Companies registered in Bulgaria have reported record profits over the past two years, despite the country’s dominant political narrative telling citizens the story that the country is in a perpetual state of crisis.
EURACTIV reported in a series of articles about the record profits of the Bulgarian state from high electricity prices, the record export of petroleum products to Ukraine, and the sale of weapons to the Ukrainian army through intermediaries.
Against this background, the government poured record state aid to private businesses for electricity and natural gas and reduced VAT for several economic sectors, including hotels and restaurants.
This reduced the possible revenues in the state budget but increased private sector profits at the expense of the state’s ability to conduct social policy. In 2021 and 2022, the declared increase in profits for Bulgarian businesses is 10 times higher than the year before the start of the pandemic.
The surprising financial results were published by the Finance Ministry, which insists on introducing an extraordinary one-time tax on excess profits of Bulgarian companies.
After recording a declared tax profit from companies close to €19 billion(27% of GDP) – which was a €5 billion increase compared to the previous year, profits increased to an estimated record €24 billion (29% of GDP).
In the period 2020-2022, the state gave companies in the country (excluding households) subsidies worth €5.6 billion in the form of aid, compensation and reduced tax rates during the period of the pandemic, the war in Ukraine and the energy crisis.
With the argument of the unequal treatment of businesses and citizens, caretaker Finance Minister Rositsa Velkova proposed to the future parliament (the parliamentary elections are on 2 April, and Bulgaria has no acting parliament at the moment) to introduce a new one-time tax on the excess profits of companies in the amount of 33%.
It will only tax future profits – those generated in the second part of 2023 when government subsidies on electricity prices are expected to be phased out.
Last year, Bulgaria received additional income from excess profits only from the Russian company Lukoil, which owns the largest refinery in the Balkans in the Bulgarian Black Sea city of Burgas. The Treasury is now offering a refund of standard VAT on all goods and services excluding bread, flour, baby food and books from 1 July this year.
“The analysis shows that the financial support from the state in connection with the emerging health and energy crisis and the military actions in Ukraine was timely and sufficient, preserving not only the existing business but providing conditions for its development and for generating profits “, the Ministry of Finance declared.
In an interview with BNR on Sunday, Minister Rositsa Velkova commented that there is a possibility that her proposed tax measures to increase revenues will not be supported by the political forces in the new parliament, judging by their statements so far.
‘They didn’t listen to us’
“We warned that it is wrong to give subsidies and compensation to all companies. Because it means supporting both those who suffer from inflation and those who gain from inflation. Bulgaria gave financial aid even to those businesses that created inflation. Not only is it immoral, but it is also a waste of financial resources that could have remained in the budget and reduced the deficit and debt,” economic expert Georgi Angelov commented.
Giving huge government subsidies to profitable businesses only increased their excess profits and inflation, he explained.
“The right approach was to direct the billion-dollar business compensations to be small and medium-sized businesses and those proven to have suffered from the crisis – and not to give money to those who profit from the crisis. If the state had listened to economists and followed common sense, there would not be serious problems with the budget at the moment,” Angelov said.
New warnings
Last Wednesday, Velkova announced measures to tighten fiscal discipline, warning of apocalyptic consequences if Bulgaria entered an excess deficit of 6.9% of GDP.
One of the possible measures is the introduction of a one-time tax of 33% on excess profits. Velkova’s report warns that if this does not happen, there is a risk for the currency board in Bulgaria and a change in the fixed exchange rate of the leva to the euro.
The very next day, Velkova refuted her report with the claims that if Bulgaria sticks to a reasonable deficit, there are no financial risks for the country. In 2022, Bulgaria will record GDP growth of over 3%, and the country has one of the smallest external debts in the EU.
Many economists and politicians accused Velkova of stoking fears with unclear pre-election goals. The general elections in the country are scheduled for 2 April.
More problems
Meanwhile, on 17 March, the Romanian Financial Supervisory Authority (ASF) revoked the licence of the Bulgarian insurance company Euroins Romania and demanded that it be declared bankrupt.
The company, which is part of the Bulgarian holding Eurohold, was the leader of the Civil Liability market in Romania with a market share of about 25% According to the official announcement of the Romanian regulator, Euroins Romania was unable to meet the solvency requirements as of 30 June 2022, and subsequently as of 30 September 2022, for which around €450 million are needed.
Eurohold is the largest Bulgarian holding, which owns the largest electricity distribution company in the country and develops a number of other businesses. The company accuses the Romanian authorities of illegally taking over its business.
EURACTIV sent questions on the topic to the Bulgarian president on 15 March but has not so far receive an answer.