The International Monetary Fund has indicated that Bulgaria’s flat tax system may not be sufficient to sustain growing demand for quality public services. In a medium-term perspective, the IMF suggests that higher revenues could be achieved by raising tax rates on personal and corporate income and transitioning to a progressive taxation model.
Economist Rumen Galabinov also predicts that Bulgaria could adopt a new type of taxation within the next decade. He notes that 21 of the 27 European Union member states already employ progressive income taxation, often using hybrid models. These systems typically feature a non-taxable minimum, a progressive scale for middle incomes, and a flat rate for the highest earnings. This structure allows lower incomes to remain largely untaxed, middle incomes to face rates close to the current effective levels, and higher incomes to contribute more.
Galabinov emphasizes that the flat tax remains primarily in Eastern European countries outside the Eurozone. In contrast, more developed economies in the Eurozone impose higher combined tax and social security burdens. The progressive model allows for tiered contributions that aim to balance fairness with revenue needs.
The debate over tax reform in Bulgaria combines economic and political considerations, with Galabinov expecting tangible changes within roughly ten years.
According to the International Tax Competitiveness Index (ITCI) compiled by the Tax Foundation, the most efficient tax systems in Europe are found in the Baltic states, with Estonia scoring 100, Latvia 92.8, Lithuania 81.8, and Switzerland 86. At the other end of the spectrum, France scores 45.8 and Italy 50.3, representing the least competitive tax regimes in the European Union.