Bulgaria's PM: No Ax for Flat Tax

Finance | October 14, 2012, Sunday // 16:52|  views

As of 1 January 2008, Bulgaria introduced a 10% flat tax applicable for all income levels, i.e., there is no non-taxable income threshold. Photo by Sofia Photo Agency

Bulgaria's prime minister has ruled out plans for scrapping the 10% flat tax, as hinted a day earlier by his finance minister.

"There is one simple reason why I am so firm on this topic – stability of the taxation system is very important for the business and the investors," Borisov said on Sunday, while on a visit to the coastal city of Burgas.

He conceded that the flat tax deepens the gap between the social classes, but threw the blame squarely on the previous Socialist-led government, which introduced it.

"Small wonder it was namely the Socialists who introduced a levy, which harms the social justice. But now that the deed is done and the business relies on this tax, we can't remove it," he added.

As of 1 January 2008, Bulgaria introduced a 10% flat tax applicable for all income levels, i.e., there is no non-taxable income threshold. It replaced the previous system, which combined several different tax rates - between 20 and 24%, depending on income.

The Socialist Party, now in opposition, has recently called for the return of a progressive income tax so that the upper-income households as well as the rich are taxed much more than the poor.

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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