3. The VAT system in Bulgaria

3.1 The VAT collection mechanism

The VAT collection mechanism is based on the assumption that 

After this compensation has taken place, over a certain time period, 

The ultimate result of these operations will be a tax burden, exactly equal to the applicable VAT tax rate on the final (consumer) price of the product.

Example (all participants considered to be registered for VAT purposes)

Participant Performed deal Price (excl VAT) VAT (e.g. 20%) VAT owned VAT credit
Supplier of raw materials sells raw materials 100 20 20  
Manufacturer buys raw materials 100 20   20
  sells produced goods 200 40 40  
Retailer buys produced goods 200 40   40
  sells produced goods 300 60 60  
Consumer buys the goods for final consumption 300 60    
        120 60

The final consumer suffers a tax burden of 60 EUR.  This is exactly the difference between the VAT owned by everyone involved in the production process (120 EUR) and the VAT credit of everyone in the production process (60 EUR).

No reimbursement of previously paid tax is available to the final consumer.

Comparison VAT - turnover tax (example based on a 20% tax rate)

  Turnover tax 6 steps
  Price Tax
1 10 2
2 12 2.4
3 14 2.8
4 16 3.2
5 18 3.6
6 20 4
  total taxation 18

 

  Turnover tax 11 steps
  Price Tax
1 10 2
2 11 2.2
3 12 2.4
4 13 2.6
5 14 2.8
6 15 3
7 16 3.2
8 17 3.4
9 18 3.6
10 19 3.8
11 20 4
  total taxation 33

 

  VAT tax 6 steps
  Price Tax
1 10 2
2 12 0.4
3 14 0.4
4 16 0,4
5 18 0.4
6 20 0.4
  total taxation 4

 

  VAT tax 11 steps
  Price Tax
1 10 2
2 11 0.2
3 12 0.2
4 13 0.2
5 14 0.2
6 15 0.2
7 16 0.2
8 17 0.2
9 18 0.2
10 19 0.2
11 20 0.2
  total taxation 4