A new law, which provides for the introduction of a 2% tax on insurance premiums and was moved by the government last year in a bid to boost revenues to the budget, enters into force on January 1.

The move is expected to hike insurance policies prices by at least 2%.

The tax on insurance policies will not alter the existing legal arrangements with respect to the taxing of the profit of the insurers.

The 2% will be paid on collected premiums, while life insurance policies and cargo insurance policies are exempt from it, when the starting and final point are outside Bulgaria. In the case of deferred payments, the tax will be paid only on sums that have already been collected. The companies will not owe a tax on premiums that they have reinsured.

The insurance companies operating in Bulgaria declared themselves against the premium tax as soon as the idea was first floated by the finance ministry. Their formal position was that it contradicts with EU regulations.

It has later turned out that the new tax does not violate EU law but the insurers have warned that the state revenues from it will be smaller than expected because they would reinsure their premiums; some have even threatened to relocate their head offices to other EU member states.

According to the provisions of the law, however, the registration in another EU country will not help avoid paying the tax.

Members of the right and left-wing opposition have slammed the proposal, saying that the poor collection of revenues should not be a reason for the introduction of a new tax, which does not guarantee the flow of more revenues into the budget and will burden the clients, not the business.