Bulgaria - Politics, government, and taxation

In 1990, communist rule in Bulgaria gave way to a multiparty parliamentary democracy, with executive power vested in the Council of Ministers. Although political life has been active, Bulgaria has sound policies regarding minorities and is regarded as an oasis of stability in the tinderbox of the Balkans. In the 1997 parliamentary elections, the United Democratic Forces, an alliance of the reformist Union of Democratic Forces (SDS) and the People's Union, won 137 of 240 National Assembly seats. The Bulgarian Socialist Party (BSP), reformed communists, was reduced to 58 seats, which reflected the BSP responsibility for the 1996-97 financial meltdown, from which the SDS was perceived as a deliverer. The remaining seats were shared between the Movement for Rights and Freedoms (MRF); a centrist, predominantly ethnic Turkish party; the Euroleft; and the Business Block. The Bulgarian Agrarian People's Union and the Democratic Party form the People's Union coalition. The local elections in 1999 gave the BSP control over most local governments and signaled decreasing SDS popularity due to persistent economic hardship and corruption charges. All major parties currently support market reforms and membership in the EU and NATO. During the 1999 Kosovo crisis, the government cooperated fully with NATO.

The government aims to privatize all state-owned firms except for utilities, strategic railroads, natural gas, postal services, education and sciences, environmental protection, geology, and cartography. The law requires that the state retain at least a 51 percent interest in merchant shipping and passenger fleets, major ports and airports, transport, and highway construction companies. By June 1999, about 40 percent of state enterprises had been privatized, while the public sector accounted for 36 percent of the GDP. The private sector contributed 25-30 percent of the GDP in 1995; 35-40 percent in 1996; approximately 65 percent in 1997 and 1998, and 64 percent in 1999, and is expected to increase further.

Privatization processes were particularly dynamic in 1999 and 2000, with priority given to tourism, food processing, agriculture, heavy industry, engineering, textiles, and construction materials. The privatization program is being carried out through capital market offerings, mass privatization, and cash deals. The offerings on the capital market (through corporate stocks and bonds sales) are insignificant, and the local stock exchange is still in its infancy. In the mass privatization program, all citizens and company employees were made eligible to receive free vouchers for company (or privatization fund) shares. More significant for foreign investors is cash privatization, which allows investors to buy smaller enterprises from central government ministries, larger ones from the privatization agency, or municipal assets from local government. The privatization agency hires foreign consultancy firms to assess the value of important enterprises and to advise on marketing, but the process has often been described as slow and challenging. Potential investors have been frustrated by the difficulties of investing, and others are unhappy with inflexible procedures. Complex criteria for determining which buyers are eligible to invest has caused concern about corruption.

Taxes are a major source of government revenue. Personal income tax rates are progressive, from 20 percent to 40 percent. The profit tax rate is 20 percent for large firms and 15 percent for small firms. Value-added tax (VAT) is levied at a rate of 20 percent. All firms pay 10 percent on profits in municipal tax. Investors in high unemployment areas get a 10 percent reduction on government profit tax. The tax system is still perceived by many as unfriendly to business, and tax cuts are being debated within the government.