TAX-FREE monthly income will be raised to 130 leva as of 2005 under draft amendments to the Personal Income Taxation Act approved by the Government on October 7.
The announcement was made by Finance Minister Milen Velchev at a news conference. Tax-free monthly income currently stands at 120 leva.
Taxes for the lowest monthly income bracket between 130 and 150 leva will be reduced from 12 to 10 per cent; for income between 150 and 250 leva - from 22 to 20 per cent and 24 per cent for income exceeding 250 leva.
Along with the general reduction of taxation, proposals include the introduction of family income taxation. The proposed amendments to the law provide for the reduction of tax base for one parent by 360 leva annually for one child, by 780 leva for two children and by 1140 leva for three and more children.
This tax relief will be accessible regardless of whether family allowance for children is received or the parents have married or simply live together as a family. In addition to the parents, the relief can also be used by persons who really take care of a fostered child, guardians, as well as relatives with whom a child is accommodated.
The draft provides for one of the parents to enjoy the relief regardless of the type of income, since it is deducted from the annual tax base.
Inheritance tax and road tax for vehicles will be abolished from 2005 by amendments to Local Taxes and Fees Act.
Inheritance tax will be abolished because the cost of administering it is higher than the collected revenue of about 350 000 leva a year, the Finance Ministry said in an explanatory memorandum. Currently, up to 15 000 leva inheritance is tax free, and 0.1 per cent is paid on property of 15 001 to 50 000 leva. Ten per cent tax is paid on legacies of more than a million leva.
Road tax will be eliminated because of the introduction of the vignette system for using the first and second class roads of the country from January 1. If driving only within the city limits, owners of vehicles will pay no charges.
Corporate tax rate will be decreased to 15 per cent from 19.5 per cent for 2005 according to amendments to the Corporate Income Taxation Act, Velchev also said.
The Cabinet offers a reduction to 17 from 20 per cent of the tax on social and entertainment costs, donations, sponsorship and maintenance, repair and use of cars for administrative cost.
Proposed changes in the persons carrying on commercial maritime navigation seek to promote Bulgarian maritime navigation. The practice of other European countries is used and the principles of the EU guidelines on state aid to maritime transport, Velchev said.
An amendment to the taxation regime of insurance companies, which will be taxed after the general order, is offered. An additional three per cent tax on insurance premiums will be introduced, calculated in the insurance policies at the expense of either insurers or insured. It will replace the existing one-off tax on income.
The amendment's goal is to achieve an equal standing of tax-payers as well as harmonisation with the European practice. It is expected that the amendment would not lead to insurance services price increase.
The upper limit of the annual depreciation rate on newly purchased machines and production equipment will increased to 50 from 30 per cent, aiming at the country's investment climate promotion, Velchev said.
Value Added Tax (VAT) reimbursement to exporting companies will be reduced to 30 from 45 days. The reduction of the period will enable companies to dispose earlier of the money resource, due to them by the budget.
The recent tax amendments are seen as a serious improvement for Bulgarian businesses and individuals. In 1997, corporate tax was 40.2 per cent, now it is 19.5 per cent and the Government just proposed to cut it to 15 per cent from the beginning of 2005.
The top rate of the personal income tax was 40 per cent in 1997, it is 29 per cent now and it will be cut to 24 per cent in 2005, according to the plan. Thus in 2005, Bulgaria will have one of the lowest profit and income taxes in Europe, the Institute for Market Economics (IME) said.
IME is among the most outspoken advocates of the flat rate and proponents of the Irish taxation model. They believe that, under the influence of business and think-tanks such as themselves, the downward trend in taxation will persist.
Bulgaria is not an exception with the ongoing trends in the taxation department, the IME said. Estonia has a zero tax on reinvested profit. Serbia has a 14 per cent corporate tax and the government proposed a cut to 10 per cent. In Latvia, Lithuania and Macedonia the corporate tax is 15 per cent and the Lithuanian government is considering a cut to 12.5 per cent. The corporate tax in Hungary is 16 per cent and it might be cut to 12 per cent.
Tax competition works in Central and Eastern European countries and most of them are trying to follow the successful Irish example of having faster economic growth through low taxes and free economy.
There are voices in some of the old EU member countries like Germany and France, to stop this move towards lower taxes. Their rationale is that the old EU members charge their companies with high taxes and give the money to the new members and the candidates, which use this money to cut taxes - considered an act of unfair competition.
The first flaw with this rationale is that countries cannot use EU funds to cut taxes because the EU funds are designated for certain purposes, such as farming subsidies, for example.
Comparing the corporate tax rates, it is 38.3 per cent in Germany and 19.5 per cent in Bulgaria. One would expect Germany to extract more money from the economy through the corporate tax than Bulgaria, but just the opposite happens. Germany has so many tax exemptions that a lot of companies are paying no taxes at all. In Bulgaria there are almost no exemptions.
According to Eurostat, in Germany only 0.6 per cent of GDP is generated by corporate tax, against three per cent in Bulgaria.
Poorer EU countries get subsidies from the richer EU members through the EU budget. If the new countries follow the Irish example successfully they will get rich themselves in a very short time and no longer need EU subsidies.
So, it is in the best interest of Germany (as net contributor to the EU budget) to support lower taxes and economic reforms in the new members. If they are forced to keep the high taxes, the new members will be like Greece, still relatively poor after many years in the EU and still getting huge amounts of subsidies every year.
