Bulgaria's 10% Flat Tax Reform Comes into Force

02.01.2008

The amendments introducing a flat 10% income tax rate in Bulgaria, which the country's Parliament passed after extensive debates last month, have come into force on January 1.

Despite extensive criticism from the opposition and trade unions, the Socialist-led ruling coalition decided also to drop the provision that exempted the first BGN 200 of all wages from tax.

Under the new tax regime, all who earn below BGN 490 will end up paying more in taxes.

Bulgaria's parliament has been busily amending the tax legislation for over a month, ringing in the changes required before it could pass the draft budget for the new year at second reading.

The leaders of the three parties in Bulgaria's ruling coalition have agreed in summer on the tax reform, with a flat rate of 10%, the lowest in Europe, replacing the progressive taxation system with three brackets.

Since Estonia introduced a flat tax system in 1994, enjoying stable GDP growth, eastern European countries have been attracted to the flat tax that promises to attract foreign investments and increase transparency.

Slovakia, Romania, Albania and many former Soviet republics have all adopted a flat tax.

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