Ten biggest companies are responsible for 6.3 percent of the total business turnover in Bulgaria but contribute only 2.6 percent to the corporate tax revenues
The top ten biggest private companies in Bulgaria, many of which profit from polluting industries such as fossil fuel extraction and distribution and non-ferrous metals. Enterprises of the scale of Aurubis Bulgaria, Lukoil Neftohim Burgas, Lukoil Bulgaria, pay only 2.6% of corporate taxes but account for 6.3% of non-financial sector revenues.
The conclusions are from a report by the Environmental Association Za Zemiata / FoE Bulgaria, authored by financial journalist Dimitar Sabev and co-author Iva Dimitrova member of the Economic Justice team of the organization. The document uses entirely public information and examines the corporate taxes of the ten largest private enterprises in Bulgaria. The data shows that the ratio of tax to revenues averaged 0.34% for 2020 and 0.37% for the previous year. In other words, the state collected BGN 3 or 4 out of every BGN 1,000 circulating in the largest companies’ business.
„The biggest companies in Bulgaria are far not the biggest taxpayers and it is evident that the greater tax burden remains for smaller enterprises to bear. Corporate taxes play a very modest role in providing tax revenue in Bulgaria. Main contributors to the budget are the individuals: firstly through their income taxes, and secondly via the massive indirect, “invisible” taxes responsible for over 50 percent of the total tax revenues of the country – an indicator where Bulgaria is undisputed European champion”, comments Dimitar Sabev, financial journalist and report author.
In 2020, tax/revenues ratio divided Bulgarian top ten companies in two distinct groups. The first group includes four foreign-owned companies, which paid the equivalent of 0.6-0.8% of their revenues as tax. The second group includes three Bulgarian-owned companies, two Russian “Lukoil” companies (refinery and a national chain of gas stations) and the Saudi Arabian joint venture “Arcade ECC”, which only existed for a short time. It would not be wrong to classify this group as “Bulgarian”, since Lukoil’s activity for many years has had a significant impact on the government’s decision-making. Also, the extension of the Turkish Stream pipeline through Bulgarian territory, on which Arkade ECC was working, has been carried out with considerable „political protection”.
The “Bulgarian Group” in the top-ten dedicated far less of its revenues for tax payments: 0-0.3%. This can be explained as follows. Foreign companies do not have “social capital” in the institutions in the event of tax аnd financial audits. This cannot be said for the “Bulgarian group”, which has more “soft resources” to manage its tax liabilities in the country. Moreover, the ‘foreign group’ companies are as a rule taxed at a lower corporate tax rate in Bulgaria than in the country where they are headquartered and this fact alone reduces the incentive for radical tax optimizations.
Since 2007 and 2008 when a tax reform was undertaken in Bulgaria with corporate tax reduced to 10 percent, Bulgaria has become the country with the highest inequality in the EU1 with a Gini coefficient of 40 compared to 30 on average for the EU, according to Eurostat. The reform was intended to shrink the grey economy and attract more foreign investment. However, the past years have rather shown an outflow of foreign direct investments. Low direct taxes do not mean that the tax burden is low. In order to fill the gap, the Bulgarian budget needs to collect proportionally more revenue through consumption taxes. Accordingly, the burden of indirect taxes falls on the people, while corporate taxation is quite liberal.
As a way forward, Bulgaria could adhere to the “golden triangle”, or the average European tax structure, according to which tax burden is divided equally between 1/3 direct taxes, 1/3 indirect taxes and 1/3 social security contributions. A step in this direction would be to introduce taxation for the large enterprises based on their sales, if the corporate tax on profits are below a certain threshold. A minimum amount of corporate tax, defined as a low percentage of sales (e.g. 0.5%), could counteract the accounting “optimizations”1 that deplete the tax base of large enterprises and shift the tax burden towards people and small and medium-sized businesses.