Assoc. Dr. Grigor Sariyski to Social policy should not be implemented through indirect taxes!

Григор Сарийски
Григор Сарийски. Снимка: Facebook

„I do not see the economic logic in the measures that are being proposed. The problem is that when the tax rebate is put this way, it only reaches the restaurant owners, and not the restaurants it needs to reach.“

This was commented to by Economist from the Institute for Economic Studies Assoc. Prof. Dr. Grigor Sariyski on the occasion of the changes in the tax laws for 2024 submitted by the Council of Ministers to the Parliament. They envisage that the value added tax for restaurants will be 9% and the rate for bread and flour will be zero.

Sariyski recalled that when the measure was introduced in 2020, it was announced that prices in restaurants would decrease. But what actually happened:

„The overall price increase and the increase in the Restaurants and Hotels sector in the second half of 2020 are absolutely identical. That is, not only was there no decline, but there was a continued rise that was comparable to the increase in the total basket of goods and services. Then it started to be said that it was not so much for households as to help the owners of establishments, because they have been hit hard by the crisis.“

Sariyski stressed that there are other approaches used in different countries to help those businesses that are most in need. They should also be applied to the citizens themselves who need support from the state, such as the energy poor, for example.

As for the zero VAT rate for bread and flour, the expert explained that it is an inelastic demand, because whatever the price of bread, its demand will remain constant within certain limits.

„When you make the VAT rate changes and that changes the price, it won’t have much of an impact on the consumption of bread. But we are dealing with the same problem that the owners of bakeries – those who sell bread, consider how much of the profit to give to the end consumer, whether to reduce the price of bread, and what part to keep for themselves. If you look at the prices, not the bread, you will see that de facto there was no decrease,“, Grigor Sariyski also pointed out and stressed:

„If you want to implement social policy, especially in the current context, indirect taxes are not the way to do it!“

The economist explained that social policy is implemented by helping specific groups. He gave the example of the energy poor, for whom criteria must first be drawn up and then assistance can be given in the form of coupons or price relief. Regarding business, Sariyski cited the German experience, where part of the costs of companies that need it are covered.

When asked by about the planned measures to lighten the restaurant and hotel business, such as mandatory installation of POS terminals in 2, 3, 4 and 5 star establishments and a ban on paying salaries by hand, Sariyski expressed skepticism that they will lead to the desired results effect. He pointed out:

„The measures will not have any other effect than to complicate the business itself for restaurant owners and hotel owners.“

The economist also gave an example of the announced measure for consumers to collect their receipts and then fill out documents on the basis of which they would receive relief due to the value added tax paid. Sariyski made a calculation according to which, if a person really goes through the entire difficult procedure, he will be able to recover only about BGN 1.60 per month. Therefore, it is questionable whether consumers will resort to this measure at all.

It depends on the National Assembly, which has the final say, whether the proposed changes to the tax laws become reality.

Grigor Saryski is an Associate Professor at the Institute of Economic Research at the Bulgarian Academy of Sciences. He defended his dissertation on „Risk Management in Bank Lending to Companies in Bulgaria“. He is the author of research and publications in the fields of banking, public finance, economic convergence.

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