Bulgaria Govt Makes U-Turn over VAT Hike

The government planned to increase the value added tax to 22%, introduce a new tax on luxury goods and cut public servants wages in a bid to help fight the economic crisis and keep down the fiscal deficit. Photo by sxc.hu

Bulgaria's center-right government has dropped plans to increase the value-added tax by 2 percentage points to 22 percent.

“The value-added-tax will not be increased for the time being,” Bozhidar Danev, head of the Bulgarian Industrial Association, told journalists after a meeting with representatives of the cabinet, labor unions and employers.

According to Danev the anti-crisis measures, which are to be implemented, will bring to the state budget BGN 1,6 B, which means the country can afford to keep VAT unchanged at 20%.

Danev did not rule out a 1% increase should the government fail to collect the sum.

The government planned to increase the value added tax to 22%, introduce a new tax on luxury goods and cut public servants wages in a bid to help fight the economic crisis and keep down the fiscal deficit.

It was part of a package of new measures, which also include floating minority stakes in state-owned companies and a possible bond issue.

The government is still expected to agree with the trade unions and the union of employers a final package of nearly 50 steps to combat the crisis.

Representatives from all business sectors have cautioned that the hike in the value-added tax in Bulgaria should be a last-ditch measure, introduced only together with an overhaul in government expenditure.

Bulgaria has the lowest personal and corporate income tax in the EU at 10%, which was introduced at the beginning of 2008, replacing the previous system, which combined several different tax rates - between 20 and 24%, depending on income.

After coming into office, the new Bulgarian government announced it plans to keep unchanged the flat income tax rate and cut VAT from the current 20% to 18% in 2010 and by a further 2% by the end of the term of Prime Minister Boyko Borissov’s administration.

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