The Bulgarians pay one of the lowest personal income taxes in Europe, according to KPMG's Individual Income Tax Rate Survey 2008. The KPMG report places Bulgaria on the second place among the countries with the biggest cuts in individuals' income taxes.

This is the first cross-border survey with historical data from 2003 to 2008 which looks at how people have been taxed in different parts of the world, and how different governments approach the difficult task of raising funds for necessary public services without the losing support of their citizens.

Covering 87 countries, the report concentrates on the highest level of personal tax payable to the central government. Of the 87 countries surveyed, 33 have cut their rates in the past six years and only seven have a higher top rate in 2008 than they did in 2003.

The picture that emerges is of a slow global decline in top rate personal income taxes, from an average of 31.3 per cent in 2003 to 28.8 per cent in 2008, says a commentary in the report. The full survey can be accessed at http://www.kpmg.com.sg/publications/tax_IncomeTaxSurvey2008.pdf.

The highest personal income taxes in the world are paid by citizens of the European Union. But it is here where the steepest falls in average tax rates, from 41.5 per cent in 2003 to 36.4 per cent in 2008, have been seen.

The report describes as the most significant new development in 2003 to 2008 the introduction of flat rate taxes in Europe, often introduced at a much lower level than the highest variable rate. So far, it has been mainly Eastern European states that have taken this step, notably Estonia, where rates have fallen from 26 per cent in 2003 to a flat 21 per cent in 2008, Slovakia which has gone from 38 per cent to 19 per cent, Lithuania, which in 2007 fell 6 points to 27 per cent and this year a further 3 points to 24 per cent, and Romania where rates have gone from 40 per cent to 16 per cent. In 2007 this was the lowest rate in the EU. But Romania has since been overtaken by the Czech Republic which this year introduced a flat rate tax set at 15 per cent, an by Bulgaria whose new flat rate of 10 per cent gives it the lowest personal tax rate of the 27 EU member states.

The effects from the rate cut in Bulgaria are partly compensated by the higher maximum social insurance income and the increased insurance burden to persons. Nevertheless, Bulgaria is among the top countries where it is possible to post one of the highest net incomes (on an annual base of 100,000 U.S. dollars) where it is preceded by only OPEC member states such as Kuwait, Saudi Arabia, etc., says the report.

Kalin Hadjidimov, a partner in KPMG Bulgaria, says that the reduction of personal income taxes will hardly prove a leading factor in investment decision-making but will surely have an impact. He noted that there has been growing interest among foreign individuals to obtain Bulgarian residence for tax purposes which is a sure indicator of this country's attractiveness in terms of personal taxation.

Source: BTA