We all know how important taxes are and also how crucial for a certain economy is to carefully define the tax rates. But in addition to rates, the administrative procedures concerning the tax payments are of no less importance since in economies where it is more difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector—where businesses pay no taxes at all. The “Paying taxes” index measures the following essential indicators: the total number of tax and contributions payments per year; the time required to comply with three major taxes and the total tax rate as a percentage of profit before all taxes. The ranking on the ease of paying taxes is the simple average of the percentile rankings on these component indicators.
Globally, Bulgaria stands at 69 in the ranking of 183 economies on the ease of paying taxes which is a very optimistic and indicative performance compared to the average ranking in the European and Central Asian region which is 99. Just for the sake of a more detailed comparison, we will point out that Slovenia is ranked 87, Hungary – 117, Czech Republic – 119, Poland – 128, Slovak Republic – 130. It is also important to be mentioned that Bulgaria is demonstrating an overall better performance with this index compared to last year’s report when it was ranked 72nd.
The number of tax payments that need to be performed per year in Bulgaria is 17 – again a dramatic improvement compared to 2007 when they were 31. This result is again much better that the average for the European region and Central Asia which is 37.
Another reason for the general improvement of the Paying Taxes index is the greatly reduced time spent per year for tax and social contributions payments which have come down to 500 hours compared to 616 hours for the last year. This decrease means that the business and the citizens have spent 15 working days less in paying their taxes than they used to spend last year. The main reason for this considerable improvement is the provision and implementation of more useful electronic services by the National Revenue Agency, which exact number at the moment is 25. According to the National Revenue Agency’s calculations, the increasing usage of the electronic services provided by them have saved the taxpayers around BGN 330 million per year which savings come from the fact that the employees or the people who submit the tax declarations do not encounter time and money expenses.
The most indicative reason for referring to Bulgaria as the leading tax optimization center in the EU is the lowest tax rates and their value as a proportion of the profit. Here the results are impressive. The total taxes rate represents 28.1% of the profit which is almost two times lower than the average value for the European and the Central Asian region. This result is also very close to the result of the world’s best performer Chile – 25%. If we take a closer look to the taxes included in this indicator, the profit tax is 4.9% compared to the European average of 9.3%, the labor tax and contributions – 19.2%, compared to 21.7%, and other taxes – 4.1%, compared to 9.5%. In addition to this index, it is also important to be mentioned that there are governments’ steps undertook for further reducing the VAT rate which at the moment stands at 20%. The current plans are to be reduced to 18% and by a further 2% at a later stage.
The conclusions that can be drawn from the results of the 2012 report of the World Bank for Bulgaria are optimistic and very positive. It is clear that Bulgaria has chosen the right way for establishing a long-term fiscal, financial and political stability which is of great importance, especially in times of a global economic recession. This is reconfirmed by the increasing number of foreign investors and foreign companies moving their headquarters in Bulgaria for the purpose of considerable tax optimization and profit increase. What is also important is that the multiple government incentives are aimed to be long-termed ones which provide an additional reassurance for the foreign businessmen, operating on the Bulgarian market.