Bulgarian Employers Decry Proposed Tax Hikes in 2026 Draft Budget

Employers Unite Against Proposed Tax Increases

Bulgarian employer organizations have voiced strong opposition to key fiscal measures outlined in the Ministry of Finance's draft budget for 2026. The proposals include a plan to double the dividend tax rate from 5% to 10% and to increase state pension insurance contributions by 2 percentage points. Business leaders argue that these changes will negatively impact the country's economic environment.

The Association of the Organizations of the Bulgarian Employers (AOBE), alongside other prominent business associations such as the Bulgarian Industrial Capital Association (BICA) and the Bulgarian Enterprise Association (BESCO), have collectively condemned the proposed hikes. They contend that such measures will deter investments, expand the shadow economy, reduce economic competitiveness, accelerate inflation, and ultimately slow economic growth.

Details of the Proposed Changes

The Ministry of Finance's draft budget for 2026, which is notably Bulgaria's first to be calculated entirely in euros, aims to maintain a 3% budget deficit to align with Maastricht criteria and to combat the shadow economy. Currently, Bulgaria's dividend tax rate of 5% is among the lowest in the European Union. The proposed increase would bring it to 10%. Additionally, the plan includes a 2-percentage-point rise in state pension insurance contributions, with a further 1 percentage point increase scheduled for 2028. This increase in social security contributions is projected to result in a more than 10% rise in Pensions Fund costs.

Concerns Over Economic Impact and Consultation Process

Employer representatives have expressed significant concerns regarding the potential economic fallout. Dobrin Ivanov, Executive Director of the Bulgarian Industrial Capital Association, stated that the planned increases 'will trigger a chain of irreversible processes' including an outflow of investments and a deterioration of the economy's competitiveness. Economists, such as Petar Ganev, have also suggested that these measures would reduce the disposable income of working Bulgarians without guaranteeing higher pensions, arguing they are intended to cover increased public sector wages rather than address systemic pension issues.

Furthermore, employers have criticized the government's consultation process, citing a lack of transparency and insufficient time provided for public discussion. The Association of the Organizations of the Bulgarian Employers (AOBE) specifically noted receiving the draft budget late on November 3, allowing less than 24 hours for review before key committee sessions. This led to the cancellation of a scheduled meeting of the National Council for Tripartite Cooperation (NCTC) due to employer protests.

Diverse Reactions and Future Outlook

The draft budget has also drawn criticism from opposition parties and trade unions, although some trade unions, like the Confederation of Bulgarian Trade Unions (KNSB), have previously advocated for an even higher dividend tax of 15% combined with a 15% corporate tax to curb social security evasion. Despite the Ministry of Finance's projection of approximately 174 million leva in revenue from the dividend tax increase, some economists predict that actual revenues might decrease from €89 million to €86 million, suggesting the measure may not achieve its intended financial goals.