Deyan Nikolov from “Vazrazhdane”: The lower threshold of cash payments will be difficult and limit economic turnover

The Chairman of the “Vazrazhdane” group in the Capital Municipal Council and current economic adviser to the “Vazrazhdane” parliamentary group – Deyan Nikolov, commented at a meeting with Bulgarian entrepreneurs on the decision of the Minister of Finance to propose a lower threshold for cash payments.

The proposal is part of a large package of changes in tax laws that have been submitted for consideration in the National Assembly. The legal change refers to Art. 3 of the Law on Limitation of Cash Payments and is for lowering the threshold for cash payments from the current BGN 10,000 to BGN 5,000.

“Vazrazhdane” categorically opposes this change, because it will be difficult and limit business turnover.

The goal stated in the Finance Minister’s proposal to increase payment transparency and curb the shadow economy sector is a well-known government-imposed “mantra” that is rather wishful thinking. Cash payment does not necessarily mean payment without issuing a primary accounting document, including a fiscal receipt, as in many cases the payer is highly motivated to require such a document. Quite logically, this incentive is expected to grow as the amount increases.

We are skeptical that the change implemented in this way will serve the intended purpose, because it could encourage traders to fragment financial transactions through several contracts. Undoubtedly, however, the proposal will lead to a new administrative burden for entrepreneurs, who will need to install POS terminals in their premises and pay more fees to banks.

“The proposal submitted for discussion is not accompanied by an analytical model with a numerical analysis-calculation of the proposed change, and accordingly it does not provide an answer to many essential questions:

– Why is the new threshold exactly BGN 5,000, and not, for example, BGN 4,000, or BGN 6,000 or BGN 7,500?

– What were the numerical effects of “brightening” the economy from similar measures in Bulgaria in the past – when the payment threshold was introduced in 2011 (when the threshold was set at BGN 15,000) and when the threshold was changed afterwards (the current threshold of BGN 10,000 applies from 2016)?

– What is the expected net fiscal effect of the proposed change (one-time and/or for some period) by the Ministry of Finance?

– What specific (or in some numerical range) “brightening” of the economy is expected as an effect of the proposed change?

The so-called published by the Ministry of Finance “Partial preliminary impact assessment” for the proposed tax changes is a typical bureaucratic document that does not meet the above-mentioned problems, said Deyan Nikolov, presenting the position of “Vazrazhdane” on the subject.