OPINION REGARDING: Draft Act on the State Budget of the Republic of Bulgaria for 2026

TO THE MINISTRY OF FINANCE To the attention of: Ms. Temenuzka Petkova — Minister of Finance

POSITION

from

Association "THE BULGARIAN ENTREPRENEURIAL ASSOCIATION" (BESCO)

REGARDING: Draft Law on the State Budget of the Republic of Bulgaria for 2026.

DEAR MS. PETKOVA,

The Bulgarian Entrepreneurial Association (BESCO) expresses serious concern regarding the fiscal framework set out in the draft budget for 2026, which envisages an increase in taxes and social security burdens, including an increase in the dividend tax.

We categorically oppose the proposed increase in the dividend tax, the increase in pension contributions by 2 percentage points, and the raising of the maximum insurable income. These measures will increase labour costs, reduce the real incomes of entrepreneurs and highly qualified specialists, and push even more people towards alternative forms of employment or emigration. The proposals risk undermining the competitiveness of the Bulgarian economy, stifling investment and entrepreneurship, and deepening the divide between the formal and informal sectors. Instead, Bulgaria needs structural reforms that increase the effectiveness of fiscal and budgetary policy, improve the business environment and guarantee predictability.

Such decisions do not address the structural problems, but only deepen the mistrust between business and the state. Instead of raising taxes and social security contributions, Bulgaria must commit to reforms that encourage investment, raise the efficiency of public expenditure and build a stable economic outlook.

1. Raising contributions and taxes is not a solution to the structural problems

The main deficits of the Bulgarian economy are systemic, not fiscal:

• lack of infrastructure provision (electricity, water, industrial zones);
• low administrative efficiency and lack of digitalisation;
• demographic collapse and a severe shortage of personnel;
• unpredictability of regulations and mistrust in the judicial system;
• weak accountability of public institutions.

In such an environment, raising taxes and contributions will have the opposite effect — it will push business towards the grey economy, reduce investment and discourage innovation.

2. Raising the dividend tax is economically unjustified

The dividend tax affects precisely investors, shareholders and people who invest capital in the economy, rather than the operational owners of companies.

In 2024, revenues from this tax were only BGN 126 million, while the budget deficit exceeds BGN 20 billion — a difference that clearly shows that the effect on the budget will be minimal, while the damage will be significant.

The expected results of the increase are:

• a decline in capital market activity;
• withdrawal of investments to countries with lower rates (Estonia, Latvia, Malta — 0% dividend tax);
• incentives for concealment of income and transfer of profits;
• demotivation of small investors.

The solution does not lie in "raising percentages," but in expanding the economic base through growth, trust and reforms.

3. Bulgaria needs a clear economic vision

Bulgaria must define the direction of its economic policy:

• to be a leading technology hub in the region;
• to develop manufacturing with high added value;
• to build a tax-competitive and predictable environment for investors;
• to strategically reorient towards the sectors of innovation and defence, where we have real potential for growth and export.

4. Constructive proposals for a balanced budget and economic growth

We also propose a package of measures that can generate real revenues and higher effectiveness of public finances, without undermining tax competitiveness:

Investment and capital markets

• Realisation of the multi-fund model in the pension system, so as to encourage genuine investment activity and long-term returns.
• Partial privatisation (minority stakes) of state companies through the stock exchange with the aim of introducing corporate governance, transparency and attracting private capital.
• Activation of R&D incentives and incentives for encouraging angel investing.
• Ensuring the administrative capacity and independence of the investment screening body, which will guarantee predictability and protection of the strategic interest of the state, without impeding foreign investments with high added value and guaranteed origin.

Fiscal and tax framework

• Update of tax assessments — introduction of realistic values for the taxation of properties, without additional raising of tax rates.
• Elimination of automatic indexations in expenditure and social payments, in order to preserve control over public expenditure.
• Removal of the SUPS (Specialised Software for Managing Sales) requirements, which impede innovation and increase the administrative burden for companies.

Revenues and efficiency

• Taxation of gambling — introduction of a 20% tax on all bets or alternatively 30% on the difference between bets and winnings.
• Renegotiation of concession fees for selected sectors with high resource potential and concessions for infrastructure investment.
• Differentiated TOL system by type of road and vehicle — with greater efficiency and fairness in collection.
• Reform of the Public-Private Partnership Act to unlock additional private capital in the economy.

Reforms and employment

• Release of labour resources from state administration to the private sector through retraining programmes with the participation of business.
• Digitalisation of key processes — completion of the digital platform for the issuance of blue cards and residence permits, transposition of European legislation for the introduction of a digital wallet, etc.
• Reorientation of industrial policy towards the defence sector — through incentives for joint manufacturing and public-private partnerships.

BESCO calls on the government and parliament to commence real dialogue with entrepreneurial and employer organisations before the final adoption of the budget. A long-term fiscal framework (2026–2030) is needed, guaranteeing the predictability of the tax system, stability of corporate and dividend tax, and reforms oriented towards growth rather than administrative balancing of the deficit.

Bulgaria cannot afford to lose its major competitive advantage — a predictable, low and fair tax environment. Raising taxes and contributions will undermine confidence and stop the entrepreneurial impulse. The reforms we propose are realistic, feasible and oriented towards an economy of growth, innovation and investment. Only through cooperation between the state and business can Bulgaria achieve a sustainable fiscal balance and genuine prosperity.

YOURS SINCERELY,

Dobromir Ivanov Executive Director BESCO — Bulgarian Entrepreneurial Association