The tax on excess profits is part of the package of measures with which the government intends to control inflation. This was stated by Deputy Minister of Finance Lyudmila Petkova in the program “Speak Now“ on BNT. She defended the proposal despite criticism from the Bulgarian National Bank and business.
“The tax on excess profits is one of the measures that can be said to be an anti-inflationary measure“, said Petkova. She drew a parallel with the European Union's measures in 2022-2023, when restrictions were introduced on the prices of electricity and energy products, as well as taxation of excess profits in the energy sector.
Which sectors are included
According to the Deputy Minister, the sectors that the government has included in the proposal form about 60% of excess profits in all economic sectors of the country. Manufacturing, agriculture and transport are not among them.
Petkova explained that the reason is the different way in which profits are used. According to her, in the excluded sectors, the funds are invested in new capacities, increased productivity, efficiency and new jobs. In other sectors, according to her, profits are distributed as dividends and leave Bulgaria.
“If there are no excess profits, they should not worry about being taxed on excess profits“, said the deputy minister regarding the objections of the affected companies.
The dispute with the BNB over banks
Petkova dismissed concerns that the additional taxation would lead to higher prices, bank fees, interest and insurance. According to her, in the event of a speculative increase, the relevant regulators should intervene.
She stated that the tax would be charged only on the extraordinary part of the profit, and not on the usual rate. According to her, the goal is to reduce the economic incentive to raise prices, as higher excess profits will lead to higher taxation.
The deputy minister described as a “double standard“ the BNB's position that the tax could affect the capitalization and liquidity of banks. She pointed out that over the past three years, more than 60% of profits have been distributed in the form of dividends.
Petkova also said that she sees a contradiction between the warnings about limiting lending and higher interest rates and the BNB's previous concerns about the rapid growth of loans and the risk of a property bubble.
The funds are also intended for preferences
According to the deputy minister, the state must protect citizens and financial stability. She stated that part of the funds from the proposed measures are intended for preferences for families with children and for businesses.
In response to concerns that banks may increase interest rates on loans, Petkova defined such warnings as an “economic threat“ and emphasized the role of the central bank.
Sources: BNT