On 21 April 2022, a bill to amend and supplement the Value Added Tax Act (“VAT Act”) was introduced in Parliament. This news item aims to draw attention to the highlights of the Bill.
One of the main objectives of the Bill, as evidenced by the accompanying explanatory memorandum, is to update the VAT Act so that it is in line with current reality. The most recent amendments to the minimum threshold date back to 2002 and entered into force in 2003, under substantially different socio-economic relations, purchasing power and inflation rates. Other reasons for the need to adopt the proposed amendment include the COVID-19 pandemic, which has led to a change in turnover and expenditure. All this, the proponents of the bill believe, necessitates the need to change the minimum annual taxable turnover threshold for compulsory registration under the VAT Act.
An important clarification is the proposal to increase the minimum threshold in stages, twice – once from 01.01.2023 and then again, one year later from 01.01.2024.
First stage
The proposal, which would come into force on 01.01.2023, is to increase the minimum threshold from the current value of BGN 50 000 to BGN 100 000. The twofold increase represents a drastic change, but the drafters of the bill deem this necessary in view of the above-mentioned changes that have taken place over the last almost 20 years. Of course, the Bill must walk the entire path of the legislative process, going through debates and votes within which it can be amended.
Second stage
The second stage, which would come into force a year later, on 01.01.2024, proposes an increase in the minimum threshold to BGN 166 000. The second stage also exhausts the proposed change to the minimum threshold, which is considered to bring the threshold up to date with economic reality.
The second main need for the amendment of the VAT Act, outlined by the drafters, is the excessive administrative and regulatory burden that the current VAT Act imposes on the most vulnerable entities – micro and small enterprises. As VAT registration and monthly reporting represent a kind of self-taxation by the entities concerned, this procedure very often implies hiring external help for accounting and consultancy services. It is this that constitutes an additional burden and an additional cost for micro and small enterprises and limits their possibilities in view of their nature and their need to grow and develop.
The above changes encompass not only the minimum VAT registration threshold for turnover but also the minimum threshold for customs value for imports.
The Bill also provides an answer to the question of what happens to the status quo of persons and entities currently registered under the VAT Act that would fall below the prescribed threshold after the changes. They would have a choice – to keep their VAT registration (which will be the baseline) or to apply for deregistration within one month of the entry into force of the relevant increased minimum threshold.
The Bulgarian Industrial Association and the Bulgarian Small and Medium Enterprises Promotion Agency have expressed their support for the bill. The position of the Bulgarian Industrial Capital Association in Bulgaria is more conservative regarding subsequent increases of the threshold after its increase to BGN 100 000. The Association proposes an alternative solution by easing the administrative procedure under the VAT Act and stresses the need for a plan to compensate for the losses in the state budget as a result of the changes.