16 November 2023
Ombudsman Diana Kovacheva sent an opinion to the MPs of six parliamentary committees – those on budget and finance, on regional policy, regional development and local self-government, on economic policy and innovation, on agriculture, food and forests, on transport and communications, on electronic governance and information technology – in which she strongly opposes the Finance Ministry's proposal for amendments to the Local Taxes and Charges Act, providing for an increase in the tax assessments of properties.
The draft act proposes the tax assessments of properties to be updated with the price index determined by the National Statistical Institute every two years.
Prof. Kovacheva believes that if this controversial provision is adopted, it will result not only in increases of the real estate tax and the municipal waste tax, but will also lead to a higher inheritance tax, a higher property acquisition tax, when determining the stamp duty and notary fees in proceedings under the Civil Procedure Code.
The Ombudsman has already requested that this proposal for amendment to the Local Taxes and Charges Act be withdrawn due to the lack of grounds and ex-ante impact assessment, as required by the Normative Acts Act, on the grounds that fundamental principles in the drafting of a regulatory act are breached.
The opinion is published on the website of the National Assembly: https://www.parliament.bg/bg/parliamentarycommittees/3200/standpoint/17188
In her opinion, Diana Kovacheva urges that an analysis of the social impact be made, especially on vulnerable groups. She points out that there is a risk for elderly people from small settlements or from large cities who live in old dwellings and who usually have low income. The Ombudsman is adamant that the tax increase will put an additional burden on them, because their income is not enough to cover even their daily needs and it is very difficult for them to allocate funds for medical treatment and unforeseen expenses.
“The increase in the minimum wage and the update of pensions will be insufficient to offset the increased tax on buildings, whereby this obligation will become another source of poverty for the most vulnerable groups of the population”, the Ombudsman notes.
Prof. Kovacheva draws attention to the fact that the draft document also lacks an analysis of the possible economic implications from the introduction of this measure for the economy as a whole and for the ability to pay the increased tax burden and the related increase in the solid waste tax by vulnerable groups. She adds that, in this regard, the risk of accumulating such liabilities has not been considered and it may trigger a wave of public property sales and put this category of individuals at risk of becoming homeless.
The Ombudsman warns that the proposed draft act also diverges from the European regulations on the harmonised indices of consumer prices and the house price index, and on the establishment of methodological and technical specifications relating to the house price index and the owner-occupied house price index.
Prof. Kovacheva draws attention to another fact, i.e. that the new bases for the solid household waste charge will actually come into force from 1 January 2025, as they are based on the results of the population census, which were published in October 2022, and for the housing fund the effective date is May 2023.
This is due to the fact that currently the tax assessment continues to serve as a basis for determining the household waste charge – Article 67, paragraph 5 of the Local Taxes and Charges Act, and for the final introduction of the “polluter pays” principle the deadline set is 1 January of the second year following the publication of the 2021 results of the census of the population and the housing stock in Bulgaria.
Diana Kovacheva is categorical that the adoption of this provision is also in conflict with the principle the municipal councils are required to comply with in determining the household waste charge (Article 8, paragraph 1 of the Local Taxes and Charges Act), i.e. achieving more fairness in determining and payment of local charges. She also indicates that there is no analysis of the impact on the collection of local taxes and charges, and that no assessment has been made of the administrative burden stemming from the periodic recalculation of the value of each property in each of the 265 municipalities in the country.
Furthermore, the Ombudsman emphasizes that there is still a legal possibility for municipal councils to change the amount of taxes and, if necessary, to increase the rates of taxes payable within the range, if they consider that there is a change in the socio-economic conditions in the area concerned, as set out in Article 22 of the Local Taxes and Charges Act.
The Ombudsman also refers to the case law of the Constitutional Court, according to which a mechanism whereby an element of the legal structure giving rise to the tax liability is not determined by an act of the National Assembly is unconstitutional.
Last but not least, Diana Kovacheva emphasizes that the presented arguments also apply to the proposals under item 2 of § 15 of the draft act on the “Tax assessment of agricultural land” linking the basic taxable amount to a coefficient equal to the change reported by the National Statistical Institute of the average prices of agricultural land transactions in the country.
She also proposes that not only class "A" buildings, as provided for in the bill, but also class "B" and "C" buildings, which meet the minimum requirement for energy efficiency under Ordinance No. РД-02-20-3 of 9 November 2022 on the technical requirements for the energy performance of buildings, should be eligible for tax relief.
“Thus property owners of these buildings will be incentivised to improve their energy efficiency and these buildings will be distinguished from buildings that do not meet the minimum energy efficiency requirement”, the Ombudsman concludes.