AmCham Bulgaria Position on VAT Act Amendments

On June 26th, 2020, AmCham Bulgaria sent an official position with regard the recently voted amendments and supplements of the VAT Law. The letter was sent to the Parliament, the Council of Ministers (Prime Minister, Deputy Prime Minister Dontchev, Minister of Finance, Minister of Economy). The text was prepared by the Tax Committee of AmCham.


In the position AmCham Bulgaria points out that the proposed differentiated VAT rates would significantly damage the State Budget, causing serious negative effects on the Tax System of Bulgaria. Besides the direct loss of revenue, this will also create temptations to reclassify products so that they can benefit from the reduced rate. Similar problems exist with regard to excise goods, where they have to be constantly changed even at the EU level. The latter will have to be regulated by the administration and in its turn will create court cases.

We believe that in order to support the economy, it is necessary for the businesses to have security in terms of VAT rates – undertaking such a measure, even temporarily, would create uncertainty in the tax and legal systems.

Goods and services subject to differentiated VAT rate

If the proposed texts for a differentiated VAT rate are adopted, this would lead to the question of why other socially-oriented industries are excluded from the scope of the reduced VAT rate. The reduction of VAT for books, restaurants, and catering will provoke discussion among all sectors, such as pharmacy, local production, and agriculture, etc. This is a prerequisite for the beginning of debates among all industries for changing the tax system.

Negative effect on the tax system

Undoubtedly, the introduction of differentiated VAT rates will have a negative impact on the tax system of the Republic of Bulgaria. As a result of the reduction of VAT from 20% to 9%, there will be a loss of effective contributions to the budget. Suppliers of books, restaurant and catering services will deduct a tax credit in the full amount (20%), and as a subsequent supply will charge VAT at a rate of 9%, without this being reflected as an adjustment to the exercised right to deduct tax credit. The difference will remain at the expense of the state budget, for which VAT is one of the main sources of revenue.

It is likely that at a later stage this will lead to the need to increase other tax rates in order to compensate for the losses, which will lead to a negative effect among a much larger circle of people and potential foreign investors in the country.

On the other hand, recipients of such supplies will be harmed. At current prices for services and goods, the introduction of 9% VAT would mean a higher margin for suppliers, but recipients will be able to deduct a tax credit of 9% instead of the current 20% if they use the acquired goods or services for a subsequent taxable supply, different from resale.

Additional administrative burden for all participants and possible abuses

It is well known that the differentiation of tax rates entails additional administrative burdens. Abuses related to VAT evasion and damage to the state budget are quite probable.

Some suppliers offer many other goods and services, in addition to those for which they will apply the reduced rate. The trade in books is almost always accompanied by trade in stationery, souvenirs, etc., which in case of unscrupulous treatment could be transferred with reduced VAT. On the other hand, if these traders are conscientious, they will have to change the software settings of their products for fiscal devices, as well as train their employees.

Based on the above, we ask for a revision of the text for a reduced VAT rate. We believe that in the current context of the Covid19 epidemic and its consequences, almost all business sectors are affected, and VAT reduction for some traders would raise serious and numerous discussions on the part of all others for whom such changes are not envisaged.