Income taxes are direct taxes. In 2008 Bulgaria introduced the so-called “flat tax” which means that all income is taxed at the same rate. In our country that flat rate is 10%. However, individual trader business income is treated differently - with a flat rate of 15%. Other exceptions include interest income, which is taxed at 8% and income from dividends which is taxed at a 5% rate.
In general, income tax concerns the earnings of people who are employed. It is imposed after the deduction of social security payments, which means that the tax base is reduced by the insurance payment.
Income tax is most often deducted by the employer upon payment of the monthly salary of the employee. In practice a large part of workers can never “see” the money that they have paid as tax on their income. In 2018 income tax revenue is expected to reach close to BGN 3.4 billion, which is around 11 % of all tax and social security revenue paid to the country’s treasury.
Social security payments are paid by both the employer and the employee. In both cases, they are a substantial burden on the labor costs of the employee. Social security payments are divided into two groups — social and health insurance. State social insurance (SSI) payments are made directly to the National Social Security Institute (NSSI) and provide for employees’ pensions along with compensation for sickness, maternity, unemployment and workplace accidents. For people born after the beginning of 1960, a part of an employee’s pension payment is allocated to a personal account in a private pension fund (Supplementary mandatory pension insurance - SMPI). The revenue from health insurance (HI) payments is directed to the National Health Insurance Fund (NHIF).
In general, for people working in the third category of employment the insurance security burden is divided as it follows: SSI — 11.42 % paid by the employer on behalf of the employee and 8.38 % paid by the employee; SMPI — 2.8% paid by the employer on behalf of the employee and 2.2% paid by the employee; HI — 4.8 % paid by the employer on behalf of the employee and 3.2 % paid by the employee. The 2018 budget foresees that insurance payment revenue (social security and healthcare payments) will reach BGN 6.6 billion and BGN 2.6 billion respectively. These revenues are projected to account for 29% of all revenue.
Corporate taxes are also direct taxes. In 2007 the “Profit” tax was reduced to 10 %. In practice, after the flat tax was introduced in 2008 personal income and corporate profits in Bulgaria have been taxed at the same flat rate of 10%. The corporate tax covers all profits of domestic or foreign legal entities whose business activity takes place in Bulgaria.
Even though “profit” taxation refers to corporations, in the long run it is also paid by individual taxpayers, i.e., by the clients of the firm or by its workers. The revenues from corporate taxes in 2018 are expected to reach BGN 2.4 billion, which amounts to 8% of all taxes and social security revenues of the Treasury.
Value-added taxes are a form of indirect taxation. Through it the consumption of individuals, regardless of their income, is taxed. VAT in Bulgaria is flat at 20% and the final price of the product is given only after its addition. This means that 1/6 of the final price of the goods that we buy is actually value-added tax which goes to the state budget. There is a preferential VAT rate of 9% for tourism.
Bulgaria’s budget is generally orientated towards indirect taxes, which means that taxes on consumption such as VAT form the main revenue source of the state. VAT revenues in 2018 are expected to be BGN 9.8 billion, which represents 31% of all taxes and social security revenues paid to the national treasury.
Excise duties are indirect taxes which are imposed on certain goods so that their consumption can be artificially reduced. Goods that are meant to be restricted by excise taxes are, for instance, fuels and those that are recognized as “harmful” such as cigarettes and alcohol. The imposition of excise duties does not affect or exclude VAT. The tax burden of excise goods is extremely large, sometimes 70-80 % of the final price.
Excise duties in Bulgaria are frequently increased in accordance to EU-wide policies, including the obligation of the country to meet the minimal levels required by the EU. They have a large impact on the state budget and are projected to reach BGN 5,1 billion in 2018, which amounts to 16% of all social security and tax revenue.
Tariffs are taxes which artificially raise the price of imported goods. Since Bulgaria joined the EU, tariffs no longer play a role within the European single market. However, in Bulgaria’s trade with the rest of the world there are numerous examples of extremely high tariff rates, which burden the trade process. Revenues from tariffs in the last few years have been around BGN 150-160 million.
Local taxes are paid to municipal budgets and are defined by the municipalities. They are mostly property taxes. There are taxes imposed on movable and immovable property as well as on the transfer of property. Local taxes also include the tourist tax and license taxes (for taxi driver, retailers, etc.). The total revenue from various local taxes in 2018 is expected to reach above BGN 1 billion. These revenues will be spent at the local level by municipal authorities.