Bulgaria Finance Minister Slams "Axe the Flat Tax" Proposal

"The removal of the flat tax would doom the country to two or three years of economic decline,” Bulgaria’s new Finance Minister Simeon Djankov said. Photo by BGNES

Bulgaria's finance minister has described as "insane" a proposal of aides close to the president to remove the flat tax the country introduced last year.

"The flat tax rate has turned into an institution in Bulgaria and its removal will doom the country to two or three years of economic decline. This is not a proposal that good experts would make," Simeon Djankov commented on Monday.

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.

The government plans to keep the current tax rate, as envisaged in the mid-term fiscal policy document, which brings together the country's key macroeconomic forecasts for 2010-2013 and which was approved by the government last month.

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

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 organised crime.

 

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