POSITION REGARDING THE PLANNED INCREASE OF THE MAXIMUM INSURANCE THRESHOLD
10/19/2023
POSITION ON PLANNED MAXIMUM INSURANCE THRESHOLD INCREASE
The organizations representing the high-tech business, including:
-Association for Innovation, Business Services and Technology - AIBEST;
-Alliance of the Technology Industry - АTI;
-Bulgarian Association for Information Technologies - BAIT;
-Bulgarian Association of Software Companies -BASCOM;
-Bulgarian Entrepreneur Association - BESCO;
-Bulgarian Employers' Association of Innovative Technologies -BRAIT ;
-ICT Cluster,
we express our categorical position against the introduction of an automatic formula for the annual increase of the maximum insurance threshold (MOD).
We are surprised that the subject of the increase in the MOD is raised once again in the absence of any strategy to meet the challenges facing our industry and analysis of the overall effect on the Bulgarian economy.
We believe that the government shares the understanding that it is strategically important for Bulgaria to create a good environment for the development of high-tech business, which is export-oriented and has a key role in the formation of the middle class and the achievement of greater growth of the gross domestic product of our country. Building this environment is a complex topic related to improving access to investment, improving the regulatory framework and improving access to highly qualified personnel, including the much-needed reforms in the education system. A competitive and regulated tax-insurance system is an important part of the overall framework in which business develops.
Thus, the automatic formula proposed by the Ministry of Finance for the annual increase of the MOD, especially in a variant that represents a coefficient of the average salary for the country, risks quickly and irreversibly taking away the competitiveness of the Bulgarian high-tech sector, as well as of all other sectors that operate transparently , make a significant contribution to the national budget, paying the highest taxes and insurances, retain talent in the country and provide high added value for society.
Despite the serious growth of high-tech industries, which are already responsible for more than 20% of the country's gross domestic product, the costs of our companies have been increasing in the last two years by more than 30% on an annual basis. Against this backdrop, being tied to an automatic formula will not only fail to provide the vital normal business environment, it will also take away the possibilities for flexible policy in the dynamically changing conditions we are undoubtedly facing. It is also possible that the number of newly opened jobs will decrease, because some high-tech companies may move to other countries in search of a more attractive and, above all, regulated business environment.
The introduction of an automatic formula for the annual increase of the MOD will have a negative impact on both the costs of employers and the net remuneration of each high-tech specialist. We would like to remind you that even at the moment, everyone employed in our sector pays taxes and insurance, which are twice the national average.
According to a nationally representative survey by the Guidance Agency, more than a third of young people are oriented towards education and a career in this field. The IT and telecom sector undoubtedly has a growing share of representativeness of the interests of young people and is the key to dealing with the demographic crisis. Increasing the tax burden on IT and telecom talent is a counterproductive and dangerous message to the highly educated and highly qualified professionals who chose to stay in Bulgaria and be the engine of consumption in a number of sectors of the economy.
At the same time, there has been a hunger for talent and migration in our industry for at least 10 years. The remote working method imposed by the COVID pandemic further worsens the situation, because our IT specialists can even more easily work for companies from more developed economies around the world, i.e. they migrate to foreign employers without having to relocate.
This will undoubtedly reflect negatively on the role of the IT industry in supporting the process of digitization of the Bulgarian economy and society, whose accelerated development is a priority in the NPVU (the DESI index and the country's penultimate place).
Against this background, it is good to think about how to stimulate the development of the high-tech industry by developing tax reliefs, to encourage its contribution to the digital transformation of the Bulgarian economy, to increase investments in innovative developments, and why not to think about a differentiated approach to reducing (or exempting for a certain period) insurance and general income tax in the industry, as in a number of other Eastern European countries.
Our call is for the government to abandon the initiative to introduce an automatic formula to raise the maximum insurance threshold every year. We appreciate that the conversation continues and believe it is crucial to understand that the fight against high inflation is not yet over and we have not achieved the economic stability that better planning of the country's tax-insurance policy would help.
We appeal, before discussing any increase in the MOD, to propose a number of more effective concrete measures to replenish the treasury and improve the welfare of Bulgarian citizens, such as:
-Highlighting entire sectors of the Bulgarian economy;
-Keeping talent in the country;
-Building and promoting the "Bulgaria" brand abroad in order to attract investments;
-Promoting us as a country of Artificial Intelligence development and focus on preventing possible negative consequences on the labor market;
-Provision of education adequate to the needs of the business;
-Creation of adequate conditions and targeted policy in the field of health care and social services, increasing the quality of life of all Bulgarians;
-Preventing the demographic catastrophe through consistent and targeted measures and policies; Restoring the rule of law;
Development of sectoral policies - especially those aimed at the sectors that work for export, as they are a source of permanent transparent income in the country's economy.