Bulgaria Plans 10% Flat Income Tax Rate in 2008

Bulgaria Plans 10% Flat Income Tax Rate in 2008

Bulgaria's Socialist-led coalition government agreed to introduce a flat income tax next year to boost budget revenue and attract investment, Bloomberg reported.

The Cabinet approved next year's budget plan at a meeting in the Black Sea city of Varna, the finance minister's adviser, Zornitsa Arsenieva, said in a telephone interview today. The budget sets out to sustain this year's economic growth level of 6 percent and an average inflation rate of 3.7 percent for next year, she said.

Neighboring Romania, Slovakia and the Baltic countries have already introduced flat tax rates. In Romania, the government collected 15 percent more in revenue after it introduced a single tax rate of 18 percent in 2005. Bulgaria, which joined the European Union on Jan. 1 with Romania, hopes to adopt the euro in about 2010 and wants to raise living standards in the EU's poorest state.

The current-account deficit is expected to reach 17.2 percent of gross domestic product, which will be cushioned by a budget surplus of between 1 percent and 2 percent of GDP.

Bulgaria now has a progressive three-level income tax of 10 percent, 16 percent and 24 percent. The country would gain 560 million lev ($396 million) in revenue if it introduces a flat tax, Economy and Energy Minister Petar Dimitrov said in June.

The Balkan country had a budget surplus of $1.3 billion in May as tax receipts rose, after the government cut corporate tax to 10 percent this year from the previous 15 percent. Bulgaria's revenue collection exceeded the half-year target by 20 percent, Finance Minister Plamen Oresharski said, cited by BTA news agency today.

The government also plans to cut obligatory state pension payments by employers by 3 percentage points to 33.6 percent of gross wages. It plans a second pension increase for this year by 11 percent from Oct. 1, after a previous 10 percent increase in July, which exceeds the 8.5 percent budget projection for pension raises this year.

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