Bulgaria's Djankov Hints At Tax Referendum

by Ulrika Lomas, Tax-News.com, Brussels

25 January 2011

In the wake of increased calls for a vote of no confidence in the government, Bulgaria’s Finance Minister Simeon Djankov announced the preparation of legislative amendments, designed to ensure that changes to direct taxes imposed on individuals and corporations would only be implemented following a national referendum.

According to Finance Minister Djankov, the administration also plans to introduce changes to existing legislation determining by law maximum limits on the country’s budget deficit and levels of public expenditure as a percentage of gross domestic product (GDP).

Last year, the Bulgarian government elected to maintain the rate of personal and corporate income tax at 10% – the lowest rates in the European Union – in a bid to maintain the country’s competitiveness and foreign investments. The 10% flat tax rates were introduced in Bulgaria in 2007, replacing the country’s graduated system of taxation of between 20% and 24%.

Despite a number of suggestions last year that the 20% rate of value-added tax (VAT) might have to rise in Bulgaria by between 2% and 4% in order to generate additional fiscal revenues for the state, these plans were finally abandoned in May 2010. The proposals provoked fierce criticism at the time from the private sector and from trade unions, demanding instead an overhaul of state expenditure and for structural reforms to take place. Even Djankov threatened his resignation if taxes were increased.

That year, the government had also agreed to a 'luxury tax' on real estate valued at more than BGN300,000 (EUR153,000), to be levied at municipal level. This proposal was also discarded because it was expected to yield very little in new revenues.

The government expects the country’s budget deficit for this year to be in the region of BGN2.76bn (EUR1.41bn), equating to 3.9% of GDP, much lower than the government’s initial 4.6% target for 2011.

Prime Minister Boyko Borisov has categorically rejected claims that a rise in tax rates is currently being considered.

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