- Bulgarian government is drafting a new VAT law to enter into force on 01.01.2007- Bulgaria’s EU accession date. German and Hungarian governments are pushing through legislation to increase their VAT rates. Other EU countries are watching with interest because “Bona Exempla Sequenda Sunt”. Is anyone losing his sense of gravity?
- Value Added Tax is a tax on any transaction regardless of its efficiency. VAT is a levy on the effort, not on the outcome. One pays 20% VAT on a transaction where he loses money or where he makes money. VAT is not success related. The fiscus gets its money either way and therefore it is largely irrelevant for the state whether VAT payers succeed in their business or not. Charging the effort makes the state really neutral to the result. That is how more than 30% of Bulgarian budget is VAT generated. In this way the state grows indifferent to the profit earned and therefore it can afford a profit tax reduction as a political make up. But when you ask for a VAT reduction the beast’s teeth are quickly shown.
- The broken link between effort and success in VAT is the cancer cell of modern taxation. It makes the state uninterested in the success of the business effort and in the measures to help it. That is why bureaucracy, corruption, selective justice and enforcement incapacity are here to stay. But even graver is the gravity-free feeling of some governments that VAT can be increased to finance deficits created by the lack of economic success which this same VAT has killed. In this case VAT turns into a financial cocaine giving governments temporary relief and pink dreams to be followed by a more severe crisis. VAT addicts should simply be treated. Here size does matter and any VAT rate up to 10% is a bitter but digestible pill while over 10% it becomes a drug’s abuse. With full respect to tax authorities.
- We have been always amazed by the VAT legal concept for “tax credit”. When the state claims it is giving me a VAT credit it should mean that it is giving me state money. But when does that money becomes state owned in order to be credited to me- before it has been taken from me or thereafter? The ruling concept says that it has become state owned from the moment I owe it to the state but before I have paid it. Only under this structure it could be assumed credited back to me. A magic tax collection. But this is a legal terminology charade because title on money as a generic object passes through effective payment/transfer and not through consensus or through a mere obligation. But some still think they VAT-credit us with something they have not received and is not theirs yet.
- Why is it called in Bulgaria the Law for Tax ON the Added Value? Why ON? The tax itself constitutes the added value- 20% on the whole price. If tax was due only on an “added value” then it would be 20% from that added portion and not from the whole price. May be the prefix ON is an echo from earlier and happier stages of mankind when jumping on somebody or climbing on something was a feature of progress.
- Tax evasion may be the little man’s private war of the future. One can hardly take his gun on the street to fight the establishment but he can save some taxes due. One unpaid tax Euro will hurt the rulers more than one fired bullet. That is why reasonable taxes appealing to the individual common sense and fairness will define the states which will survive.
- Bulgarian peasants have centuries ago come to the conclusion that one canNOT convince the cow by asking:
“Give me the milk today and I will give you the grass tomorrow”
May 2006
Valentin Braykov
Braykov’s Legal Office