In the course of transition to a market economy, and in reformulating the role of government, Bulgaria confronted mounting evidence that its revenue collection administration needed a major institutional overhaul to enable it to mobilize revenues effectively and efficiently, as well as to accede to the European Union.
This need for an overhaul applied in particular to the administration of direct and indirect taxes. Some changes were introduced into the tax administration, such as the introduction of functional arrangements, a large taxpayer office, and new concepts incorporated in a Tax Procedure Code in December 1999. Nevertheless, further modernization was necessary, including the integration of collection and enforcement functions of the old tax administration and the social security collection into a new agency, the National Revenue Agency (NRA). Making the NRA operational required the development of new policies, new work arrangements, procedures and technology, and the integration of staff, resources and cultures of the two agencies into the NRA.
The Revenue Administration Reform Project started in 2003 supporting the implementation of a sustainable revenue collection system for Bulgaria. This system maximizes voluntary compliance; increases efficiency and effectiveness of revenue administration; establishes a professional workforce to help reduce the opportunity and motivation for corruption; improves equity and fairness in the administration of the tax and social contribution collection system, and reduces the taxpayer/contributor compliance burden.
The project will close in 2009. By mid-2006, the project’s development objectives had been to a large extent achieved. Substantial improvements in Bulgaria’s tax administration were recognized in the latest Doing Business and Paying Taxes reports, with Bulgaria mentioned as one of the top reformers worldwide and as one of the few countries that have consistently improved tax policy and tax administration over 2004-2007.
"Ten years ago, we felt as if we were treated as enemies. Now the attitude to taxpayers has changed to one of trust and cooperation. The professionalism and skills of tax officials have increased considerably. Combined with the substantial tax rate cuts, this will bring to light the grey sector and will help reduce disloyal competition by firms. The integration of the tax and social contributions collection system, and more use of e-services, has lowered the compliance costs for the firms in our holding."
—Lachezar Pavlov, Head of Taxes, Controlling, and Internal Control Division, Zeitungsgruppe Bulgaria"
"The most tangible result from the start of the National Revenue Agency is the improved compliance and efficiency of revenue collection. In 2006, the first year of the NRA operation, revenue collection per staff increased by 88 percent, and almost tripled a year later. With the reforms we introduced, we have made the collection of social contributions practically free of charge to the public."
—Maria Murgina, Executive Director, the National Revenue Agency
Tax and social contribution rates have been reduced several times, but total tax and social contribution revenues have increased by 3.6 percentage points of GDP between 2002 and 2006. These increased revenues have allowed more investments in human capital and infrastructure, and have supported the macroeconomic stability of the country.
Compliance rates have improved for all tax types, supporting an improved level playing field for private sector development. Value-added tax (VAT) compliance, which is one of the highest in Europe, has increased by 14 percentage points between 2002 and 2006, and has exceeded the project’s target value. The Corporate Income Tax (CIT) compliance increased by 7 percentage points in the same period, while payroll tax increased by 2 percentage points.
With the start of the operation of the NRA in early 2006 under modern and EU-compliant procedural legislation, devolving the collection of local taxes to local governments, the field office network was streamlined from over 416 offices to 29. Optimization of staff has allowed further improvements in the efficiency of revenue collection with the cost of revenue collection almost halved to 0.8 percent of revenues in 2006 – a very low level compared to OECD countries.
The ratio of revenue collected to revenue staff more than doubled in 2006 compared to the baseline in 2002, thus reducing the cost of revenue administration to the society, and exceeding the project target by 40 percent.
According to the Business Environment and Enterprise Performance Survey (BEEPS), the percentage of firms that see tax administration as a problem for doing business declined from 34 percent in 2002 to 31 percent in 2005, while this indicator remained close to 50 percent on average in eight new EU member states.
Surveys of taxpayers conducted under the project show that taxpayer perception of the level of professionalism and integrity of revenue administration staff has slightly improved from 5.3 in 2003 to 5.8 in 2006 (in a scale of 1 to 10 from worst to best).
The expansion of online filing and improvements in the information system have further reduced the costs of compliance. The share of tax declarations submitted through the internet, while still low, quadrupled in 2006 compared to 2005, while that of personal income tax and social contributions has tripled. The number of visits to the revenue administration declined by 600,000 per year as a result of the use of third-party information on business registration.
A strong monitoring and evaluation capacity has been developed within the NRA, which allowed progress in reform implementation to be tracked and improved the transparency and accountability of the agency.
National Revenue Agency
Ministry of Finance
Stella Ilieva, Team Leader, Sr. Economist, ECSPE
Antonia Viyachka, Procurement Specialist, ECSPS
Carlos Ferreira, Revenue Administration Management Specialist, ECSPE
William Mayville, Organization and Management Specialist, ECSPE
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