Bulgaria Govt Denies Plans for VAT Cut by Mid-2013

Bulgaria's Deputy Prime Minister and Finance Minister, Simeon Djankov. Photo by BGNES

Bulgaria's government has denied it is willing to lower the 20% value-added-tax by the end of its term, which expires next year.

"The VAT level will not be changed at the end of 2012 or the beginning of 2013," Bulgaria's Deputy Prime Minister and Finance Minister, Simeon Djankov, told the morning broadcast of bTV on Wednesday.

"True, I had this idea because we have higher revenues now. You can imagine my surprise when the polical establishment – both the majority and the opposition in parlimament – took a stand against it. They don't think this is such a great idea. The ruling party prefer to focus on ideas how to increase people's incomes," he added.

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.

Politicians, analysts and trade unions took a firm stand against the hike, citing a long line of negative repercussions – an increase in the inflation rate, an expansion of the grey sector, a slow-down in the economic growth, in short a boost for the impact of the crisis.

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 Croatia, VAT was imposed on 1 January 1998 at the rate of 22%. It was increased by one per cent on 1 August 2009.

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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