Bulgarian tax reform and banking windfall tax debate

Discussions regarding potential tax reforms in Bulgaria have centered on the implementation of a windfall tax targeting the banking sector. Simeon Dyankov, chairman of the Fiscal Council, proposed a temporary tax on bank excess profits, suggesting it could generate over €1 billion to reduce the national deficit. Dyankov argued that the surge in banking profits since 2022 is driven by macroeconomic interest rate changes rather than increased risk or investment, noting that 12 other EU member states have already implemented similar measures.

In response to proposed legislative changes from the Ministry of Finance, Bulgarian business groups have expressed significant opposition. The Association of Bulgarian Banks (ABB) argued against a 33% tax on ‘excess profits,’ claiming there is no economic justification for the term and warning it could restrict lending and threaten growth. The ABB also criticized the government’s use of the 2020-2025 period as a baseline, stating it includes pandemic-induced downturns that artificially lower the comparison base.

Additionally, the Association of Industrial Capital in Bulgaria (AИКБ) expressed mixed views on the broader legislative package. While supporting measures like increasing the VAT registration threshold, the group warned that limiting the deduction of tax losses to 70% of positive financial results could undermine tax neutrality and predictability.