Finance Minister Milen Velchev announced on June 29 the possible reduction of VAT in 2006, a move that was mostly reported as a pre-election sweetener for the ruling National Movement Simeon II (NMSII).
If revenue collection remains high, a lower value added tax rate may be considered in the next four years, Velchev told the German-Bulgarian Chamber of Industry and Commerce. He was asked if the Bulgarian Government was considering cuts in direct and indirect taxes after announcing its intention to reduce profits tax and income tax.
Later on Velchev told reporters this is an idea that has to be discussed by NMSII and might become part of its pre-election programme in 2005. The VAT rate may be trimmed by two per cent if possible, but not before 2006.
Velchev believes that the rate could be reduced to 18 per cent as a first step. "I do not want to sound like I am promising or committing myself to something. This is just my point of view, which should first be discussed at a political level and later be included in the pre-election programme," Velchev said.
Currently, VAT in Bulgaria is 20 per cent, and this is not the highest rate in Europe. However, future VAT cuts have to be discussed with the European Union (EU) in line with Bulgaria's planned accession in 2007. The EU itself failed again earlier this year to negotiate a common policy on value added taxation. Although considered an important part of the EU policy, VAT continues to be a painful topic for most of the member countries.
Different businesses in Bulgaria have already started their own campaign to urge for a VAT reduction. Pharmaceutical producers and importers asked a month ago for a 50-per cent cut in VAT, arguing that this will considerably lower the prices of medicines. They promised an almost 20-per cent drop in retail prices if VAT on medicines is cut from the current 20 to 10 per cent.
Another sector hoping for a VAT reduction is the hi-tech industry. Two months ago a proposal was made that the purchase of personal computers for home use should be VAT exempt and income tax deductible. Last week, the idea was raised again by the Bulgarian Association of Information Technologies (BAIT).
Home Internet access and electronic certificates from licensed suppliers, should also be included in the list of tax deductions, BAIT said.
BAIT said that the majority of computers for home use are currently sold on the black market, because customers prefer to buy smuggled IT equipment, avoiding VAT payments to cut costs.
Announcing one of the Government's recent economic policy proposals in the beginning of May, Velchev said that a possible VAT cut could be more beneficial to the economy than reducing direct tax rates.
Direct tax reductions will stimulate both production and investments, which generally cause economic growth, Velchev said. However, a reduction in VAT could also have a substantial impact on economic development. If VAT reduction led to lower prices of goods and services, it could also act as a supply side stimulus therefore improving economic performance, experts said.
If revenue collection remains high, a lower value added tax rate may be considered in the next four years, Velchev told the German-Bulgarian Chamber of Industry and Commerce. He was asked if the Bulgarian Government was considering cuts in direct and indirect taxes after announcing its intention to reduce profits tax and income tax.
Later on Velchev told reporters this is an idea that has to be discussed by NMSII and might become part of its pre-election programme in 2005. The VAT rate may be trimmed by two per cent if possible, but not before 2006.
Velchev believes that the rate could be reduced to 18 per cent as a first step. "I do not want to sound like I am promising or committing myself to something. This is just my point of view, which should first be discussed at a political level and later be included in the pre-election programme," Velchev said.
Currently, VAT in Bulgaria is 20 per cent, and this is not the highest rate in Europe. However, future VAT cuts have to be discussed with the European Union (EU) in line with Bulgaria's planned accession in 2007. The EU itself failed again earlier this year to negotiate a common policy on value added taxation. Although considered an important part of the EU policy, VAT continues to be a painful topic for most of the member countries.
Different businesses in Bulgaria have already started their own campaign to urge for a VAT reduction. Pharmaceutical producers and importers asked a month ago for a 50-per cent cut in VAT, arguing that this will considerably lower the prices of medicines. They promised an almost 20-per cent drop in retail prices if VAT on medicines is cut from the current 20 to 10 per cent.
Another sector hoping for a VAT reduction is the hi-tech industry. Two months ago a proposal was made that the purchase of personal computers for home use should be VAT exempt and income tax deductible. Last week, the idea was raised again by the Bulgarian Association of Information Technologies (BAIT).
Home Internet access and electronic certificates from licensed suppliers, should also be included in the list of tax deductions, BAIT said.
BAIT said that the majority of computers for home use are currently sold on the black market, because customers prefer to buy smuggled IT equipment, avoiding VAT payments to cut costs.
Announcing one of the Government's recent economic policy proposals in the beginning of May, Velchev said that a possible VAT cut could be more beneficial to the economy than reducing direct tax rates.
Direct tax reductions will stimulate both production and investments, which generally cause economic growth, Velchev said. However, a reduction in VAT could also have a substantial impact on economic development. If VAT reduction led to lower prices of goods and services, it could also act as a supply side stimulus therefore improving economic performance, experts said.
