Position on the Proposed Changes in Bulgaria’s Tax Policy

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MR. BOYKO BORISSOV
PRIME MINISTER OF THE REPUBLIC OF BULGARIA

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MS. TSVETA KARAYANCHEVA
CHAIRPERSON OF THE NATIONAL ASSEMBLY

MR. TOMISLAV DONCHEV
DEPUTY PRIME MINISTER

MS. ANNA ALEKSANDROVA
CHAIRPERSON OF THE LEGAL AFFAIRS COMMITTEE AT THE 44TH NATIONAL ASSEMBLY

MS. MENDA STOYANOVA
CHAIRPERSON OF THE BUDGET AND FINANCE COMMITTEE AT THE 44TH NATIONAL ASSEMBLY

MR. PETAR KANEV
CHAIRPERSON OF THE ECONOMIC POLICY AND TOURISM COMMITTEE AT THE 44TH NATIONAL ASSEMBLY

MR. EMIL KARANIKOLOV
MINISTER OF ECONOMY

MR. ROSEN ZHELYAZKOV
MINISTER OF TRANSPORT, INFORMATION TECHNOLOGY AND COMMUNICATIONS

MR. VLADISLAV GORANOV
MINISTER OF FINANCE

Subject: Disagreement with Proposed Changes in Bulgaria’s Tax Policy

DEAR MR. PRIME MINISTER,

BESCO – The Bulgarian Startup Association is following with increasing concern the discussions around reducing VAT to 9% for the restaurant sector and for books, and considers this measure a dangerous precedent without guaranteed benefits for the end consumer.

We are also alarmed by warnings from the Ministry of Finance that in order to compensate for the budget losses from this measure, VAT for all other goods and services may need to increase to 24%, or corporate tax may rise to 17–18%.

We are concerned that such tax increases could lead to a loss of over one billion leva from the gross domestic product and the departure of between 15,000 and 20,000 people from Bulgaria’s software industry. The result would be putting at risk the ability of the Bulgarian IT industry to continue developing in the country as it has so far, making Bulgaria less competitive for a long period of time.

These people and companies are a key part of the country’s middle class, and their loss would have cascading effects on many related sectors such as real estate, automotive trade, tourism, technology, and many others.

Tax stability has been one of the main reasons over the past 10 years for the development of high-tech and innovative companies in Bulgaria and for attracting foreign investment. We believe that after everything achieved, it is wrong to introduce tax changes without broad dialogue and without sufficiently in-depth analysis of the consequences.

Increasing the tax and administrative burden on startups would put their survival at serious risk, and a large number of them would leave Bulgaria. After ten years of effort, today we have companies that are already in advanced stages of development, and we believe the moment is near when we will see the first Bulgarian technology companies reaching a valuation of one billion dollars.

We believe that in the coming years these types of companies will experience the highest growth and gradually take a leading role in an economy based on innovation, research and development, and high value-added products and services for global markets. This will lead to a multiple increase in foreign investment, exports, GDP growth, and ultimately improve the quality of life in Bulgaria.

However, the companies capable of achieving this are still very vulnerable today, and success is by no means guaranteed. Decisions that disrupt the country’s tax stability could lead to their elimination.

Bulgaria needs an environment where business management is flexible, there is access to sufficient capital, talent can be easily attracted, communication with the administration is digital, mechanisms for technology transfer are developed, and entrepreneurship is encouraged in every possible way.

Today, we are working together on all of these aspects, but none of them are yet competitive with global standards. This is reflected in the country’s rankings for ease of doing business. We believe that together we can improve this in the coming years, but the reality today is that stable and competitive tax policy is one of the few reasons high-tech companies choose to develop here.

We consider it extremely risky to introduce any changes at this moment to VAT, corporate tax, social security thresholds, or anything else that would disrupt the business climate.

It is important to consider not only the survival of the most affected sectors but also those that drive growth and will pull the Bulgarian economy forward. Today, we have a historic opportunity to catch up with other countries and achieve significantly greater results with relatively small efforts.

We have the opportunity to establish ourselves as a regional leader in innovation and technology if we take advantage of the current crisis and focus on forward-looking solutions.

Startup companies, together with the software and broader IT sector, have demonstrated a high degree of social responsibility during the coronavirus crisis. Many companies continue to provide their products and services free of charge to support affected businesses, preserve jobs, enable technological solutions for initiatives, support artists, provide cybersecurity solutions, donate devices for remote education, and more.

We also highlight the positive societal changes resulting from the pandemic, including increased trust in innovation and scientific progress, as well as accelerated digitalization in education, healthcare, administration, commerce, and cultural sectors.

Against this backdrop, startups are not unaffected by the economic crisis. Product companies and those supporting the digitalization of the hardest-hit sectors are also suffering significant losses. This threatens to disrupt the growth of the entire ecosystem, deprive the Bulgarian economy of its strongest future competitive advantage, and undermine the country’s image as the “Silicon Valley of the Balkans.”

In this regard, we call for the following:

• Withdrawal of the proposal to reduce VAT and prevention of increases in other direct and indirect taxes for operating businesses;
• Prioritization of policies related to Bulgaria’s digital transformation, as this will help the economy navigate the crisis more smoothly and ensure future competitiveness;
• Strengthening dialogue on the development of Bulgaria’s startup ecosystem.

Respectfully,

Dobromir Ivanov
Executive Director
BESCO – The Bulgarian Startup Association