Bulgarian MPs from the ruling Socialist party rebelled against the cabinet's flat tax amendments during parliamentary debates on Thursday, while opposition lawmakers gave the proposal their cautious backing.

The leaders of Bulgaria's three parties in the ruling coalition agreed in summer to switch to a flat 10% starting from 2008, compared to the current progressive taxation system with three income brackets and a minimum tax exempt amount of BGN 200.

The amendments proposed by the cabinet cleared the legislature's budget committee earlier this month, but ran into strong resistance when it hit the parliamentary floor on the first reading.

"The flax tax is harmful, because it will absolve the oligarchs of any responsibility, laying the burden on those with average incomes. This tax system will further deepen the social inequity in Bulgaria," Socialist MP Georgi Bliznashki said during the debate.

He was backed by Social-Democrat leader Nikolay Kamov, who criticised the party's traditional ally, the Socialists, for pursuing tax reforms without having asked for a popular mandate for them at the last parliamentary polls.

Opposition MPs from hardliner rightist Democrats for Strong Bulgaria (DSB), backed the proposal, however, but only on condition that the minimum tax exempt amount is kept and raised to BGN 220.

"This is the only way to make oligarchs and rich Bulgarians to pay their taxes. In a country where the shadow economy is estimated at 30-40%, it's the only solution," DSB leader and former PM Ivan Kostov said.

He also went on to suggest that a higher tax rate, in the region of 16-17% would be more appropriate.

But the cabinet remains firm in its decision to abolish the minimum, as well as other tax breaks.

"Keeping the tax-exempt minimum would defeat the purpose of introducing the flat tax rate," finance minister Plamen Oresharski told MPs during the debates.

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