Bulgaria EU Commissioner Says Yes to VAT Reduction

Bulgaria's EU Commissioner on International Cooperation, Humanitarian Aid and Crisis Response, Kristalina Georgieva, talking to journalists in Bulgaria. Photo by EPA/BGNES

Bulgaria's European Commissioner Kristalina Georgieva has backed the government's plans to lower the 20% value-added-tax by the end of its term, but with a pinch of salt.

"VAT reduction is an option for boosting domestic demand, but we must carefully balance the reduction of budget revenues and more money in people's pocket," Commissioner Kristalina Georgieva, a former World Bank official, commented on Monday.

According to her the step, if taken in the right way, will fuel much needed consumption and even create jobs.

Changing the VAT level has been a thorny issue in Bulgaria over the last two years with the cabinet changing their mind numerous times and several versions tossed around.

After a series of U-turns Bulgaria's government decided at the end of May 2010 to scrap plans for an increase of the 20% value added tax in a bid to plug a budget gap that has thwarted the new EU member's efforts to join the euro in the near future.

The VAT hike, ranging from 22% to 24%, was proposed as part of a package of new austerity measures, which also include the introduction of a luxury tax, floating minority stakes in state-owned companies and a possible bond issue.

Representatives from all business sectors 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 and structural reforms.

Hungary has the highest VAT rate in Europe at 27%. The lowest VAT rate in the European Union - 15% - is in force in Luxembourg.

The value added tax hike in Croatia pushed it from 23 to 25% and made it one of the countries in Europe with the highest VAT rate, alongside Denmark, Sweden and Norway.

In Cyprus the value-added-tax increased from 15% to 17% on March 1. Thus, the government hopes to reduce the projected budget deficit to 2.4% of gross domestic product (GDP) in 2012 from 6% last year.

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