Bulgarian Parliament passes tax on bank deposit interest

Bulgaria/February 2013

On November 15 2012, the Bulgarian Parliament accepted amendments to the Value-Added Tax Act and 10% tax on bank deposit interests was approved.

Effective from January 1 2013, the new tax is applicable on fixed term deposits but not on termless deposits, current accounts and the saving accounts. In addition, the interests from deposits of Bulgarians in bank accounts in other EU member states and European Economic Area countries will be also taxable. The tax would be paid at the end of the month following the quarter in which the interest was due. The obligation to withhold the tax and pay it to the authorities lies with the banks. Physicals persons, who have received interests from fixed term deposits, are also obliged to declare them in their yearly income declaration.

The new tax provoked a lot of discussions in Parliament and faced strong resistance from the banking sector in Bulgaria.

The opposition also criticised the measure and their main argument was that the new tax would affect mainly people with small savings and retirees. According to them the tax will do more harm than good the state budget.

The government, represented by the Financial Minister Simeon Djankov, who proposed the changes, defends completely different opinion. Their expectations are that as a result an additional BGN120 Million will be gathered in the budget revenue, paid mainly by richer people as tax on their earnings from their bank deposits. Another motive, used by the government is that the country’s bank system would be adjusted to the EU states ones.

The main concern of the Bulgarian banks is that the new tax would be followed by a big capital outflow and this would seriously shake the Bulgarian bank system that is considered stable at the moment.

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