LM Legal Services Blog

According to the IMF report about Bulgaria, 3,5 billion BGN from the planned budget income will not be collected in 2009 due to the recession. This will mean automatic activation of the so-called 10% rule – shrinking of the expenses of all ministries and government agencies by 10% in order to achieve an annual budget with a small profit.

The current IMF mission in Bulgaria aims to establish the economic situation in the country. The most dramatic development is the inability to collect VAT to the value of about 3 billion BGN from the initially planned amounts. The most optimistic forecast of the National Revenue Agency is that the VAT collection will be 5% less than the planned for 2009 or an amount exceeding 110 million BGN, which still will be an increase of 6% in comparison to last year.

Generally, the tax collection might increase by 12% in comparison with last year.

Concerning the collection of Capital Gain Tax, the optimistic forecast underlines that 14% or 360 million BGN will not be collected. Still the collection of Capital Gain Tax will be 2% more than last year.

According to the IMF report, the decrease of income will force Bulgaria cut the budget expenses to the value of 1,7 billion BGN in 2009. The state expenses must be cut, as well as the salary increases, because the economic growth in 2009 will slow down to 1%.

The decrease of lending and of the foreign investment will lead to the shrinking of sales in the country. This in combination with the decrease of property prices and the possible increase of the number of bad debt might lead to shrinking of the economy and a negative GDP growth of – 3,5%, according to the pessimistic forecast of the IMF.

The total amount paid cash in hand by Bulgarian companies to their employees totals 4 billion levs (2 billion Euros) per annum according to Mediana social agency. More than 50% of the Bulgarian workforce confess that they receive part of their income unofficially, according to the Ministry of Social Affairs. The average income for the country is 523 lv. At the same time many Bulgarians have bought new homes and cars.  According to the General Labour Inspectorate,  90% of the inspected companies have labour contracts with their employees at the minimal wage.  The loss of the state in unpaid tax is enormous.

Burgas Municipality has received the BBB credit rating. The general evaluation has shown that the investment risk in Burgas is and it is a good place to invest. The financial audit of the municipality and the following credit analysis has outlined an income increase of 95%, low unemployment and increase of the tax income.

Bulgaria’s budget surplus reached 3.3 billion levs (1.5 billion Euros) in the end of May 2008, according to the Ministry of Finance. While 2.7 billion levs come from the budget, 590 million levs come from European funding. According to the current law the annual surplus should not exceed 3% of the GDP, i.e. 1.8 billion levs.

Recently, the 360 million USD from the Iraqi debt to Bulgaria have been paid but this amount will not be considered part of the surplus. The collection of V.A.T. goes as planned and so far, 38.9% or 3.1. billion levs have been collected,  while the one of direct tax is even better – about 50% of the planned amounts have been collected. The capital gain tax payment has increased by 30% in comparison to the last year with a surplus of 300 million levs. The income tax collected until the end of May 2008 is 800 million levs and it represents 37% of the planned receipts.