The three parties in Bulgaria’s coalition Cabinet agreed on July 30 to introduce a 10 per cent flat tax on individual incomes from 2008.
The current three-bracket tax rate system will be abolished.
The idea is to improve revenue from personal income tax, Prime Minister Sergei Stanishev told journalists.
“We are introducing the flat tax in an attempt to make companies take their business out of the grey sector,” said Economy Minister Petar Dimitrov, a member of Stanishev’s Bulgarian Socialist Party. It would increase the competitiveness of the economy, Dimitrov said.
Several Bulgarian-language media reports the following day gave the move a hostile reception. They said that the hardest-hit would be people earning between 200 to 350 leva a month. Currently, those earning up to 200 leva are not liable for tax, while those currently in the lowest tax bracket will have to pay more when the 10 per cent rate takes effect. One Bulgarian-language media report portrayed the move as a benefit to the rich at the expense of the poor.
Reporting grew even more hostile when unidentified sources said that the flat tax would be accompanied by the abolition of a number of tax breaks. A July 31 media report said that family taxation rebates would be scrapped, meaning that income earners with two children would be paying substantially more. Other media reports said that people earning authors’ royalties would also pay more, as would other professions where certain proportions were allowed as expenses, for example doctors. Dimitrov said that the salaries of people in the public sector would be raised to compensate for the introduction of the flat tax.
In a move seen as benefiting employers, social security payments will decrease by three per cent.
The coalition agreed to increase pensions by 10 per cent from October 2007. Stanishev said that it should be possible to increase pensions by 20 per cent a year later.
The planned pension increase this year would cost an additional 400 million leva from the budget.
For smokers, motorists and consumers in general, there was other news unlikely to be welcomed. The tobacco excise will go up in 2008 and 2009. There will be a one-off adjustment to the fuel excise next year.
Alexander Bozhkov of the Centre for Economic Development reacted with skepticism to the coalition Cabinet announcement about higher pensions, lower social security contributions and tax changes. It was a move made with the municipal elections in October in mind, he said. “I will believe it only when I read it in the State Gazette,” Bozhkov said.