The announcement was made by Finance Minister Milen Velchev at a news conference. Tax-free monthly income currently stands at 120 leva.
Taxes for the lowest monthly income bracket between 130 and 150 leva will be reduced from 12 to 10 per cent; for income between 150 and 250 leva - from 22 to 20 per cent and 24 per cent for income exceeding 250 leva.
Along with the general reduction of taxation, proposals include the introduction of family income taxation. The proposed amendments to the law provide for the reduction of tax base for one parent by 360 leva annually for one child, by 780 leva for two children and by 1140 leva for three and more children.
This tax relief will be accessible regardless of whether family allowance for children is received or the parents have married or simply live together as a family. In addition to the parents, the relief can also be used by persons who really take care of a fostered child, guardians, as well as relatives with whom a child is accommodated.
The draft provides for one of the parents to enjoy the relief regardless of the type of income, since it is deducted from the annual tax base.
Inheritance tax and road tax for vehicles will be abolished from 2005 by amendments to Local Taxes and Fees Act.
Inheritance tax will be abolished because the cost of administering it is higher than the collected revenue of about 350 000 leva a year, the Finance Ministry said in an explanatory memorandum. Currently, up to 15 000 leva inheritance is tax free, and 0.1 per cent is paid on property of 15 001 to 50 000 leva. Ten per cent tax is paid on legacies of more than a million leva.
Road tax will be eliminated because of the introduction of the vignette system for using the first and second class roads of the country from January 1. If driving only within the city limits, owners of vehicles will pay no charges.
Corporate tax rate will be decreased to 15 per cent from 19.5 per cent for 2005 according to amendments to the Corporate Income Taxation Act, Velchev also said.
The Cabinet offers a reduction to 17 from 20 per cent of the tax on social and entertainment costs, donations, sponsorship and maintenance, repair and use of cars for administrative cost.
Proposed changes in the persons carrying on commercial maritime navigation seek to promote Bulgarian maritime navigation. The practice of other European countries is used and the principles of the EU guidelines on state aid to maritime transport, Velchev said.
An amendment to the taxation regime of insurance companies, which will be taxed after the general order, is offered. An additional three per cent tax on insurance premiums will be introduced, calculated in the insurance policies at the expense of either insurers or insured. It will replace the existing one-off tax on income.
The amendment's goal is to achieve an equal standing of tax-payers as well as harmonisation with the European practice. It is expected that the amendment would not lead to insurance services price increase.
The upper limit of the annual depreciation rate on newly purchased machines and production equipment will increased to 50 from 30 per cent, aiming at the country's investment climate promotion, Velchev said.
Value Added Tax (VAT) reimbursement to exporting companies will be reduced to 30 from 45 days. The reduction of the period will enable companies to dispose earlier of the money resource, due to them by the budget.
The recent tax amendments are seen as a serious improvement for Bulgarian businesses and individuals. In 1997, corporate tax was 40.2 per cent, now it is 19.5 per cent and the Government just proposed to cut it to 15 per cent from the beginning of 2005.
The top rate of the personal income tax was 40 per cent in 1997, it is 29 per cent now and it will be cut to 24 per cent in 2005, according to the plan. Thus in 2005, Bulgaria will have one of the lowest profit and income taxes in Europe, the Institute for Market Economics (IME) said.
IME is among the most outspoken advocates of the flat rate and proponents of the Irish taxation model. They believe that, under the influence of business and think-tanks such as themselves, the downward trend in taxation will persist.
Bulgaria is not an exception with the ongoing trends in the taxation department, the IME said. Estonia has a zero tax on reinvested profit. Serbia has a 14 per cent corporate tax and the government proposed a cut to 10 per cent. In Latvia, Lithuania and Macedonia the corporate tax is 15 per cent and the Lithuanian government is considering a cut to 12.5 per cent. The corporate tax in Hungary is 16 per cent and it might be cut to 12 per cent.
Tax competition works in Central and Eastern European countries and most of them are trying to follow the successful Irish example of having faster economic growth through low taxes and free economy.
There are voices in some of the old EU member countries like Germany and France, to stop this move towards lower taxes. Their rationale is that the old EU members charge their companies with high taxes and give the money to the new members and the candidates, which use this money to cut taxes - considered an act of unfair competition.
The first flaw with this rationale is that countries cannot use EU funds to cut taxes because the EU funds are designated for certain purposes, such as farming subsidies, for example.
Comparing the corporate tax rates, it is 38.3 per cent in Germany and 19.5 per cent in Bulgaria. One would expect Germany to extract more money from the economy through the corporate tax than Bulgaria, but just the opposite happens. Germany has so many tax exemptions that a lot of companies are paying no taxes at all. In Bulgaria there are almost no exemptions.
According to Eurostat, in Germany only 0.6 per cent of GDP is generated by corporate tax, against three per cent in Bulgaria.
Poorer EU countries get subsidies from the richer EU members through the EU budget. If the new countries follow the Irish example successfully they will get rich themselves in a very short time and no longer need EU subsidies.
So, it is in the best interest of Germany (as net contributor to the EU budget) to support lower taxes and economic reforms in the new members. If they are forced to keep the high taxes, the new members will be like Greece, still relatively poor after many years in the EU and still getting huge amounts of subsidies every year.
