Bulgaria's FinMin: Flat Tax Here to Stay for 10-15 Ys

Business » FINANCE | November 30, 2012, Friday // 11:33| Views: | Comments: 0
Bulgaria: Bulgaria's FinMin: Flat Tax Here to Stay for 10-15 Ys As of 1 January 2008, Bulgaria introduced a 10% flat tax applicable for all income levels, i.e., there is no non-taxable income threshold. Photo by Sofia Photo Agency

Bulgaria's finance minister has stepped back on plans for scrapping the 10% flat tax, saying it has to stay at least for the next ten-fifteen years.

"Bulgaria needs the low flat tax for another ten or fifteen years in order to catch up with other member states," Simeon Djankov said in an interview for the German newspaper Die Zeit.

He stressed once again that the country is ready to stand up for its competitive advantages in the EU and remain firm in its opposition against common EU tax rates.

As of 1 January 2008, Bulgaria introduced a 10% flat tax applicable for all income levels, i.e., there is no non-taxable income threshold. It replaced the previous system, which combined several different tax rates - between 20 and 24%, depending on income.

The Socialist Party, now in opposition, has recently called for the return of a progressive income tax so that the upper-income households as well as the rich are taxed much more than the poor.

Bulgaria's 10% flat rate makes it the country with the lowest personal tax rate among European Union member states. Bulgaria also has the lowest social security rates, which coupled with a 10% flat rate, makes it very attractive for physical entities, employers and potential investors.

Over the last decade and a half, a number of countries introduced flat-rate taxation and Bulgaria jumped on the bandwagon in 2008.

The policy has a number of attractive features - equality, lower tax burden, the general trend to raise budget revenue as more companies leave the "shadow economy", just to name a few.

What made the debate in Bulgaria different is the fact that the proponents of the measure were the Socialists as it is usually the center-right parties that are aggressively pushing tax reforms.

Part of the reason why the flat tax has been an efficient tool in diminishing the "grey economy" in other countries is the willingness of governments to couple it with draconic measures to crack down on tax evasion.

Bulgaria, on the other hand, has notoriously been sluggish with its fight against corruption and organized crime.

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