The proposal for a one-time "excess profit" tax of 33% for 2027 has sparked a sharp dispute between the government, the Bulgarian National Bank, business and the opposition. The measure is included in the package of tax changes for the 2027 budget and covers banks, insurance and reinsurance companies, telecoms, exchange offices, payday loan companies and traders with at least five food outlets.
The mechanism provides for the calculation of the average profit for each enterprise for the period 2020-2025. 20%, defined as a normal profit rate, is added to it. Only the difference above this threshold will be taxed at 33%. If the result is negative, no tax will be due. It is planned that 90% of the amount will be paid in advance in 2027.
What the government expects
Deputy Minister of Finance Lyudmila Petkova defended the proposal with the analysis that the selected sectors form about 60% of the established excess profits in the economy. According to her, the profits of the banking sector have grown by 588% for the period 2020-2025, and between 2022 and 2023 the growth is 320%.
The Ministry of Finance expects all revenue measures in the package to bring in about 1.4 billion euros, with approximately 300 million euros earmarked for higher tax breaks for families with children and children with disabilities. The government presents the tax as a temporary measure and as a form of economic solidarity.
BNB warns of the cost of the measure
BNB Governor Dimitar Radev objected that defining the tax as a tax on “excess profits“ does not change the fact that it is a higher taxation of banking activities. According to him, banks' profits are also a major internal source of capital formation, which determines their ability to take risks, grant loans and bear losses in the event of an economic shock.
“Raising taxes has a price. When the tax is on financial intermediation, part of this price can go beyond the taxpayer“, said Dimitar Radev.The BNB also questions the chosen reference period. It includes the pandemic, unusually low interest rates, the inflation and energy shocks, as well as the subsequent change in the interest rate environment. According to the central bank, higher profits may reflect not only extraordinary profitability, but also greater capital, a larger balance sheet and additional risk taken.
A dispute between the finance ministry and the BNB
Finance Minister Galab Donev described the governor's position as "going beyond his authority" and said that the BNB governor should not advocate political theses. Donev also pointed out that a large part of the companies in the affected sectors are foreign and export their profits instead of reinvesting them in Bulgaria.
The BNB responded that assessing the consequences of measures that affect the banking sector, lending and financial stability is part of its institutional functions. The central bank said that tax policy decisions belong to the government and the National Assembly, but it will continue to present its professional assessments regardless of political considerations.
Criticism from business and the opposition
GERB-SDF described the proposal as an additional burden on business. Temenuzhka Petkova said that the measure could sanction companies that have achieved higher results through investments, cost optimization and good management, and warned of a problem with predictability for investors.
Employers' organizations also dispute the methodology. AIKB Executive Director Dobrin Ivanov said that there are profits that are not invested in Bulgaria, but according to him, the method for determining excess profits is not well developed enough.
The other dispute is whether the cost will remain for companies or will be transferred to customers through higher interest rates, fees, prices of services and goods. Lyudmila Petkova claims that the measure could have an anti-inflationary effect because higher prices would also increase taxable windfall profits. However, banker Levon Hampartzumyan warns that when taxing financial intermediation, part of the burden could reach consumers.
The proposal remains a draft in the tax package for the 2027 budget. After the public discussion, it will be considered by the National Assembly, where it will be decided whether the measure will be adopted in this form.
Sources: Nova TV, Investor.bg, Dnevnik.bg