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Bulgaria adopts low wages rise over flat tax

Bulgaria’s MPs voted Thursday for increase in salaries, set to up to 430 leva ($323 or €219) to compensate the losses some employees will suffer due to the flat tax reform, recently passed by the parliament.

The rise will concern the average monthly nominal wages of the employees in the healthcare, security and defense, culture and administration systems as well as the sectors, financed by the municipalities’ budgets. The directors of schools and kindergartens across the country that apply the system of the delegated budgets are to fix the salaries by themselves. The extra money, needed for the wages increase and social insurance contribution has been provided by the national budget for 2008. The amendments introducing a flat 10% income tax rate in Bulgaria, which the country’s Parliament passed after extensive debates last month, have come into force on January 1. Despite extensive criticism from the opposition and trade unions, the Socialist-led ruling coalition decided also to drop the provision that exempted the first 200 leva ($150 or €102) of all wages from tax. Under the new tax regime, all, who earn below 490 leva ($368 or €250) will end up paying more in taxes.

Bulgaria’s parliament has been busily amending the tax legislation for over a month, ringing in the changes required before it could pass the draft budget for the new year at second reading. The leaders of the three parties in Bulgaria’s ruling coalition have agreed in summer on the tax reform, with a flat rate of 10%, the lowest in Europe, replacing the progressive taxation system with three brackets.

Since Estonia introduced a flat tax system in 1994, enjoying stable GDP growth, eastern European countries have been attracted to the flat tax that promises to attract foreign investments and increase transparency. Slovakia, Romania, Albania and many former Soviet republics have all adopted a flat tax. (Novinite)