Several days ago Bulgaria’s bread manufacturers raised again the topic about possible reduction of the value added tax (VAT) on their products from 20% to 5%. The idea about a differentiated tax rate on the bread is old, but now it is necessary more than ever, because according to our estimates and data of the National Statistical Institute, the shadow economy in our sector exceeds 50%, Chairperson of the Federation of Bakers and Confectioners in Bulgaria Mariana Kukusheva told Radio Bulgaria. The official annual turnover in that sector is around EUR 500 million. Since, the gray sector in Bulgaria’s bread industry is 50%, the turnover in the gray sector also fluctuates around EUR 500 million and the state does not receive a single cent from this money, Mrs. Kukusheva further said and added:

“On the contrary - consumers sponsor the gray sector and make it more powerful, because of the huge financial resource circulating there. The gray sector has already entered in the process of negotiation with the large retail chains through its incredibly low prices. In fact, the retail chains are aiming at the prices offered by the companies in the gray sector, in order to sign official contracts of delivery with the decent firms. As a result, the intercorporate indebtedness increases, the turnover volumes fall, consumption shrinks and the number of the job positions in the sector dwindle. Currently, there are some 20,000 officially registered jobs in the bread industry, whereas in the same period last year, their number was much higher - around 30,000.”

In Mariana Kukusheva’s words, bread industry was entirely built with local capital. That is why it is high time for the state to take care of the money of the Bulgarian investors and help the development of a highly-competitive society. If the experiment with a lower 5% VAT rate levied on bread and bread products turns successful, the authorities can adopt a differentiated rate on other essentials and services. On the other hand, revenues to the state budget would rise and the control over the merchandise will be timely and clear.

“The good news is that this time our proposal to the country’s government was strongly supported by one of our social partners- The Confederation of Labor Podkrepa. We are to start making joint analyses and later we are to present the results to the controlling bodies, so that our idea can be fulfilled in the 2017 state budget.”

In Mariana Kukushava’s view, a possible VAT reduction from 20% to 5% would reduce the price of the produce significantly:

“Let us assume that currently the VAT is 20% and the price of our product is 1 EUR. If the VAT goes down to 5%, the end price of that product would be 85 Eurocents, In other words, the population would immediately feel the reduction of the value added tax, because VAT is an indirect tax, which is always paid by the final customer. Currently, the supply price of the bread is equal to the supply price in 1989. However, that price now forms 40% of the final price and the rest is the so-called surplus charges. Since no political party dares asking why such huge surplus charges are formed over a highly circulating item such as bread, we believe that the authorities should do a good deed by reducing the VAT, thus making the price of bread lower and more affordable to the final customer.”

What was the effect of the reduction of the VAT on food in Romania?

“Well, there isn’t any intercompany indebtedness in Romania anymore. The problem regarding intercompany indebtedness in Bulgaria is huge and it nearly reaches the level of the country’s gross domestic product. Secondly, local consumption in our northern neighbor increased significantly. Moreover, control from the field to the table in Romania is perfect and VAT frauds there are merely impossible and meaningless when VAT is 5% only. What we copied from Romania? In that country the VAT on food used to be 24% in the past and later it was reduced to 9%, i.e. the authorities in Romania made a 75% VAT reduction on their food. We are planning the same reduction in Bulgaria - from 20% to 5%, because that model proved efficient and we can use Romania’s positive practice. We do it in the name of the financial and physical health of the Bulgarian consumers, because people are often consumers and investors at the same time and it would be good if investments are made in our own country”, Mariana Kukusheva concludes.

English version: Kostadin Atanasov