The structure of this paper is as follows. Section 1 describes the payroll tax system in Bulgaria and gives some comparisons with other developing economies. Section 2 reports estimates of the job creating and economic growth effects of a tax incentive reform. Section 3 details the costs of such reform, and presents some robustness tests. Section 4 concludes.
1. What are Payroll Taxes?
Payroll taxes cover health and pension benefits, maternity leave, unemployment insurance, and occupational accidents payments. Altogether, as of January 2009 these come to 31.3% of the gross salary of an average worker in Bulgaria. Of this amount, 18% goes to pensions (for workers born after 1959, 5% goes to private pension funds), 3.5% to sickness and maternity leave, 8% goes 本文来自辣.文-论^文·网原文请找腾讯3249,114 the business goes bankrupt. The employer pays about 60% of payroll taxes, 18.3%, with the employee contributing the rest.
The payroll tax has fallen significantly in the last decade, from about 45 percent in 2000 to 31.3% as of January 2009.
The payroll tax now represents the bulk of what workers pay in taxes. For this reason, in some sectors of the economy there is widespread practice of under-reporting wages, so that the payroll tax can be recorded on a lower base. To reduce the incentives for such under-reporting, the government has introduced minimum wages in certain sectors, upon which the payroll tax is calculated. There is also a maximum level, currently at 2,000 leva (4 times the national minimum wage), after which income is not taxed for the purposes of social contributions.
The payroll taxes are used to finance the various parts of the social security system, the main part being the pension system. However, due to the high ration of retired people to working people, the government’s budget provides the bulk of the financing. In particular, only 46% of social security funds came from direct taxation in 2006. This ratio has likely declined in the last two years, as the government has increased pensions the budget subsidies for the social security system. The remaining contributions came as follows: 37% as a central budget transfer; 15% as the state’s contribution; and 2% indirect state contributions.
There have already been some reductions in payroll taxes in this decade. In 2006, payroll taxes were cut by 6 percentage points; in 2007, an additional 3 percentage points; and in 2009, 2.4 percentage points.
Bulgaria is only one example of a country with relatively high payroll taxes. Businesses in Belarus, for example, pay 35% of the gross salaries of workers in payroll taxes. Businesses in Romania pay about 30% of gross salaries. In Poland, 28.1%. Countries in Asia and Latin America have generally high taxes on business, although not specifically linked to workers’ wages. Colombia, for example, taxes nearly 78% of profits away from the business, in various types on national and municipal taxes. India taxes nearly 71% of profits. Brazil – 69%. Tax reforms as a crisis response is possible in any of these countries.
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