Shadow economy in Bulgaria amounts to nearly 30% of the country’s gross domestic product, a recent survey shows. Thus, Bulgaria is way behind other EU member states. The average rate of the grey economy in Europe is close to 19% of the GDP and continues to decrease due to measures aimed at improving the economic environment and combating tax evasion. According to Bulgarian financial expert and former minister in charge of the economic affairs in the Stafan Sofiayanski caretaker cabinet Krassimir Angarski, trade, food industry and construction are the sectors of the national economy with highest share of shadow economy, because the companies operating in these fields do not declare all sales and turnovers. Grey economy in these sectors is much higher than 30%, Krassimir Angarski told Radio Bulgaria and added:

:“The share of the shadow economy in the country’s total gross domestic product was much higher in the past. However, the authorities managed to launch the registration of cash registers and established permanent connection with the revenue agencies. I would say that Bulgaria has registered a slight progress in this field, but it is still insufficient, as compared to other European states. Some sectors of the national economy need to go under heavy reform.”

Recently Bulgaria’s cabinet announced its ambition to reduce the share of the country’s grey economy by one-third, or even by half by 2020 mainly through measures aimed at combating smuggling. In Mr. Angarski’s view, the introduction of the 10% flat tax rate also contributed to the fight against shadow economy, because this tax made accounting easier.

Should Bulgaria establish a Financial Police, in order to combat grey economy more effectively?

“This is not a single decision. When we say that we must fight shadow economy, it means that we have to undertake a series of measures, including the establishment of a single revenue agency, which actually existed in Bulgaria in the past. The authorities must launch other structures as well. For instance, the so-called financial court was established in many European countries. Unfortunately, in Bulgaria the financial lawsuits follow the common procedures and the judges are not always competent with the financial matter. So, we must undertake serious measures in this direction. When I served as director of the regional tax directorate in Sofia and Sofia district the work went quite well. There were certain people who were going under training procedures and knew this matter quite well, but later the authorities failed to establish a financial court, or other specialized departments. On the other hand, the sentences passed on the serious crimes are still insignificant. If people evade paying taxes or other duties worth millions of leva, they should go to jail straight away.”

At the beginning of the transition period the Bulgarian authorities established a single revenue agency under the supervision of the best experts from the International Monetary Fund who announced after a survey that a small country like Bulgaria, which has a very small economy, should not launch several different revenue agencies, because an integrated structure allows better exchange of information. “However, Bulgaria has been hesitating for over 20 years whether to adopt such structure or maintain several revenue agencies and to me it has been done either on purpose, or because the authorities lack knowledge and expertise”, Mr Angarski further pointed out.

Should Bulgaria introduce tax amnesty, in order to collect more money and curb shadow economy?

“The authorities have not reached consent to fight tax evasion and financial crime vigorously. The measures taken in the past were quite insufficient and the institutions in charge of this process did not have the necessary rights to make substantial progress in this field. When I and my colleagues were establishing the country’s tax administration we intended to launch a separate department named Tax Police. However, the politicians did not agree on such a step and said that it was still too early. Some countries had already established such structures. Moreover, these countries have highly developed tax administration which boosts their national economy. Many countries adopted tax amnesty, in order to collect more money in their state budget. Russia is also planning to implement a similar policy. In other words, it can be done easily in Bulgaria as well, but there is not enough political will for this reform.”

How much money could Bulgaria collect if it adopts tax amnesty?

“It all depends on the level of confidence. In this case we are not talking about amnesty of illegal incomes, or criminal activities. It only regards the normal economic activity, where people evaded paying taxes and other fees. Some countries use this measure every two or three years. In Bulgaria, however, the authorities amnesty all debts after the end of the 10 year legal prescription. It is much better to collect some money than remit all debts so easily.”

Krassimir Angarski also pointed out that the establishment of a financial police would have a positive effect over the economic activity in Bulgaria, because it would provide better conditions for fair competition and investors would feel much more secure to do business in this country.

English: Kostadin Atanasov