A silent battle has been raging in Bulgaria between businesses and the National Revenue Agency (NRA) for several months now.
Last year, tax inspections found that 30-70% of turnover was going unreported, which leads to an annual loss of budget revenue of 500 million levs. In the hope of tackling the grey economy, the NRA implemented a number of new regulations, which require companies to update or completely replace every cash register, electronic fiscal device and sales management system they use by March 31.
Good intentions aside, the new rules quickly turned into a burden for every company receiving cash or card payments in Bulgaria. Less than two months before the end of March it emerged that most businesses are not equipped to fulfil the task and will not be able to meet the deadline. The biggest barrier is the regulation regarding the sales management software which every company uses. The new rules were written specifically for sectors where tax fraud is often found and as a result, they do not take into account the specifics of companies operating in other sectors. Moreover, some requirements are ambiguous and cannot be implemented universally by businesses.
Following the business community's outcry, Finance Minister Vladislav Goranov said that the deadline for the sales management software would be extended until September 30. In addition, the Bulgarian Industrial Association (BIA) requested a meeting with Prime Minister Boyko Borissov, after which a decision was made to rewrite part of the problematic regulations.
What's a sales management software?
Currently, companies in Bulgaria use software such as DOS or ERP systems to keep track of goods and services, and manually record transactions using a cash register attached to a printer for receipts. According to the new regulations, the receipts will have to be generated by the software, which will then send information to the fiscal device. Every piece of software will have to be NRA-approved, and every point of sale will have to operate only one set of software. The idea is to stop double accounting practices, which are common in pubs, bars and small retail outlets.
Software manufacturers are understandably upset because one of the related requirements is for the NRA to have access to their source code - an object of intellectual property. "I cannot imagine how SAP, for example, would give their source code to the NRA, given that it's a product worth billions," said an IT consultant. Another problematic part concerns the requirement to allow the NRA access to the sales system, and the possibility to export data at will, including personal customer data, which raises the question of trade secrets' protection. Currently, such access can only be granted through formal administrative procedures.
Mistakes worth millions
Problems arise when the new regulations are put into practice. "The rules are written in such a way that programmers do not know how to write the software," said a representative of the retail sector who wanted to remain anonymous. According to him, in order to comply with regulations, large retail chains must invest hundreds of thousands of levs. Combined with the time constraint and the risk of system failure, losses can amount to millions.
Another case study can be found in tourism, where tour operators work on behalf of the customer and so have no right to issue invoices. Instead, they use a special type of software for sales management manufactured by international companies. "In general, these products meet the basic requirements of the new rules. But for a part of them manufacturers say they won't cover the costs because the necessary investment is too big for a small market such as ours," said Maya Filipova of the Bulgarian Tour Operators' Association.
According to data from the Bulgarian Association of Information Technologies (BAIT), out of a total of 12,000 fiscal devices and sales management systems used by the clients of BAIT member companies, only 0.12% comply with the new rules. The percentage represents a single customer. A poll conducted by BIA among 2,500 companies found that two thirds will not manage to comply within the deadline.
Some companies are concerned that if the new requirements are not amended to become industry-specific, part of the foreign software currently available in Bulgaria will leave the market. Moreover, many firms are considering ceasing the use of sales management software in general and going back to cash registers, which will erase years of progress in the business community.
"This regulation is overregulation that imposes a technologically and morally outdated framework. It requires specific processes that are not tailored to the needs of today's business environment and modern ERP systems," said Ivan Arjentinski of BAIT.
Although the tax authorities' idea to bring the gray economy into the open is noble, the implementation of the new rules seems to be coming straight out of a horror movie for hundreds of thousands of companies. A happy ending will require a lot more thinking, revisions and time.