In two consecutive years, a flat tax of 10% was introduced in Bulgaria. First in 2007 -10% tax on corporate incomes and in 2008 – 10% tax on incomes of individuals. The flat rate can be defined as a positive reform for Bulgaria. In the countries with flat tax rate the economy and the incomes grow significantly faster. The flat tax rate on incomes increases the economic activity, opens new work places and contributes for reducing the shadow economy. Comparing the economic growth in the countries from Central and Eastern Europe with flat tax on incomes with the growth in these countries from this region with progressive taxation of incomes, it can be concluded, that the countries with flat tax progress faster. Among many advantages of the flat tax the main advantage for Bulgaria is the increase of country competitiveness as an attractive place for investments.
When the tax on incomes was decreased to 10%, the main drawbacks according to external analysts, was that this would be a significant loss of budget incomes. Although the tax reform was established with a consensus between almost all political parties in the parliament, the International Monetary Fund advised the government to cancel the tax decrease and they even sent a special mission to Bulgaria (in that time our country had an agreement with the IMF). Instead of IMF’s advice, our government has relied on our local economists, the tax reform wasn`t annulled and came into force as from 1st of January 2007. The tax reform and the association of Bulgaria in the European Union took place at the same time and the double effect of both changes had a huge impact. In spite of the IMF extrapolations, the incomes from taxes increased significantly. The incomes from the decreased tax have jumped with up to 40% and instead of the expected deficit the budget has reported a big surplus. 2007 reported a record in the attracted foreign investments, during the year in the country entered almost 14 billion euro external capitals. As a result, the employment as well as the income has reported big improvement. The success of the 10% income tax was determinant for the implementation of the 10% income tax as from 1st of January 2008. Before the flat tax establishment, the incomes were assessed with marginal rate from 20 to 24% (and in earlier periods over 40% as well), respectively the tax reform has brought to a significant simplification of the tax system. The flat tax rate on income turned out to be a success. In the end of 2008, the world’s economic and financial crisis has brought about recession and a sharp decrease of the income tax in the budget with one exception – the incomes from the new established flat tax were increasing in every year from the beginning of the crisis up until now (2012 they were nearly with half a billion more than before the crisis) – an achievement, which is a result of the tax reform. (to be continued)