Some Developments in the Tax Debate in Bulgaria
Taking into account the international experiences and the economic research showing a strong relation between the low taxes and the fast economic growth, the Institute for Market Economics proposed its draft government budget for 2004. The alternative budget includes 11.3% reduction of the government expenditures (compared to 2003) and lower tax rates:
· 10% flat income tax rate (12-29% at the moment)
· 10% corporate tax rate (19.5% at the moment)
· 10% contribution in personal retirement account and 6.7% health and other social security contributions (42.7% at the moment)
The IME proposal received wide publicity and media coverage (see the list after the article). It was supported by different people and some organizations and economists developed their own proposals for tax cuts.
On November 22, 2003 George Petrov, Professor of Economics in the Sofia Economic University and member of the Board of Governors of the Bulgarian National Bank, published an article, entitled “The Lost Opportunities in the 2004 Budget”, in the newspaper Trud (1) . In the article he insists that “the low taxes will stimulate investment, employment, incomes and demand” and will decrease the gray economy. According to Prof. Petrov the tax rates can be cut without risk for the budget if the tax cut is accompanied with liberalization of the economy, reform and rationalization of the budget sector, limitation of the bureaucracy, starting the program budgeting, etc. The tax rates for 2005, which are proposed in the article, are 15% income and corporate taxes, 18% value-added tax, 20-25% social security contributions, slower increase of the excise taxes. Prof. George Petrov mentions the IME proposal, which, according to him, “is of special interest”.
Table 1: Tax Cuts Proposals
|
|
Corporate Tax |
Income Tax |
Social Security Contributions |
|
IME |
10% |
10% |
16.7% |
|
Prof. George Petrov |
15% |
15% |
20-25% |
|
Vladimir Karolev |
0% |
15% |
n.a. |
|
BCCI |
15% |
15% |
n.a. |
|
BSP |
0%* |
n.a. |
n.a. |
|
2004 Government budget |
19.5% |
12-29% |
42.70% |
* for the reinvested profit
On November 23, 2003 the economist Vladimir Karolev, member of the economic team of the ruling party, in an interview for the daily newspaper Sega, proposed elimination of the corporate tax and 15% income tax. He suggests that the decrease of the budget revenues can be compensated by increase of the value-added tax and some of excise taxes (2). According to him that will stimulate a high rate of reinvestment of the profit on behalf of the entrepreneurs and in this way new jobs will be created and a sustainable economic growth will be achieved.
On November 18, 2003 on the initiative of the Bulgarian Socialist Party a round table conference was organized on the problems in the 2004 budget. On the conference the Bulgarian Chamber of Commerce and Industry (BCCI) presented its proposal for 15% corporate tax rate. BCCI also proposed introduction of a flat proportional income tax of 15%, paid at the source of the income. At the conference the Bulgarian Socialist Party proposed elimination of the taxation of the reinvested profit.
List of Media Coverage of the IME Tax and Budget Proposal
Economists Want Tax Revolution, Trud (3), Tuesday, November 11, 2003
IME Suggested an Alternative Budget Considering One of the Lowest Taxes in Europe, Dnevnik (4) , Tuesday, November 11, 2003, page 1
IME Proposed Corporate Tax Cut to 10 percent (IME presented an alternative government budget for 2004), Dnevnik (5), Tuesday, November 11, 2003, page 11
Alternative Calculations (Twofold tax decrease and restriction of government expenditures proposed IME for the 2004 budget; the government refrains to comment on the call to cut expenditures), Tema (6) magazine , 46, 2003
The Revenues Do Not Go Down If Taxes are Lower, interview with George Angelov, Tema (7)magazine , 46, 2003
Ten Percent Flat Tax for Individual and Corporate Income Suggested by IME, Pari (8), Tuesday, November 11, 2003, page 1 and 2
Is the Tax Reform Possible at the Eve of the EU Accession, Pari+(9) , November 17, 2003
2.2 Million Pay Taxes in Bulgaria, Standart, Tuesday, November 11, 2003
Experts Suggest 10% Income Tax for Everyone (A team of economists sends to Milen Veltchev (10) an alternative budget), Novinar, Tuesday, November 11, 2003
IME is Ready with an Alternative 2004 Budget, Monitor, Tuesday, November 11, 2003, page 4
People Who Produce are Only 2,2 Million (Every working person pays 2800 levs for state social welfare programs per annum), Monitor, Tuesday, November 11, 2003, page 16
Budget Expenditures Must Finance Specific Programs, Monitor, Tuesday, November 11, 2003, page 16
The Average Salary Could Increase to 300 if the Taxes are Lowered, Monitor, Tuesday, November 11, 2003, page 16
Experts Call for Taxes of 10% (More than 50% is the burden on the business, calculated at the IME. For compensation in the alternative budget it is proposed a cut of the subsidies and the maintenance of the administration), Sega, Tuesday, November 11, 2003
Experts Against Veltchev : the Treasury Swallows 2800 levs from everyone who is working (By 25% will increase the salaries at 10% income tax and 16% social security tax), 24 chasa (11), Tuesday, November 11, 2003
2,2 Million Wait for the Taxes to Come Down (This is absolutely possible is the opinion of IME), 24 chasa, January 14, 2004
Lost Opportunities by 2004 Government Budget, by Prof. George Petrov (12), Trud, Saturday, November 22, 2003
Developments of the Tax Debate, Dnevnik, December 1, 2003
Some TV and radio coverage
Bulgarian National TV (BNT), News editions, November 10, 2003
Bulgarian National TV (BNT), interview, November 5, 2003
Bulgarian Balkan TV (BBT), Exclusive Morning Interview, November 11, 2003
Nova TV, News editions, November 10, 2003
Nova TV, Talk show, November 23, 2003
Europe TV, News editions, November 10, 2003
Europe TV, Talk show, November 11, 2003
Eurocom TV, News editions, November 10, 2003
MSat TV, Talk show, December 2003
Bulgarian National Radio, interview and news editions, November 10, 2003
Darik Radio, interview and news editions, November 10, 2003
Radio Free Europe, interview and news editions, November 10, 2003
Radio Free Europe, Talk show, November 11, 2003
Radio Free Europe, interview, November 20, 2003
Radio Plovdiv, interview, November 10, 2003
Inforadio, news editions, November 10, 2003
———————————————————————-
(1) Trud is the daily newspaper with the biggest circulation in Bulgaria.
(2) The excise taxes must be increased, because the European Union has minimal levels of excise taxes, which should be reached by all countries, which want to join the union.
(3) Trud is the newspaper with the largest circulation.
(4) Dnevnik is the major business daily in the country
(5) Dnevnik is the major business daily in the country
(6) Tema is the major policy weekly
(7) Tema is the major policy weekly
(8) Pari is the oldest specialized business dayly
(9) Pari+ is a weekly supplement of Pari daily
(10) Milen Veltchev is minister of finance
(11) 24 chasa is the second largest newspaper
(12) Prof. George Petrov is member of the Board of Governors of the Bulgarian National Bank and university lecturer
