Taxation in Bulgaria: discussion on abolishing the 10% flat tax

The 10% flat tax introduced in Bulgaria in 2007, which has contributed greatly to economic growth, has been called into question by a bill proposing progressive tax bands. This is not the first time that the Bulgarian parliament has debated changes to taxation legislation, although many oppose abolishing the flat tax in Bulgaria because it has supported economic growth and foreign investment in recent years. The Bulgarian Industrial Capital Association (BICA) opposed the bill amending the Personal Income Tax Act introduced by MP Mihail Mikov, who proposed abolishing the flat tax and introducing progressive taxation. BICA expressed this position in letters sent to the committees responsible for the budget and finance, and for labour, social and demographic policy. In its communication, the association stresses that the flat tax is an achievement: it is clear, easy to apply, and simple to administer and monitor. Collection and enforcement costs are as low as possible compared with all other forms of taxation. The flat tax is a powerful factor in easing the burden on the economy, which improved significantly following its introduction. At the same time, it is repeatedly cited as a strong argument for attracting foreign investment, giving Bulgaria a competitive advantage. The tax is essentially flat and the same for everyone: those who earn more pay more, but the percentage is the same in every case. Society must recognise that higher-income individuals benefit from fewer public funds than lower-income individuals, who receive support measures; the tax would therefore be regressive, not progressive. Solidarity calls for a flat tax as an instrument that has proved effective. In the association’s view, progressive taxation is more complex to administer, more expensive and difficult to implement, and will achieve the opposite of the desired result, increasing undeclared income, the hidden and informal economy, substantially higher administrative costs and lower collection rates. Sustainable operation requires a conservative approach to taxation and a stable, predictable legislative framework rather than drastic changes every few years. On these grounds too, the association called for the bill to be rejected.