Areas of Strength
- Bulgaria has made progress in digitalizing its tax administration. Bulgaria reported a 100% uptake in e-filing for CIT and VAT, with an increasing number of individuals also opting to file PIT returns electronically. There are also various online tools provided to help taxpayers comply with their tax obligations. The Bulgarian tax administration is also in the early stages of deploying AI technology.
Areas for Improvement
- Bulgaria has a very large shadow economy, although some strategies are in place to tackle undeclared work and trace cash. Furthermore, the PIT compliance gap in Bulgaria is estimated at 13.8%, indicating significant income underreporting from both self-employed individuals and employees. The sectors most prone to the underreporting have been identified as construction, wholesale and retail trade, hospitality, and manufacturing.
- There is room to improve Bulgaria’s reporting and evaluation capacity for tax expenditures. Although reports on tax expenditures have been published since 2010, these reports only include a few tax types and do not provide a comprehensive analysis of fiscal policy implications. Moreover, there is no evaluation of the cost effectiveness of the tax expenditures in place. According to the Global Tax Expenditure Database, the revenue forgone in 2022 due to tax expenditure was 1.23% of GDP, up from 1.03% in 2021, when the revenue forgone represented 4.7% of total tax revenues.
- Tax arrears in Bulgaria are above the EU average. The level of outstanding tax arrears for Bulgaria (59.8%) was nearly double the EU average (30.7%) in 2023 although this is a substantial improvement compared to 2021 (81%).
Tax Complexity
In 2024, Bulgaria ranked 21th out of the 27 Member States in the Tax Complexity Index (‘TCI’), where a higher rank corresponds to lower tax complexity. The TCI is based on the Global MNC Tax Complexity Project, a joint research project of Deborah Schanz (LMU Munich) and Caren Sureth-Sloane (Paderborn University). Bulgaria scored 19th among the Member States with respect to Tax Framework Complexity and Tax Code Complexity. This suggests that Bulgaria has room to improve its tax system both in terms of tax processes (notably, in the area of guidance, according to the authors) and tax regulations (particularly, in the areas of transfer pricing and corporate reorganisation), thus making it more friendly and less burdensome for the taxpayer.
The full Commission Staff Working Document of the Mind the Gap Report - Challenges and opportunities for tax compliance and tax expenditure in the EU regarding Bulgaria can be found here.
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