Statements
The address of the Minister of Finance during the round table discussion on “Grey Economy: Trends and Challenges”
Ladies and Gentlemen,
First, I would like to thank to the forum organizers for the invitation extended to me.
We have had today the opportunity to discuss a topic that is among the most sensitive ones for our entire society, i.e. the grey sector of the economy and how to reduce it.
Illegal economy is a social and economic phenomenon covering activities that add value and should be part of the gross domestic product (GDP). However, they remain either partially or completely unaccounted for in GDP evaluation, i.e. they remain non-taxed. The existence of a significant illegal sector within a economy substantially distorts the effect of the purposeful regulations and instruments of macroeconomic policy inasmuch as economic agents do not react according to the direction of central authorities. Thus, one of the main functions of every economic regulation becomes deformed, i.e. effective resource allocation.
Large-scale market-oriented reforms have been carried out in the country over the past 10 years: recovery of the monetary and financial sector, privatization of production assets, fiscal consolidation.
Maybe the most serious reform we have carried out with direct impact on the grey sector is the tax reform. We have decreased the corporate income tax and the personal income tax to a flat 10% tax. We have also reduced social security contributions from 43 to 30%. Along with that, we have reorganized the revenue administration and created a single revenue agency. In our view, the NRA should be a partner to taxpayers, not just an authority conducting audits and imposing penalties. We try to support the business in setting-up a new corporate culture. We are already witnessing the fact that a number of companies voluntarily announce the amount of taxes they have paid. The taxes paid start being treated less and less as a manifestation of naivety. They measure the participation in the economic life and the public responsibility of capital.
NRA employs a set of policies to stimulate the "coming into light" of the business. Sudden tax audits are no longer the only method of the NRA to counteract the grey sector. We chiefly stake on more qualitative services, strong coming-in of e-services, customer orientation and promotion of activity results. A streamlined risk management system has been set up.
The NRA currently maintains an electronic list of companies which have directly or indirectly participated in VAT abuse. Every auditor may have access to this electronic list. Every month employers are audited for the social security contributions assessed and paid.
The latest Doing Business study of the World Bank on contribution and revenue administration reforms ranks Bulgaria among the top ten countries out of a total of 178 economies, and we take this as a great acknowledgement of our efforts in this field.
The other revenue agency, the National Customs Agency, has also made significant progress in improving its activities. Without going into detail, I will just mention that in the course of our country's preparation for EU membership and the subsequent monitoring by the European Commission, the customs administration did not receive and has not received any single harsh criticism. Despite the still existing rich folklore about customs violations and channels, there are substantial improvements in the work of customs officers that are noted by all external observers and appreciated by the local business.
Both revenue agencies overperform their revenue with a rate that considerably exceeds the nominal economic growth which is in itself evidence of the process of revenue legalization and business profits, and the merits for that should go to the fiscal officers.
I have thus far presented some of the measures we have taken to tackle the grey economy, as well as some of the most striking results. I did not mention, though, some illustrative campaigns and sensational disclosures /although there are such/, for I rely on the more systematic approach of the institutional and functional strengthening of revenue administrations. Building an environment that sets legal business as a prerequisite is much more preferable than tools of power which may be more attractive but far less efficient.
