Five years after introducing the flat tax in Bulgaria, the country's Socialist party has made a U-turn with calls for scrapping it.

"The flat tax, which my government introduced, yielded good results, but at the moment it is not adequate. Bulgaria is witnessing an abominable social stratification and abominable injustices," Socialist party spokesman Angel Naydenov told Darik radio.

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.

Now the Socialist Party is calling 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.

The Socialists are putting forward a simple, three-tier scale.

"Zero tax for the poor, 10% for the incomes of the average Bulgarian and higher taxes for income, which exceeds a certain threshold, but definitely not 70% like in France," Naydenov explained.

According to the Socialists it is only logical that in the current situation their party asks the rich to bear the heavier burden of the crisis, while low incomes should be tax exempt.

Bulgaria's outgoing Finance Minister Simeon Djankov has repeatedly denied reports that a removal of the flat tax rate may be looming after the government scrapped its plans for a VAT increase in a bid to plug a budget gap that has thwarted the new EU member's euro efforts.

According to him the introduction of the flat tax is one of the success stories of Bulgaria's economic and tax policy.

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.

Even though it is a long-term goal, this kind of measures give the foreign companies the feel that things are going in the right direction and makes them more likely to invest their money in those economies.

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

Bulgaria is among the top ten countries in the world with the lowest effective rates and is preceded only by Hong Kong, tax havens like the Bahamas Islands and petro-states like Saudi Arabia, according to an analysis by KPMG consultancy.

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