- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
Corporate tax rate down to 10% in 2007
submited on 09.10.2006 in category Political stability | Fiscal affairs | Macroeconomic developments
submited on 09.10.2006 in category Political stability | Fiscal affairs | Macroeconomic developments
The ruling coalition agreed to a 1/3 reduction of the corporate tax rate. Effective from January 1st 2007, the rate will be 10%, from the current 15%. The vote in the budget and finance committee of the parliament was supported by opposition parties. The Ministry of Finance insisted on 12% rate, but the political consensus in the coalition supported a bigger tax cut. Only one country in the EU (Cypress) and one outside (Serbia) have a 10% rate (Estonia has a zero rate for reinvested profit). At the same time, the coalition decided on modest changes in the pension contribution, with a possible cut of 3 percentage points in July 2007 under conditionality. The latter is the based on the concern of weak VAT revenues due to the accession to the common market.
Meanwhile, the budget surplus until August reached an unprecedented level of almost BGN 2 billion, or 50% higher than by August 2005. Our forecast is that it will reach 4.5% of GDP by the end of the year, provided no one-time spending occurs in December. Revenues grew by 10.4% compared to 2005 to reach BGN 12 984 million, while expenditures lagged behind with a 5.3% growth to reach BGN 10 994 million.
These developments confirmed that to achieve a balanced budget, the government might have taxed businesses and citizens at much lower tax rates. If the surplus was to be hypothetically directed proportionally to tax cuts in the four major taxes – the corporate and personal income taxes, the VAT and the social security tax (all types included) – the budget will be able to collect revenues which equal expenditures with 11.4% corporate rate, 16-20% personal income rates, 15.1% VAT rate and overall reduction of social security burden by 8 percentage points. If VAT is to stay stable, and the corporate tax is 10%, personal income tax may be reduced to a single rate of 17%, while the pension contribution may fall from 23% to 12%.
Meanwhile, the budget surplus until August reached an unprecedented level of almost BGN 2 billion, or 50% higher than by August 2005. Our forecast is that it will reach 4.5% of GDP by the end of the year, provided no one-time spending occurs in December. Revenues grew by 10.4% compared to 2005 to reach BGN 12 984 million, while expenditures lagged behind with a 5.3% growth to reach BGN 10 994 million.
These developments confirmed that to achieve a balanced budget, the government might have taxed businesses and citizens at much lower tax rates. If the surplus was to be hypothetically directed proportionally to tax cuts in the four major taxes – the corporate and personal income taxes, the VAT and the social security tax (all types included) – the budget will be able to collect revenues which equal expenditures with 11.4% corporate rate, 16-20% personal income rates, 15.1% VAT rate and overall reduction of social security burden by 8 percentage points. If VAT is to stay stable, and the corporate tax is 10%, personal income tax may be reduced to a single rate of 17%, while the pension contribution may fall from 23% to 12%.
What is your opinion about this article?
0 agreed
0 disagreed