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Analysis
The government expects €800 million from a one-off tax on 2027 profits above each company's 2020-2025 average in six sectors, while the central bank warns it could make credit dearer. The draft 2027 budget is due in parliament by 31 October.
The Bulgarian National Bank (BNB) has set out its case against the government's proposed one-off tax on excess profits in an analysis titled "On taxes, credit and growth", published on 26 October in the Bank for International Settlements central bankers' speeches series, EconoTimes reported. The BNB said additional taxes on bank profits could raise borrowing costs and weaken lending, and that expected revenue alone could not establish the measure's benefit.
The debate comes as the 2027 budget nears parliament. Prime Minister Rumen Radev said on 28 October that the draft budget had not yet been made public because it had to be coordinated with the European Commission, and that the government was still resolving several contentious issues, BTA reported. The Public Finance Act requires the Council of Ministers to submit the draft State Budget Act to the National Assembly by 31 October. Radev said the government was not planning to raise taxes or social security contributions.
The measure is set out in the Ministry of Finance's 2027 Draft Budgetary Plan. It is a one-off tax at 33% for financial year 2027 on banks, insurers and reinsurers, traders operating at least five food stores, telecommunications companies, exchange offices and fast-credit companies. Expected revenue is €800 million, or 0.57% of GDP. Taxpayers would make monthly advance payments during 2027, and 30% of the tax is to be used for regulatory capital buffers or, for companies without such requirements, invested in new fixed tangible and intangible assets in their main activity.
Fakti described the mechanism in more detail: each company's average profit for 2020-2025 is calculated, 20% is added as a "normal" profit rate, and only profit above that threshold is taxed. If the result is negative, nothing is due, and 90% of the amount is to be paid in advance in 2027. Deputy Finance Minister Lyudmila Petkova said the selected sectors account for about 60% of excess profits in the economy and that banking sector profits grew by 588% over 2020-2025. The ministry expects all revenue measures in the tax package to bring in about €1.4 billion.
The fiscal backdrop explains the search for revenue. The same budgetary plan projects a general government deficit of 5.0% of GDP in 2026 and 4.3% in 2027, with gross debt rising from 31.1% to 33.3% of GDP. It notes that the earlier projection of a 4.1% deficit for 2026 was the basis for the EU Council's decision that an excessive deficit existed in Bulgaria.
Data from the Association of Banks in Bulgaria show the scale of bank earnings. Net profit of the banking system rose from €0.724 billion in 2021 to €1.063 billion in 2022, €1.747 billion in 2023 and €1.889 billion in 2024, before easing to €1.855 billion in 2025. By the end of June 2026 it reached €1.079 billion, 7.2% more than a year earlier. The return on equity was 15.1% in the second quarter of 2026, against a European bank average of 10.0% in the first quarter, and the return on assets was 1.9%, against 0.7%. The five largest banks held 76.4% of assets and earned 81.8% of system profit. The association's series starts in 2021, so it does not show the 2020 base behind the ministry's 588% figure, but it does show that 2025 profit was about 2.6 times the 2021 level.
Croatia offers the closest regional precedent. In December 2022 it adopted a windfall tax on companies with 2022 revenue above about €40 million, taxing at 33% any profit more than 20% above the average of 2018-2021, UNCTAD's Investment Policy Monitor recorded. The Bulgarian proposal uses the same rate and uplift but a longer and later reference period, and it targets six named sectors rather than all companies above a revenue threshold.
The BNB's main objection is to the reference period. It said 2020-2025 includes the pandemic, unusually low interest rates, an energy and inflation shock and a sharp change in rates, and that including depressed 2020 earnings could classify part of the later recovery as excess profit. Banks also expanded assets, lending and capital over the period, so higher profits could reflect normal returns on a larger business, the BNB argued. The association's figures are consistent with that growth: total bank assets rose from €69.2 billion in 2021 to €116.1 billion in 2025.
On how banks might respond, the BNB said cutting dividends would have the smallest effect on the economy, but that banks could also change loan pricing, lending requirements or deposit terms, and might favour government debt over private lending if capital became more costly. BNB Governor Dimitar Radev said that "raising taxes has a price" and that, when the tax falls on financial intermediation, part of the price can go beyond the taxpayer, Fakti reported. Finance Minister Galab Donev said the governor was going beyond his authority and that many companies in the affected sectors are foreign-owned and export their profits rather than reinvesting them.
For shareholders of banks, insurers, telecoms and large food retailers, the immediate question is 2027 earnings and dividend capacity, since the tax applies to one year but is payable largely in advance. For companies that have grown through investment, the opposition GERB-SDF warned that the measure could penalise results achieved through investment and good management and hurt predictability. Dobrin Ivanov of the Bulgarian Industrial Capital Association said the method for defining excess profits was not developed well enough. The 30% reinvestment option could steer part of the money into capital buffers or new fixed assets rather than the budget. Whether borrowers and customers bear part of the cost is disputed: Petkova argued the measure could even have an anti-inflationary effect, while banker Levon Hampartzumyan warned that part of the burden could reach consumers.
The first marker is whether the draft State Budget Act and accompanying documents reach the National Assembly by the 31 October deadline, and in what form after coordination with the European Commission. After that, the key points are the parliamentary votes on the Corporate Income Tax Act amendments, any change to the 2020-2025 reference period or the list of sectors, and the final rules on the 30% reinvestment share and the advance payment schedule. The BNB has asked for assessments under both baseline and adverse conditions, covering credit, capital, growth and public finances, before a final decision.
Sources
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