Editorial note: In an official statement from the 21st of May the company members of the Bulgarian Software Association expressed concerns regarding new VAT reduction proposals that have been coming from the government in the past two weeks. The software sector is among the fastest-growing ones in Bulgaria, and for now, less hit from the coronavirus related crisis. As of the end of 2019, the software sector (both product and service companies) has generated revenue of around €2B (3.4% GDP) and has paid a total of 731M BGN (€374M) of taxes, 122M BGN (€62.5M) of which VAT. Below is a translated version of the original official statement of the association.
The proposal to reduce VAT on most affected sectors is hasty, encourages the grey market and deteriorating the business climate in Bulgaria
Bulgarian Association of Software Companies (BASSCOM) is following with growing concern discussions on reducing the VAT to 9% for the restaurant industry and for “books” and considers this measure a dangerous precedent without any guaranteed benefits for the end-user. We are also disturbed by the warnings of the Ministry of Finance that in order to compensate the losses in the budget from the measure, the VAT for all other goods and services should be increased to 24% or the profit tax for business should be raised to 17-18%. We strongly disagree with the increase in the tax and administrative burden on the software business, as well as on all other working and transparent sectors of the economy. It is unacceptable for them to pay the price for the measures that deal with the crisis caused by COVID-19. The proposals, coming from everywhere, for VAT reduction of the most affected sectors are spontaneous, ill-considered, there is no assessment of the impact of such measures, they turn the descent business into a hostage of the gray market, violate the principle of equality, worsen the business climate and send a negative signal to foreign investors and partners.
It is about time for the government to think not only about the survival of the most affected sectors but also about those that ensure growth and will pull the Bulgarian economy forward.
According to data from 2019, the software industry provides over 3% of the country’s GDP and contributes to the development of the economy with over BGN 4 billion in annual revenue. In addition, the sector is showing a high degree of public solidarity in the coronavirus crisis, and a number of companies, members of BASSCOM, continue to make their products and services available for free aiming to support affected businesses, save jobs, provide technological support for campaigns, innovative solutions for the performance of freelance artists, solutions in the field of cybersecurity, donation of devices for distance learning, and many more.
We also pay attention to the positive social changes due to the coronavirus epidemic, which are related to the increasing trust in innovation and scientific achievements, as well as forcing digitalization in education, healthcare, administration, trade, event and cultural management, and others.
Regardless of the above said, the IT industry is not unaffected by the economic crisis. All software product or software service companies that serve the digitalization of the most affected sectors also suffer heavy losses. This can affect the growth of the sector, the Bulgarian economy can lose a stable and predictable financial resource, and our country could lose the image of a quality software destination.
In this regard, we insist on the following:
- Immediate rejection of the proposal to selectively reduce VAT as a social measure and prevent the increase of other direct and indirect taxes for operating businesses.
- To treat the software industry as a strategically important sector for the Bulgarian economy and to develop measures to sustain the growth in the sector.
- Prioritize policies related to the digital transformation of the economy, as this will help the economy to go easier through the crisis and will ensure its competitiveness in the future.
- Rethink the policy of reducing the state-funded admissions for the academic year 2020/2021 and the increase of the semester fees for students in specialties related to informatics, information technologies, computer sciences, and software engineering. Given the huge shortage of staff in the sector and the crisis situation, such a decision will seriously harm the industry and will have negative consequences for years to come.