PM: VAT Hike Only Way to Save Bulgaria from Greek Scenario

Bulgarian PM Borisov is firm about raising the VAT if circumstances demand this. Photo by BGNES

The Bulgarian government will decide within a week whether it will have to increase the country’s value-added tax by up to 5%, PM Boyko Borisov announced.

Borisov reiterated Wednesday his earlier statements that if the government’s anti-crisis program of 60 measures fails to close the emerging budget gap, he will have no other option but to go for an increase of the VAT.

In early April, his Cabinet adopted a package consisting of cutting state spending and privatization in order to neutralize the emerging budget deficit of BGN 1.5 B in the first quarter of 2010. The raising of the VAT by 2% for a period of one year was discussed but was abandoned after it was met by fierce public opposition.

“I will not let Bulgaria end up in the situation of Greece or some other EU member states which are in a similar financial condition,” vowed the Prime Minister in reply to a demand by his allies from the right-wing Blue Coalition that he should make a personal commitment not to increase the VAT.

Borisov pointed out that there were several suggestions for the increase of the VAT – 22%, 23%, 24%, or 25%. Currently, the VAT in Bulgaria is 20%.

On Tuesday, Dimitrov’s party Union of Democratic Forces announced it had inside information that the ruling party GERB intended to increase the VAT up to 24%-25%, which is even more than the previously floated figure of 22%.

The UDF party has estimated that if the VAT is increase by 2%, this will bring only BGN 700 M more to the state budget.

Earlier on Wednesday, Krasimir Stefanov, the head of Bulgaria’s National Revenue Agency, said that the VAT income raised by the government from January 1 till April 17, 2010, was BGN 600 M smaller than in the same period of 2009.

However, Bulgaria’s Prime Minister Boyko Borisov has declared that he would move to raise the VAT without asking anybody what they think if he was forced to do so by the circumstances. He also mentioned that the VAT might have be increased if his government failed to make null and void the so called “hidden” public procurement deals made by the previous Cabinet worth about BGN 2 B, which according to Borisov, his predecessor was aware the state could not afford to pay.

The increase of the VAT runs counter to intentions of Finance Minister Simeon Djankov announced in the fall of 2009 to reduce the tax down to 16% by the end of the government’s term in 2013.

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