In 2018 the Tax Freedom Day in Bulgaria fell on May 13. This is the day of the year in which people have earned enough money to pay this year’s total tax obligations. The Institute for Market Economics has estimated that the Bulgarians have worked for the state treasury a total of 132 days.
In fact, the direct and indirect taxes paid in Bulgaria are among the lowest in the Europe. For instance, there is a 10% flat income tax and people pay the same tax rate regardless of their incomes. A 10% tax is levied on the corporate revenues as well. This taxation has a lot of opponents who believe that it is groundless and that the people with higher incomes should pay higher tax. However, the flat tax rate has remained unchanged and it looks like the tax administration is happy with that, because it is easy to work with such tax rate. The indirect taxes, including the value added tax (VAT), are not among the highest in Europe (yet most EU member states introduced differentiated VAT rates). VAT in Bulgaria is at 20%. However, no sectors of the national economy, except for tourism, use preferential tax rates. The calls of leftist activists and socially-orientated experts for differentiated VAT or even zero VAT on medicines, books, newspapers, bread and other essentials, have been unsuccessful.
The state interference in the distribution of the gross domestic product is relatively low due to the low tax levels in Bulgaria. Currently, the state authorities are redistributing 37% of the GDP. Thus, a substantial financial resource is left in the hands of the companies which use this money at their own discretion and at their responsibility. The Institute for Market Economics contends that a product worth EUR 145 million is produced in Bulgaria on a daily basis.
The low tax rate in this country is good news for the taxpayers. However, lower taxes mean less money in the state treasury which has to finance the state expenditures. Everyone is complaining that some important public sectors such as healthcare, education, social system, pension system, defense and security are underfinanced. However, things cannot change significantly, unless taxes are raised. This, on the other hand, will mean less money for the citizens and the business, i.e. we have entered in a vicious circle and there is no easy way out. Nobody, except for the leftist opposition is talking about change of the country’s tax system. However, we should remind that the 10% flat tax rate was proposed by the Bulgarian Socialist Party itself. Today, this party is of different opinion, but does not have the opportunity to change things, because it is part of the opposition at the Bulgarian National Assembly.
A recent sociological survey carried out by Trend agency shows that the Bulgarian citizens believe that the state should play a significant role in their lives, but are not inclined to pay higher taxes. 60% of the respondents said that the state authorities should lower the taxes, although it would mean less money for social benefits and services. Only 25% of the surveyed nationals answered that taxes should be higher, so that more money is paid for social benefits and services. 37% of the people believe that the state intervention harms the economy and 44% believe that such intervention is beneficial to the country’s economy. Financial stability remains the main priority of the Bulgarian cabinet and we cannot expect any sudden movements in this field.
English version: Kostadin Atanasov
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