IMF Mission Recommends Bulgaria Shift from Flat to Progressive Tax System

Bulgaria will not alter its tax system, Finance Minister Temenuzhka Petkova said, responding to IMF recommendations to switch from a flat to a progressive tax. The IMF concluded its annual mission in Bulgaria today, September 23.

Among the IMF’s recommendations was the introduction of a progressive tax, arguing that the state will face increasing difficulties in compensating rising expenditures.

"Here we see a lot of structural factors that will put pressure on the expenditure side of the budget, including the ageing population, infrastructure development, defence spending, rising incomes. Addressing these challenges will require various measures on the expenditure side of the budget, but it also raises the question of whether the state collects enough resources to fund these measures,” said Fabian Bornhorst, head of the IMF team in Bulgaria.

The Bulgarian Industrial Association (BIA) opposed the IMF's proposal for Bulgaria to switch from a flat to a progressive tax.

“Fiscal discipline should focus on cooling public spending, as the main issues stem from expanding public expenditures. Tax revenues are increasing by 5–7 billion BGN annually, which means there is still untapped potential to increase revenue by combating the shadow economy,” commented Shteryo Nozharov from BIA.

The Stoyanov family from Katuntsi supports progressive taxation but believes raising social security contributions while public sector wages are frozen, as suggested by the IMF, would be a mistake.

“For me, people should be able to earn up to 2,000 BGN. Per person, per family, so we can live properly,” one family member said.

“I think wages should rise first. Then social security contributions, both health and pension, can be increased.”

“The wealthy really have a lot of money. They should pay more.”

Finance Minister Petkova reiterated that the government does not plan to change the tax model.

“Regarding the IMF’s proposal to change the tax system, I can categorically say that this topic is not on the government’s agenda. The IMF has made this recommendation for progressive income tax before, but at present, it is not under consideration by the government,” Petkova stated.

The IMF also stressed the need to reduce public expenditure by around 1% of GDP in 2026 to cool the economy and prevent rising inflationary pressures. Fiscal policy, the Fund said, should be tightened and targeted towards increasing consumption and quality investment.

Additionally, the IMF urged prudent management of Bulgaria’s euro adoption process.

“To reap the benefits of adopting the euro in Bulgaria, raise living standards sustainably, and avoid macro-financial imbalances, policymakers should strengthen fiscal discipline, manage the risks of eurozone transition, and accelerate reforms,” Bornhorst said.

According to the IMF, eurozone accession offers an opportunity to strengthen institutions, increase confidence in policy, and support medium-term growth through investment.