Bulgaria Announces Flat Tax

by Ulrika Lomas, Tax-News.com, Brussels

06 August 2007

The Bulgarian government has revealed plans for a flat tax on personal incomes as a way to simplify the tax system and increase compliance rates.

The government said that the 10% flat tax will be introduced in October. It will replace a system within which income tax rates vary from 20% to 24%, but which also contains many concessions.

"The introduction of the flat tax is expected to generate bigger financial resources for the budget and "bring to light" the incomes," Prime Minister Sergei Stanishev said.

Finance Minister Plamen Oresharski told the Trud daily in an interview that the new system would also put an end to tax concessions.

"The philosophy of taxation is either charging a high tax rate accompanied by numerous concessions and preferences or a low tax rate without any tax-free minimums or deduction of inherent expenses from the taxable amount," the finance minister said.

Oresharski added that the flat tax is expected to have no impact on the government's budget, nor lead to any loss of revenues. However, excise taxes on alcohol, cigarettes and fuels are set to increase from next year.

Bulgaria has already set about lowering its corporate tax rate in its quest for investment, which was cut to 10% last year as the country entered the European Union. Economy Minister Petar Dimitrov has told a daily newspaper that additional corporate tax reform aimed at further simplifying the system could go into place in 2008 to help increase corporate compliance rates. It is said that about one third of all company income goes unreported in Bulgaria.

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