Bulgaria Lawmakers Pass Flat Tax Reform

Politics | December 17, 2007, Monday // 00:00| Views: | Comments: 8

Bulgaria's parliament passed on second reading on Monday the amendments introducing a flat tax rate in the country.

Despite extensive criticism from the opposition and trade unions, the Socialist-led ruling coalition decided also to drop the provision that exempted the first BGN 200 of all wages from tax.

Under the new tax regime, all who earn below BGN 490 will end up paying more in taxes, starting from January.

The amendments are final and only a veto from president Georgi Parvanov can stop them from becoming law, although he has given no indication he plans to do so.

Bulgaria's parliament has been busily amending the tax legislation over the past month, ringing in the changes required before it can pass the draft budget for next year at second reading.

The leaders of the three parties in Bulgaria's ruling coalition have agreed in summer on the tax reform, with a flat rate of 10%, the lowest in Europe, replacing the progressive taxation system with three brackets.

Since Estonia introduced a flat tax system in 1994, enjoying stable GDP growth, eastern European countries have been attracted to the flat tax that promises to attract foreign investments and increase transparency.

Slovakia, Romania, Albania and many former Soviet republics have all adopted a flat tax.
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» To the forumComments (8)
#8
Kolega - 19 Dec 2007 // 20:30:47

Furio,
I am trying to follow your thought, but it makes no sense at all.

"The very high degree of corruption and the significant black economy are disturbing factors that slow down Bulgarias economy"

True, there is a problem, but the economy is overheating now, with high inflation and labor shortage, so I don't see that "slowing" at all.
Robin is right. BG is EU problem now, something that they surely knew before granting the membership.
I have to be honest - all those problems we are causing or unable to deal with, damage not us, as much, but the next waive.
Croatia, Bosnia, Serbia will be the ones paying the price for our growing pains.
EU will be much more hesitant to enlarge after RO and BG.

#7
furian - 19 Dec 2007 // 15:43:48

Thank you,Robin ! Yes, you are absolutely right. Those countries are definitively in the same basket, but there are some significant differences. Bulgarias ruling elite still has one foot in the past and long gone political regime. The very high degree of corruption and the significant black economy are disturbing factors that slow down Bulgarias economy and call for harsh demands from EU. Demands for reforms and changes the Bulgarian Government seems to ignore. It is a catch 22-EU demands fight against corruption and organized crime otherwise Bulgaria will not receive the necessary funds and investments. But then Bulgaria needs the funds for infrastructure and social projects-in short for every aspect of the economy. Without the investments and funding Bulgaria will become even more dependent on cash flow from organized crime. It is a vicious circle and Bulgaria seems to be loosing the battle. And for sure Bulgaria cannot secure social and economic stability without EU. Flat taxrates can work when the funding and the investments can secure the national economy, but Bulgaria needs to intensify the fight agains corruption and black economy to get EUs and the investors confidence.

#6
Robin - 19 Dec 2007 // 14:54:00

"In my opinion there is nothing in Bulgaria at this stage worth longterm investments. Bulgaria will depend on EU funding and aid for many years to give the country an economic framework. Economic birthassistance if you like."

Most of southern Europe is in the same basket. Greece, spain, portugal, none of them could continue in the current form without the assistance from the EU they still receive. There's no shame in getting assistance. You are right in saying long term investments look very risky in BG for all sorts of reasons. But the EU is the only long term investment a country can bank on and it will continue for decades. Bulgaria is now an EU "problem" and hopefully it's problems can now be solved. Not overnight, but maybe in my children's lifetime!

#5
Jerry - 19 Dec 2007 // 14:41:19

Bulgarian Tax Reform is equal to a beautiful women with a lot of curves and each curve has its up and downs.

What is missing Incentive.

I feel the beatiful curvy body is the incentive.

#4
furian - 19 Dec 2007 // 02:04:51

I agree. I have been a bit clumsy in my choice of words. I meant corporate taxes in general, but I still hold on to my objections to a 10% flat taxrate for Bulgaria now. Later,yes, but not now - Bulgarias economy cannot take it. In Switzerland yes, but not in EUs poorest memberstate. Bulgarias economy is heated up by gas and thin air and non existing markets, and a flat taxrate will only make the shaky economy go from bad to worse. Bulgaria has no infrastructure or developed industry, not even a businesscommunity of international standard. The growth we see is based on foreign cashflow or speculative narrowsighted investments. In my opinion there is nothing in Bulgaria at this stage worth longterm investments. Bulgaria will depend on EU funding and aid for many years to give the country an economic framework. Economic birthassistance if you like. The bottomfigures you see every day from any survey are there for a reason.

#3
Kolega - 18 Dec 2007 // 20:55:06

BTW furio,

you are asking for removal of "investment tax" (obviously weren't aware that it has been eliminated) and for elimination of Corporate tax (already pretty low),
but then you are concern that the flat tax will benefit the rich, and are calling for "progressive taxation".

It seems to me, that you just see yourself as the "nay sayer" on everything, because those are contradicting notions.

#2
Kolega - 18 Dec 2007 // 20:41:56

"Why not make investments taxfree over the first five years and remove the corporate taxes for the same period ?"

What do you mean by "investments"?
BG has zero % Capital Gains tax already.

"I am afraid the low flat taxrate will only benefit the 10-15% economic elite in Bulgaria, while the rest of the population will have the living standard reduced due to rising food and energy prices."

The idea is to generate enough economic activity, so to help the lower income folks.
It's work in other places, although inevitably it benefits the rich even more.

"The most competitive countries in Europe still has a progressive tax system and stable economic growth, so flat taxrate is no miracle cure."

That may be, but BG needs to catch up to whatever level possible.
Those "competitive countries in Europe" have 2-3% GDP growth. If we end up with that kind of growth right now, at the low base that we are, we will immure ourselves in the role of EU's ugly child for ever.

#1
furian - 18 Dec 2007 // 04:00:22

Bulgaria has a weak economy and the average income is low. I agree that making the first 200 BGN free of income tax probably will improve ordinary taxpayers standard of living in a situation where the food prices are soaring. It is also important to notice that flat tax rate only influence income tax-direct taxes. Indirect taxes and fees will not be changed and even with 10% flat income tax the situaton will not improve much for most Bulgarians. Why not make investments taxfree over the first five years and remove the corporate taxes for the same period ? I am afraid the low flat taxrate will only benefit the 10-15% economic elite in Bulgaria, while the rest of the population will have the living standard reduced due to rising food and energy prices. The most competitive countries in Europe still has a progressive tax system and stable economic growth, so flat taxrate is no miracle cure.

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