Bulgaria Refuses VAT Hike

May 24, 2010 Taxation in Bulgaria

Alexander NevskiThe Bulgarian Government has given clear indication that it will not raise its Value Added Tax (VAT) rates in order to reduce the current budget deficit.

Speaking at a television interview on May 23rd, Simeon Djankov, Finance Minister of Bulgaria, denied any speculation regarding possible increases to the nation’s VAT rates. Economists across Europe, and political figures within the country, have called for a rise to the current 20 percent VAT flat-rate in order to eliminate the budget deficit. The current monetary imbalance has been cited as a serious hurdle to Bulgaria’s attempts to join the Euro in the near future, and is considered a pertinent issue by the Governement.

Simeon Djankov indicated that the Government will utilize its monetary reserves to plug any budgetary gaps. The measure will be backed with an additional 20 percent cut to public spending. The Government has already given approval for cuts to state wages, pension freezes, and sale of public property. Simeon Djankov also announced that the Government is currently drafting new guidelines concerning the selection of banks to manage deposit of state-run enterprises.

The Minister claimed that increasing the VAT rate will not have the effects that supporters of the change expect. He explained that Bulgaria is renowned for a sound and stable fiscal system, and tax increases would serve to deter current and future international investors. He added, “Now you will see how much more capitals will flow into Bulgaria, especially from countries, which adopted tax hikes.” Simeon Djankov gave further justification, saying that the Government’s monetary reserve is held specifically for the purpose of assisting in economic recoveries.

The Bulgarian Government currently has a revised budget deficit target of 2.7 percent. The original national 2010 Budget had set a deficit projection of only 0.7 percent. The European Commission has forecast that the deficit could reach as high as 2.8 percent.

Photo by Anduze traveller