Bulgarian Socialists Take Course to Abolish Flat Tax

Finance | September 25, 2010, Saturday // 13:46|  views

BSP leader Sergey Stanishev pictured arriving for the national party council meeting on Saturday. Photo by BGNES

Bulgaria's largest opposition party BSP is in favor of abolishing the 10% flat tax rate that its own government introduced in 2008.

This has emerged Saturday during a meeting of the council of the Bulgarian Socialist Party summoned to discuss its draft for an economic and social strategy entitled "Bulgaria 2020 – an European Welfare State."

The draft document authored by former Parliament Chair Georgi Pirinski initially contained two major economic policy changes – the removal of the flat 10% rate of income and corporate taxes and the termination of the currency board.

However, after heated discussions, the idea to do away with the currency board, which has been in place since 1997 when the Bulgarian lev was pegged to the deutsche mark and then to the euro, has been dropped.

The idea to abolish the flat income and corporate tax remains, and will most likely be adopted by the Socialists as part of their official "2020 welfare state" strategy.

Yet, it is not unconditional as the document states that a return to the progressive income and corporate taxes is possible within 1-2 year, and on the conditions that Bulgaria manages to improve the collecting of tax altogether, and that it starts to attract foreign investors in other ways, and not because of the low flat tax.

According to Pirinski, the idea to terminate the currency peg should also be discussed at some point in the future; however, at present, the issue is very thorny and causes strong reactions.

Former Prime Minister and BSP leader Sergey Stanishev confirmed the idea of his party to do away with the flat corporate and income tax but sought to refute reports in the Bulgarian media that "the Socialist Party wants to bring down the currency board."

In his address to the party, Stanishev did admit that one of Bulgaria's competitive advantages at the moment are the low taxes; yet, he thinks that this system should not remain in place foreign because the low taxes are a means to compensate the weakness of state institutions. The Socialist head believes that foreign investors should invest their money in Bulgaria for other reasons, and not because of the low flat tax rates.

"In my view, the major problem of the present government is the fact that it has no strategy whatsover, no plan," Stanishev told the BSP leadership at the meeting of its National Council on Saturday.

In addition to serving as guidelines for the policies to be put forth by the Socialists by 2020, their welfare strategy is also supposed to help them raise points about the drafting of the 2011 state budget while they are currently in opposition.

According to the ex PM, the 2020 strategy of his party will be "a challenge to the government and an appeal to all Bulgarian citizens." The Socialists are going to discuss their 2020 strategy and respectively flat tax and currency peg ideas again on October 16, 2010, during their party congress.

The 10% corporate and income flat tax rate in Bulgaria was introduced in 2008 by the three-way coalition government of Sergey Stanishev, placing Bulgaria among the top five countries with the lowest taxes in the world.

The flat tax initiative came from the centrist National Movement for Stability and Prosperity of former Tsar Simeon Saxe-Coburg and caused much controversy within the ruling coalition. Eventually, the other two partners, the Socialists and the ethnic Turkish party DPS (Movement for Rights and Freedoms) agreed to back the measure.

Bulgaria's current Finance Minister from the center-right party GERB, Simeon Djankov, has made it clear he has no intention to raise taxes in the first place, and to go back to a "system that created complications," i.e. the progressive tax rates. Yet, senior GERB representatives have mentioned a number of times that the fate of the flat tax will be a matter of discussion.

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Tags: Sergey Stanishev, Bulgarian Socialist Party, BSP, corporate tax, income tax, progressive tax, flat rate, flat tax, Georgi Pirinski, currency board, currency peg


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