Bulgaria's central bank has taken a firm stand against the proposed 10% tax on deposit income, saying it would hinder growth and fail to plug the fiscal gap.

"In the long-term, the tax will discourage people to stash their money in the bank. The reduction in savings, coupled with the eurozone crisis woes, will deal another blow to Bulgaria's economic growth," Kalin Hristov commented.

The central bank expects Bulgaria's GDP to grow next year by mere 1.5%-1.7%, below the forecast of the government (1.9%), due to weaker exports and imports.

Bulgaria's parliament approved at first reading on Thursday the government's controversial proposal to levy a 10% tax on interest earned from bank deposits.

The ruling party argued that the new levy just extends Bulgaria's flat rate tax base, but declined to present any figures about the positive impact the measure will bring.

Nor was there any debate over concerns that the new tax may shake the bank system foundations due to capital outflow.

A proposal to introduce a tax-free threshold was rejected.

The opposition criticized the new tax, saying it will do more harm than good to the budget - fewer savings will reduce investments and opportunities for economic growth.

Bulgaria's Finance Minister Simeon Djankov, who initiated the proposal, did not attend the parliamentary session.

The new 10% levy on people's income on their bank deposits is expected to come into force from next year.

Bulgarians will be obliged to include the income on bank deposits in their tax declarations a year later – in 2014 – after the taxation process is streamlined.

Both economists and the central bank have slammed the government's decision to introduce a 10% tax on bank deposit income, saying this would dent people's savings and shake the bank system foundations due to capital outflow.

The government said the new tax aims to raise BGN 120 M and force richer people to pay taxes on the income they earn from bank deposits.

Banks in Bulgaria continue to record steady growth in savings, a trend which has been gaining momentum throughout the past half year, official data shows.

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