Tax Whistleblowers: A New Strategy to Combat Tax Evasion in Bulgaria

Tax Whistleblowers: A New Strategy to Combat Tax Evasion in Bulgaria

Encouraging Disclosure of Tax Evasion

In an ambitious move to curb tax evasion and avoidance, Financial Minister Asen Vassilev has proposed a novel incentive-based initiative. The strategy involves offering financial incentives to individuals and companies that provide information about concealed tax or insurance obligations. This initiative is aimed at generating additional income for the budget and is part of amendments to the Tax and Social Insurance Procedure Code (TSIPC).

Under the proposed changes, individuals who provide information that leads to the identification and collection of additional tax and mandatory insurance contributions would receive 10% of the additional revenues collected as a result of their disclosures. The information must contain specific facts and circumstances, previously unknown to the revenue authorities.

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Challenges in Implementation

Despite the potential benefits, implementing this initiative in Bulgaria, where tax evasion is often registered rather than prevented by the National Revenue Agency, could prove challenging. Proving concealed tax liabilities retrospectively is complex, and collecting them is even more difficult.

Vassilev also suggested other unusual strategies to increase tax collection, but these suggestions did not receive parliamentary support due to their impracticality. For instance, he proposed free meals in restaurants that do not issue a receipt, but this was deemed potentially unconstitutional. Another idea for free bank accounts upon receiving salaries and pensions was accepted, but it does not work in practice.

Addressing Tax Evasion and Avoidance

Evading tax and mandatory insurance contributions is a problem in all developed economies, including EU member states. This issue is particularly significant in Bulgaria, where the collection of these public claims is not yet at the necessary levels. Therefore, it is necessary to use all legal means to ensure their collection, including creating incentives for citizens to inform the tax administration about unknown facts and circumstances that could help increase tax collection.

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Conditions for Reward

For the information submitted to qualify for the reward, it must contain specific facts and circumstances that were not known to the revenue authorities. This is to prevent the abuse of non-specific and superficial signals with the aim of material gain. The state reward will be paid if the collected sum from the National Revenue Agency is at least BGN 3,000, the amount considered a large-scale tax under the Penal Code.

Preventing Misuse of the Regime

The ministry also plans to introduce an administrative penalty for three-time submission of false information about the same person. This move is designed to prevent the misuse of the regime to disadvantage people with whom the informant has a conflict or enmity.

Additional Proposals

In addition to this, Vassilev has proposed a tax bonus for people who register their receipts with the National Revenue Agency. They can enjoy a relief in the form of a reduction from the annual tax base of 0.5% of the VAT paid by the person, but not more than BGN 100 per month. However, this is practically a negligible discount and unlikely to stimulate most citizens to register hundreds of receipts.

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