The Flat Tax in Bulgaria

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For the IME publishing a book on proportional tax is not a new idea. In recent years we have had many discussions on the need to chronicle and study one of Bulgaria’s most successful reforms. The continuing debates, often dominated by myths and legends, on the effects of this change, made the appearance of this type of book inevitable. The realization of the idea had to be put off, though, for the sake of Anatomy of the Crisis in 2015, the time for which had also grown ripe. Now the focus is exclusively on the flat tax.

The present essay collection is not aimed at claiming authorship on the 10 percent flat tax. It does include, though, texts by some of the people who were direct participants in the process of preparing, providing arguments in support of, and implementing the reform. Efforts, which, as becomes clear from the book, span over 10 years. It is this historical perspective that makes it possible to highlight the flat tax as a logical and natural result of a comprehensive change in the country’s taxation and social insurance model. Introducing the flat rate was by no means accidental. On the contrary, on the eve of the change itself, the idea was seen as acceptable by most people and enjoyed solid support from both society at large and the expert community; that support eventually found its political expression. It would not be an exaggeration to say (following Georgi Ganev) that this tax reform is an example of macro-institutional change for which it took our society years to mature.

A decade has passed since the first ‘pillar’ of flat tax was introduced: the flat profit tax of 10% in 2007, followed by the flat 10% income tax in 2008. From today’s perspective it becomes easy to separate the truth from the myths and present the results of the reform the way they are. The present edition offers both first person narratives about tax changes after 1989 along the path to the flat rate and several different views on its effect in our country: on disposable income, tax revenue, formal employment or welfare. It is these effects that allow us to call the flat tax a successful reform: one of the few in our country to have found international recognition.

We do believe this book will contribute not only to a clearer picture of economic processes in our country but also to the inevitable future discussions of the structure of the tax system in our country. We also believe ideas presented in this book will be of use to anyone looking for father knowledge on the topic.

The Institute for Market Economics wishes to thank all authors who enthusiastically participated in the making of this book. We are also grateful to the Friedrich Naumann Foundationfor Freedom for supporting us and making this publication possible.

Enjoy reading it!

The IME team

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