In a televised interview on December 29th the Deputy Prime Minister of Bulgaria Simeon Djankov confirmed that the government will lower the national value added tax rate by either 1 or 2 percent in 2012.

The upcoming changes will come as part of the government’s pledge to decrease the value added tax rate to 16 percent by 2015, from the current rate of 20 percent. The Prime Minister explained that the government will aim to cut the tax rate by a maximum of 2 percent, but will only do so if fiscal conditions allow.

The Prime Minister did not to specify when the tax rate change will tax place, and said that the government will give very little prior warning before lowering the VAT. He said that if consumers know the date of the change, they may intentionally delay some purchases until after the rate is dropped, which would ultimately be a negative effect on the economy.

The VAT rate cut is not expected to decrease the government’s overall fiscal standing, as the lowered revenues from the tax will be balanced by the higher than expected cumulative tax collections seen in 2011. The tax rate change will also have no negative effect on the government’s plans to boost funding into the health care sector, or carry out reforms to the education sector.

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While speaking to the parliament of Bulgaria on May 4th, Prime Minister Boyko Borisov defended his party’s intention for the country to join the Euro Plus Pact, saying that the move is beneficial for the country and will not lead to Bulgaria loosing decision making power over its economic and taxation policies. The speech was made in response to a recent decision of the Budgetary Committee to vote against Bulgaria’s support for the Pact. In an effort to sway parliament, the Prime Minister said, “…development of Bulgaria could not happen without support [ by Bulgaria] for the Euro Plus Pact.”

The Euro Plus Pact was conjointly proposed by the German Chancellor Angela Merkel and French President Nicolas Sarkozy in February 2011, and it was initially labeled as the European Competitiveness Pact. Originally the project called for a common base for corporate taxation among EU member states, along with plans to raise pension ages, abolish of wage indexation, and place limits on the size of sovereign debt allowed for governments. Through months of debates, the original proposal was updated to revolve around five goals, consisting of fostering economic competitiveness, raising employment levels, enforcing financial stability, improving the sustainability of public finances, and international tax policy coordination.

Opposition parties in the Bulgarian parliament have stood up against the Bulgarian government’s decision to join the Euro Plus Pact, claiming that it will force the country to alter its tax system, instate economic policies that are not best suited to the national financial climate, and also force the country to assume some extra responsibility for funding and bailouts of struggling EU member countries. While speaking in parliament, the Prime Minister addressed these concerns, reassuring MPs that the targets raised by the Euro Plus Pact are non-binding and will not require an increase to Bulgaria’s 10 percent corporate tax rate, the lowest in the EU at the moment. The Pact will also have no sovereignty in determining or setting the country’s policy regarding public sector wage increases or salary freezes. While speaking on the prospect of funding bailouts of other Pact members, he said, “…it is crucial to know that Bulgaria is not assuming guarantees for others’ [countries] debts.”

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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.

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On November 26th, the National Assembly of Bulgaria voted and approved amendments to the country’s Corporate Income Act, which will see levies on sports gambling, casino games, the lottery and any other gambling activity being taxed at 15% of their annual revenue. Also, quarterly taxes on gambling machines will be set at BGN 500 (approx EUR 250) , while a roulette table will attract a tax liability of BGN 22,000 (approx EUR 11,000).

Currently, sports gambling is taxed at a 10% rate, and all other types of gambling are levied at 12%. Quarterly taxes on gambling machines are currently set at BGN 300 and roulette tables are charged BGN 18,000. The gambling tax rise is estimated to increase tax revenue in 2010 by over BGN 30 million from it’s current estimated total of BGN 117 million.

According to a survey commissioned by Simeon Djankov, Bulgaria’s Finance Minister, approximately 60% of Bulgarians are in favor of gambling tax increases. The popular opinion was reflected in the National Assembly of Bulgaria as the increase was passed with a unanimous positive vote from the 149 members of National Assembly. Contrary to public opinions and parliamentary action, the Bulgarian Association for Entertainment and Gambling Games is steadfastly against the move, claiming that the tax increase could put the risk of redundancy on half of the gambling industry’s employees, and significantly decrease state revenue.

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