Bulgaria’s parliamentary economic commission approved at first reading a bill, which provides for the introduction of 2% tax on insurance premiums.

Thirteen MPs voted for and another six against the new tax, which will come into effect on September 1 and is expected to hike insurance policies prices by at least 2%.

Amids a economic crisis, which leads to the reduction of budget revenues, there is a need to find ways to increase them, says the government, movers of the bill.

The amendment was not supported by the chair of the economic commission Martin Dimitrov, who said that the poor collection of revenues should not be a reason for the introduction of a new tax.

“The new tax gives no guarantees that more revenues will flow into the budget,” said leftist member of parliament and former economy minister Petar Dimitrov. “This will be a burden carried by the people, not by the business and I see no arguments for this step.”

The newly proposed 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 relocated 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.