Bulgaria's Finance Minister: No Ax for Flat Tax by 2011

Bulgaria has the lowest personal and corporate income tax in the EU at 10%, which was introduced at the beginning of 2008. File photo

Bulgaria’s finance minister has denied reports that a removal of the flat tax rate may be looming after the government scrapped its plans for a VAT increase in a bid to plug a budget gap that has thwarted the new EU member's euro efforts.

“The introduction of the flat tax is one of the success stories of Bulgaria's economic and tax policy and there are no reasons why it should be removed by the end of this year,” Finance Minister Simeon Djankov said parliament on Friday, without making it clear whether the removal will be an option the next year.

He added that the government plans to keep the VAT tax, now standing at 20%, untouched ion 2011, a goal that the minister described as mission possible.

The comment comes a week after Menda Stoyanova, head of the parliamentary budget commission, said it is very likely that Bulgarians will have to say goodbye to the flat tax.

That was the first time when a high-ranking representative of the ruling center-right GERB party admits a personal tax hike is on the agenda, even though speculations about a possible increase have been going on for months.

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.

Over the last decade and a half, a number of countries introduced flat-rate taxation and Bulgaria jumped on the bandwagon in 2008.

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 organized crime.

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