- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
submited on 22.01.2015 in category Regulated markets | Fiscal affairs | Privatisation | Political stability | Monetary policy | Macroeconomic developments
The government faces the challenge of maintaining fiscal discipline in an environment of zero inflation and minimal growth, combined with the compressed inflow of foreign investment and mediocre job creation. As total government revenue stagnation is inevitable under such circumstances, excise duty revenues are becoming more and more important from macroeconomic standpoint. Combating the informal economy and improving the collection will be of key importance to public finance stability and could enable the implementation of reforms and spending policies.
Tobacco excise duties generate revenue amounting to BGN 1.8 billion in 2014 or 44.5% of all excise duties and 6% of all government revenue. The macroeconomic impact of this revenue source is 2.2% of the gross domestic product of Bulgaria.
According to a study by АС Nielsen, conducted in 2014 г.,the share of illegally traded cigarettes in Bulgaria is close to 20%, tending to increase in the last 3 years. This estimate is likely conservative, taking into account the effect of substituting cigarettes with other tobacco products. Under these assumptions, the conservative estimate of the missed (not collected) total tax revenue from tobacco consumption is close to BGN 450 million annually (including both excise duty and value added tax). This is equivalent to 2% of total government revenue in 2014 or 0.6% of GDP.
Bulgaria is the EU member in which tobacco taxation has the highest significance for the budget execution. Bulgaria is the country which loses the most revenue in relative terms due to contraband of all EU members. Tobacco contraband costs 1.6%-2% of total tax revenue which the government collects. According to this indicator, Bulgaria is substantially “ahead” of EU-members. In relative terms, government revenue losses in Bulgaria are threefold higher compared to Romania and Poland, for example, 10 times higher than the losses in Germany, and 16 times larger than the losses in the Netherlands.
The consumption of illicit cigarettes is unevenly distributed among the big Bulgarian cities. If the contraband level in the most affected 10 cities were to be brought down to the country average, government losses would decrease by ¼ and additional BGN 110 million would be collected in the form of excise duty and value added tax.
The full report in Bulgarian is available here