Historically, the role of the state has evolved over time. Its existence is absolutely necessary. First of all, it has provided people with security: external – through defense, and internal – through the order it guarantees. The state's task is to maintain an army, police, judiciary, fire safety, as well as to determine the rules that people must follow.

It is not possible for these specific activities to be carried out by the private sector. No business would provide road signs or street lighting, for example. This is because it cannot restrict a specific person from using these public goods. For this reason, it cannot motivate an individual to pay a price. And without revenue and profit, business has no incentive to work.

Today, the role of the state is much more comprehensive. In addition to the examples discussed above, it is engaged in a number of other services that contribute to the well-being of society. For example, in education and healthcare. This is because the benefits of education are not only for the specific person who receives it, but also for everyone around them. Every person has an interest in the doctor, lawyer or accountant they work with being as well prepared as possible. For the same reason, the state is engaged, for example, in providing and administering vaccines – thanks to them, serious diseases such as polio have been practically eradicated.

With the development of societies – science, technology, economy, etc., the role of the state is becoming increasingly complex. Today, it is associated with caring for those in need, protecting the environment, guaranteeing people's rights as consumers, protecting competition, regulating complex systems, relations with other countries, economic sustainability, etc. In order to perform all these functions that people need as a society, the state needs resources. But it does not have its own funds. All the money it has is collected in various forms from households (consumers) and businesses (entrepreneurs). Since people do not pay directly for a specific good – such as education, for example – they often say that it is free. However, it should not be forgotten that expenses were incurred to provide it, which were paid for precisely with their money. The most important source of revenue in the state budget is taxes.

 

What are taxes?

A tax is an amount of money that people provide to the state. Although the state provides all the aforementioned goods, it is assumed that it is gratuitous and non-refundable. This is because when paying it, it is not a transaction in which there is an exchange of money for a specific good. In addition, a tax is a forced claim in favour of the state, which it imposes unilaterally. This means that its payment is not voluntary. In case it is due and this is established, it will be collected forcibly. As mentioned above – if a person’s access to a given good cannot be limited, they cannot be motivated to pay its price. However, this does not give the person the right to use it for free at the expense of everyone else. This is precisely why taxes are necessary – to ensure that all those who use public goods participate in their financing.

Taxes have certain features – for example, the basis for their imposition is necessarily laid down in law. This means that people cannot be taxed with a tax that is not provided for in the regulatory framework. Secondly, all subjects and objects provided for in the relevant law are subject to taxation – under the same conditions. Of course, it is possible for the law itself to provide for exceptions. Outside of these, everyone is equal in terms of taxation. Each tax is clearly defined – what is the taxable base and how is it formed, what is the tax amount, how is the tax liability calculated.

The tax base is the sum of the units that are subject to taxation – for example, income in euro, square meters of area, horsepower, etc. The tax amount (rate) shows what part of these units the tax represents – for example, 10 per cent. The tax liability is the product of the base and the rate – at 100 euros income, the tax would be 10 euros.

 

Tax filing and collection

Taxes are collected by specialised revenue agencies. In Bulgaria, these are the National Revenue Agency (NRA) and the Customs Agency. One of the general requirements for tax the administration is that their declaration and payment should be easy, convenient and accessible to consumers. That is why the NRA has its own portal with a number of services. You can file your tax return both online and on paper. Accordingly, you can pay by card on the portal or by bank transfer.

The NRA also collects social insurance contributions – for state social insurance, administered by the National Social Security Institute; for supplementary compulsory pension insurance, managed by private funds, and for health insurance, received in the budget of the National Health Insurance Fund.

 

When starting a business, check the current tax rates in the relevant regulatory documents.

 

Useful links:

National Revenue Agency

National Customs Agency

National Social Security Institute

National Health Insurance Fund