of tools. Developing new horizons is the goal of any business with growth ambitions.

In order to stimulate the development and growth of the business, an important condition is an adequate regulatory framework. Regulations should favor savings, reduce inappropriate costs and create an environment for investment transparency. In providing a comfortable environment, the business should be more productive, respectively with higher profitability, respectively with higher solvency, respectively higher collection of the newly determined lower levels of taxes and fees, but with a wider distribution. and positive popularity.

2. The cremation service should be exempt from VAT or a differentiated rate of 9% should be applied to it.

According to the provision of art. 98 and Art. 99 of Council Directive 2006/112 / EC on the common system of value added tax, Member States may apply one or two reduced rates to the supply of goods and services in the groups listed in Annex III to that Directive. Number 16 in Annex III to Directive 2006/112 / EC lists in particular the supply of services by funeral services and crematoria, as well as the supply of related goods.

The supply of services from funeral services and crematoria, and the supply of related goods are also specified in Part B, para. 4 of Annex X to Directive 2006/112 / EC in the List of transactions that Member States may continue to exempt from VAT. Therefore, in a number of European countries, cremation services are exempt from VAT supplies. This is seen as a measure to stimulate environmental decisions in funeral activities with a proven positive impact and strong social significance for society.

In Bulgaria, the supply of cremation services is neither exempt from VAT nor is a differentiated rate applied to it. The exemption of this supply from VAT in Bulgaria or the application to it of a differentiated rate will have an additional cumulative effect not only in relation to the environment, but also in terms of optimization of municipal land, social and economic environment.

3. Increase the threshold for compulsory VAT registration in line with changes in the general EU value added tax system under Directive 2006/112 / EC .

Currently, the mandatory VAT registration is carried out when the turnover reaches BGN 50,000 per year, which is a very low threshold (on average about BGN 4,000 per month) and creates a serious administrative burden for businesses, especially for micro and small enterprises. VAT registration requires an increase in the requirements for the accounting services of these companies – submission of monthly statements and diaries, which leads to increased costs for them.

According to Art. 96, para. 1 of the Value Added Tax Act, any taxable person established on the territory of the country with a taxable turnover of BGN 50,000 or more for a period not longer than the last 12 consecutive months before the current month is obliged within 7 days term from the expiration of the tax period, during which this turnover has reached, to submit an application for registration under this law. This threshold for mandatory registration has not changed since the adoption of the law in 2006, but in the meantime the general economic situation in the country has changed significantly.

Increasing the thresholds for mandatory VAT registration will help to shed light on the business of many micro and small enterprises, which are currently below the established threshold, in order to reduce the administrative burden of accounting services for their enterprises. create a more favorable tax environment to help micro and small enterprises grow and trade more efficiently across borders.