1

2

Project Development Objective

Implement an EU-compliant, efficient, and sustainable revenue collection system that facilitates private sector development

Complementary objective: separation of central and municipal revenue collection

3

Basic Facts

Original project cost:€58.8 million, o.w. €31.9 million Bank financing

Duration: close to 6 years (August 2003-June 2009)

World Bank actual disbursements: €21 millionout of an original allocation of €32 million

58 contracts signed and completed under the project

Project development objectives fully achieved. Highly satisfactory performance maintained throughout project implementation

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Basic Facts: Cost of Project ComponentsActual Costs per Component, million euro

Policy Support, 0.74 Organization Development, 0.35

Increasing Operational Efficiency,

20.9

Outreach and Participation, 2.1

Office Upgrading, 17.1

Project Management, 0.85

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Key results: Significant Revenue IncreaseTax and Social Contribution Revenues, BGN billion

Source: NRA

2002 2003 2004 2005 2006 2007 20080.0

5.0

10.0

15.0

20.0

25.0

Taxes Social contributions Municipal fees

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Key results: Highest Revenue Gains Among the New Member States

Slovakia

Slovenia

Estonia

Lithuania

Romania

Poland

Hungary

Czech Republic

Latvia

Bulgaria

-5 -4 -3 -2 -1 0 1 2 3 4 5

Hungary

Poland

Czech Republic

Slovenia

Bulgaria

Romania

Slovakia

Estonia

Lithuania

Latvia

0 1 2 3 4 5 6 7 8 9 10

Tax and SC Revenues Increase, 2007-2002, % of GDP

Annual GDP Growth Rate, 2002-2007, %

Source: Eurostat and World Bank staff calculations

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Key results: Lowest Tax Burden

HungaryEstonia

Slovak Republic

Czech Republic

Romania

LithuaniaPoland

SloveniaLatvia

Bulgaria

0 10 20 30 40 50 60 70

NMS: Total Tax Rate, % of Profit

Source: Doing Business 2010

CIT Dividend income tax

PIT (max rate)

Social Con-tributions

0

5

10

15

20

25

30

35

402002 2008

Bulgaria: Tax and Social Contribution Rates, 2002 and 2008, %

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Key results: Lower Compliance Costs

2002 20080%

10%20%30%40%50%60%70%80%90%

100%Online Filing

Online and Diskettes

48.7%

1.4%

Online filing, % declarations filed online

Simplified laws and procedures

Stable tax legislation

Integrated revenue collection for taxes and social contributions

Improved taxpayer/contributor services promoting understanding of laws and procedures

Increased use of e-filing and e-payment

Special focus on large and medium-sized taxpayers and contributors

Source: NRA

Still more work is needed to further reduce taxpayer compliance costs

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Key results: Efficiency of Revenue Collection Improved

2002 2003 2004 2005 2006 2007 20080.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%Collection cost, % of Revenues

Source: NRA

Field offices were consolidated from 340 in 2002 to 29 currently and 7 offices soon

Revenue per revenue staff tripled in 2008 compared to 2002

Revenues are collected by 25% less staff in 2008 compared to 2002

Collection costs in Bulgaria much lower than in NMS—0.8 percent of revenues

Efficiency of audits improved—less audits but more enforced revenue per audit

Consolidating Sofia operations would further increase efficiency of NRA and taxpayers

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Key results: Voluntary Compliance Increased for All Tax Types

VAT compli-

ance

CIT com-pliance

PIT com-pliance

0102030405060708090

10020022008

Compliance rates, %

Source: NRA

VAT compliance now one of the highest in the EU

CIT compliance increased by 13 percentage points

PIT and social contribution compliance increased by 7 percentage points

Additional tax policy and administration measures needed to improve PIT and CIT compliance

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But Some Unfinished Business• Consolidate Sofia office network

• Implement second phase of Revenue Management System

• Increase use of e-filing

• Decrease taxpayer compliance costs

Refurbished Building of NRA in Varna

Design of Sofia Building of NRA

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Key Revenue Administration Reforms

Implemented institutional arrangements able to manage evolving revenue collection challenges of the country

Implemented capacity to conduct compliance studies, analyze proposed bills, policies and regulations

Implemented strategic focus to management, strong HR and integrity management capacity

Streamlined, optimized, and automated business processes Implemented ICT infrastructure and core functions of integrated

revenue management system Improved taxpayer services and external and internal

communications Absorbed capacity for project management and change management Upgraded field and headquarters office facilities

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Key Factors Affecting Outcomes

Strong political commitment and support from MOF Active management board representative of key stakeholders Competent, committed, dynamic and high integrity NRA leadership Clear vision of organization’s mission and future from the outset Use of strategic management Evidence of early success—transfer of municipal fee collection Timely implementation of modern legislative framework High level of accountability of management and staff Excellent project and change management Continuous feedback from staff, taxpayers and stakeholders

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Lessons Learned

Revenue administration reform is a multi-year effort that need to be understood and sustained by successive governments

Ownership by top government ministries and implementing agency are key

Integration of revenue collection involves multiple stakeholders with varying concerns and interests. This can be addressed by stakeholders actively participating in the management of the process

Performance standards for revenue administration must be set and continuously measured and evaluated

Continuity of positive leadership is another key factor

e-Tax systems are essential to reduce compliance costs but implementation may be complicated by legal obstacles

Early changes to legal framework are crucial to provide clear and sufficient legal basis for the reform

Early wins are crucial to build confidence in the reform

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Bulgarian Revenue Administration Reform

A success that needs to be replicated to other parts of public administration