The Bulgarian Income Tax Reform
29 Pages Posted: 27 Jan 1998
Date Written: August 1997
Government tax policy has a profound effect on the temporal composition and on the intertemporal evolution of the macro economy. In contemporary terms it must allow non-inflationary financing of the proper functions of government. The main function of a tax system is to raise enough revenue to cover government expenditures without excessive reliance on domestic and foreign borrowing or money creation. It should avoid disincentives for productive economic activity, especially capital formation. The role of taxes in any market economy that we are striving to build is also to regulate it. What is more, such a category as tax law does not exist in pure terms. On the contrary, tax principles are connected with phenomena and operations that can be carried out even without any taxation, but these tax principles form in different ways these phenomena and operations. The life of a tax law is not only logic but experience as well because every tax has inevitable regulation effects in the economy. To implement a tax on a certain operation means to a great extent to discourage its accomplishment. The relief will have the opposite effect. The definition of the responsibilities must be clear and according to the law. The rules of the game must be exactly defined in order to favor business activity in the country. It is important for such a tax system to be set that will satisfy the necessities in the long term. Looking after someone's interests can cause unsuitable policies and will restrict future reforms. The Bulgarian tax reform, although pronounced from the beginning of the transition towards market economy, has not started yet, and this has a profound effect on the whole economic development of the country itself. The new democratic government that came to power a few months ago again stated its intention for reforming the tax system in a real market-oriented way. The reform itself should be directed in two major ways--reformation and establishment of new tax laws based on new tax philosophy and principles, using taxes as a regulative lever for economic regulation, and reformation of the tax collective system. The latter must be by lowering the transaction costs of taxation and by decreasing the tax avoidance possibilities.
JEL Classification: H2, H3
Suggested Citation: Suggested Citation