Part II

Developments in the Member States

Bulgaria

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Overall trends in taxation

Structure and development of tax revenues
In 2010 Bulgaria was the country with the fourth lowest tax-to-GDP ratio in the EU, 27.4 %, which represented
around 77 % of the Union average. Compared to neighbouring Romania, Bulgaria's total tax ratio was only
marginally higher, 0.2 percentage points. Of the countries that joined the EU in 2004, Latvia and Lithuania raised
similar level of tax revenue, around 27 % of GDP, while Hungary's and Slovenia's tax revenues were more than 10
percentage points above Bulgaria's (37.7 % and 38 % respectively).
Bulgaria is the EU Member State most reliant on indirect taxation; the share of indirect taxes in total taxation
amounted to 55.4 % in 2010. In terms of its share in GDP the level of indirect taxation was also well above the EU
average (15.2 %, EU-27 13.5 %) being the fifth highest in the EU. VAT accounted for 61 % and excise duties for
33 % of indirect taxes' revenue. Consequently direct taxes represented only 18.8 % of total taxation (5.1 % of
GDP), which was the second lowest value in the Union. The rates of the social security contributions have been
reduced significantly over the last years and in 2010 they accounted for only 25.8 % of total taxation (EU-27
31.1 %) and 7.1 % of GDP (EU-27 10.9 %).
Most of the tax receipts are collected by the central government, 70.5 % in 2010, and about a quarter by the social
security funds (25.8 %). Revenues collected by the local government were marginal, 2.9 %, due to the 2003 abolition
of the local CIT surcharge and the discontinuing of PIT sharing. In comparison with the EU-27 average the
Bulgarian central government collected with 11.7 percentage points more in tax receipts, while local government
received with 7.7 points less. The share collected by the social security funds is somewhat closer to the EU average
(EU-27 29.9 %)
The decline in the overall tax-to-GDP ratio since the outbreak of the global economic crisis continued also in 2010.
Although the decrease in 2010 (5.7 %) was somewhat less important than the one experienced the year before
(10.1 %) it was strong enough to bring the total tax revenue (in terms of GDP) to its lowest value since 1995. Over
the last decade the general tax strategy was to lower direct taxation and increase reliance on indirect taxation. The
main objective was to decrease taxes on labour, to promote job creation, and on corporations, to attract investment
and incite businesses to go out of the shadow economy. The cyclically adjusted tax revenues confirm this general
downward trend of the tax-to-GDP ratio which in 2000 was 4.5 percentage points higher than in 2010.
Taxation of consumption, labour and capital; environmental taxation
Taxes on consumption in Bulgaria amounted to 14.5 % of GDP in 2010, and in spite of the decrease by 2.7
percentage points since 2008, the revenue is the third highest in the EU. This is mainly due to a high share of
domestic final consumption in GDP close to 64 %. The rate of taxation contributes somewhat less to this high
level as shown by the ITR on consumption which at 22.8 % is only the ninth highest in the EU. The increase
of the ITR over the last decade was notably due to the continuous increase of excise duty rates, the lowering of the
VAT registration threshold and the introduction of VAT accounts.
In 2010, revenue from labour taxation amounted to only 9.0 % of GDP, the lowest value in the Union and 8.1
percentage points below the EU average. Among other factors, this is due to the relatively low level of
compensation of employees (37 % of GDP) and the very low proceeds from employed labour taxation. At 24.4 %,
the ITR on labour, is also well below the EU average (33.4 %). The ratio was decreasing steadily for the last
several years largely due to the government's effort to reduce the tax burden falling on employers by cutting down
progressively social contributions.
Revenues from taxes on capital amounted to 3.9 % of GDP in 2010, the fourth lowest in the EU. Developments
over the years are mainly driven by proceeds from corporate income taxation, which in 2010 ranked 18th in the EU.
Government efforts to attract investment and combat the shadow economy by, among other measures, lowering the

Taxation trends in the European Union

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