BULGARIA AND THE FLAT TAX

BULGARIA IMPLEMENTS 10 PERCENT FLAT TAX RATE

According to Bulgarian news, the nation's government decided to implement a 10 percent flat tax rate on individual and corporate income by squeezing Bulgaria's current three-bracket system of individual income taxation.

Though some key actions regarding Bulgaria's fiscal stance may be overdue, such as 10 percent pension increase and postponing the reform of the state-run pension system, the Bulgarian government softened social security contribution rate by 3 percentage points, an important measure to accelerate the outcome of less fiscal burden, further benefiting capital creation, investment, entrepreneurship, wealth creation, labor supply and making much space to introduce vouchers in education and private retirement accounts and investment choice following Slovakia's transformation to private pension accounts based on income savings invested in private pension funds.

Despite the membership in the EU, Bulgaria is a post-communist economy, recovering from decades of socialist mismanagement. On its way to recovery, the rate of government spending is estimated to amount 42 percent of the GDP in the next fiscal year which is still high compared to the success of cutting the size of government spending in Estonia which is known as the Baltic tiger. Public spending and fiscal consumption are of course, an important indicator of macroeconomic performance. According to the stats provided by the Bulgarian National Bank, inflation pressures cause a high magnitude of GDP volatility affection resulted from a high growth of monetary aggregates fueling inflation and impeding Bulgaria's macroeconomic performance.

However, the introduction of Bulgaria as a flat tax jurisdiction is a giant leap ahead of crippled European welfare jurisdictions in terms of accelerating the inflow of foreign direct investment. It is quite realistic to expect lower rate in tax avoidance, which is one notable empirical reason for flat tax adopting as a way of cutting the fiscal burden. Bulgarian economy recently performed impressively well from a fivefold transitional collapse ended in 1996-1997, averaging a 4,9 percent five-year compound GDP growth. In 2008, the GDP growth rate is estimated at 6 percent annually.

One of the main inhibitors of post-communist countries on the road to economic transformation and free-market economy is the lack of sufficient protection of property rights as well as widespread corruption. Regarding the research on economic behavior, tax complexity hidden into the progressive system with loopholes, numerous exemptions and deductions; is the major source of bribes and corruption (as extra business cost) through which the economy loses confidence in the judicial system and corrupt government officials.

On the road to GDP convergence, the role of foreign direct investment and growth conditions is key factor in supporting the long-term growth performance through lower tax burden. Alongside, the measures to boost output magnitude of overall productivity, structural (smaller government), judicial reform (efficient and honest judiciary) and rules-based monetary management conducted by the central bank, should not be put neglected to move towards liberal democracy and free-market economy as ultimate goals to sustain individual liberty, free voluntary exchange, economic, political and civil freedom respectively.