Bulgaria Plans Low Tax to Attract More Business

Bulgaria says that its draft 2014 State Budget reflects a tax policy of treating low corporation and income tax as “an important stimulus for investment, economic growth and employment” while improving long-term fiscal stability.

Mall of Sofia

According to the Ministry of Finance, the budget has as its objective “accelerated economic growth” through a balanced approach to growth factors such as human capital, basic infrastructure, and the effective implementation of technological knowledge. The new budget, according to the Ministry, transforms the current model of containing growth through fiscal policies, and seeks to optimize and restructure Government administration by linking the availability of resources to ministries, and to other institutions, with achievable results.

In particular, the Government plans to implement a BGN500m (USD353m) public investment program called “Growth and Sustainable Development of the Regions” as a new mechanism for financing public investment projects. The move is intended to improve budget proposals by linking funding to the economic cycle and to a critical review of existing policies and programs, and to the process of absorbing European Union investment funds. In this way, according to the Ministry, EU funds will be used in ways that have a direct effect on growth, jobs, income, competitiveness and public infrastructure.

Mall of Sofia, courtesy of Nikola Gruev

Reforms are also planned to lower administrative burdens and costs for businesses and citizens. The Government believes that this will swiftly strengthen SMEs, improve the environment for business competition, and accelerate the processes of starting up new businesses.

Other key policies for 2014 include educational reforms to improve vocational training, including new e-learning and closer links between vocational schools and businesses, as well as measures to discourage early school-leaving. Measures will also be taken to modernize the agricultural sector through investment, innovation and restructuring, and there will be reform in healthcare, including increased pay for health professionals and the demonopolization of health insurance.

The 2014 Budget also reinstates the “Swiss Rule” for pension indexation, meaning pensions will increase by 3 percent as from July 1, 2014, with a raised ceiling from BGN 770 to BGN 840. Maternity and disabled-child allowances will be increased, eligibility for energy assistance widened, and new funding provided for public canteens.

The Ministry predicts that in 2014 real economic growth, inflation, and the deficit will all be at 1.8 percent of GDP. GDP is itself expected to reach BGN 81.582bn (USD57.5bn), and revenues to increase by BGN501.2m (USD350m) to BGN30.886bn (USD29bn). Debt is expected to drop substantially from the start of 2015 due to a forthcoming peak repayment of around BGN1.7bn (USD1.2bn) on global bonds issued in 2002.