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The fast inflation of the euro is resulting in higher than expected tax revenues in Bulgaria.
submited on 31.07.2006 in category Political stability | Fiscal affairs | Macroeconomic developments
submited on 31.07.2006 in category Political stability | Fiscal affairs | Macroeconomic developments
The current government was the first make bold to cut the most economically damaging tax – the obligatory security contributions in the state social funds. The results for the moment are positive – the revenues from contributions remained stable in nominal terms for the first five months of the year as this decision gave valuable incentive for both employers and employees.
In the mean time the revenues from other taxes increased so quickly that the budget continued to generate surplus not only in nominal terms but also in terms of share of the aggregate income produced by the economy. The VAT income – the most important income source, increased by 20% for the first five months of the year compared to the same period of last year.
The VAT income follows the dynamics of the imports in the economy, which grew by 29% in nominal terms in the year until may. The administration of this tax is closely related to the material import dynamics – probably the least problematic for flow of added value in the economy. Yesterday Customs Agency declared that cash revenue from VAT imported from January 1 to June 30 2006 is BGN 2,7 billion – a 33% increase compared to last year.
On the other hand, the import followed the fast inflation of the euro and it resulted bigger than the expected, measured in money. And since VAT is paid on the price of the good, measured in BGN (and not on piece as other indirect taxes like the excise or some tariffs on imported goods), the price increase of the commodities in fact reflects in higher than forecasted VAT income.
The most important factors for the process of budget execution are the inflation of the euro and the lev measured through the commodity prices.
The execution of tax revenues exceeds the nominal growth of the economy (according to the official data the GDP growth for Q1 is 12,1% compared to same period of last year). Although the difference is not significant – the tax revenues grow by 12,8% for the first five month of the year, this is a indicator that the tax burden in the economy remains constant and even slightly increases.
If the surplus were spend on debt reduction or reforms which would cut future taxes and not for current spending, we would comment on this topic by different manner. But the most probable scenario is that the budget surplus will be spend for financing the current government spending.
In the mean time the revenues from other taxes increased so quickly that the budget continued to generate surplus not only in nominal terms but also in terms of share of the aggregate income produced by the economy. The VAT income – the most important income source, increased by 20% for the first five months of the year compared to the same period of last year.
The VAT income follows the dynamics of the imports in the economy, which grew by 29% in nominal terms in the year until may. The administration of this tax is closely related to the material import dynamics – probably the least problematic for flow of added value in the economy. Yesterday Customs Agency declared that cash revenue from VAT imported from January 1 to June 30 2006 is BGN 2,7 billion – a 33% increase compared to last year.
On the other hand, the import followed the fast inflation of the euro and it resulted bigger than the expected, measured in money. And since VAT is paid on the price of the good, measured in BGN (and not on piece as other indirect taxes like the excise or some tariffs on imported goods), the price increase of the commodities in fact reflects in higher than forecasted VAT income.
The most important factors for the process of budget execution are the inflation of the euro and the lev measured through the commodity prices.
The execution of tax revenues exceeds the nominal growth of the economy (according to the official data the GDP growth for Q1 is 12,1% compared to same period of last year). Although the difference is not significant – the tax revenues grow by 12,8% for the first five month of the year, this is a indicator that the tax burden in the economy remains constant and even slightly increases.
If the surplus were spend on debt reduction or reforms which would cut future taxes and not for current spending, we would comment on this topic by different manner. But the most probable scenario is that the budget surplus will be spend for financing the current government spending.
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