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VAT RATE
FOR BULGARIAN ORGANIC FARM PRODUCTS UP TO 5%
FOR BULGARIAN FARM PRODUCTS UP TO 9% 

Находим вдохновение повсюду

DRAFT PROPOSAL

to apply a reduced VAT rate, applicable only to food and products produced in Bulgaria from Bulgarian raw materials and intended for human consumption.

CIVIL PETITION

Adoption of a Law
on Amendments and Supplements to the Value Added Tax Law
concerning the introduction on the territory of the Republic of Bulgaria
of a temporary regime of reduced VAT rates for food and food ingredients, as well as for bio-certified food and food ingredients intended for human consumption, produced and processed in Bulgaria.

I. Subject matter and legal basis of the proposal

This draft proposal proposes the introduction of a temporary regime of reduced rates of value added tax (VAT) for certain supplies of food for human consumption, as follows:

  • up to 9% VAT for food for human consumption produced and processed in Bulgaria, where the main ingredient is a Bulgarian raw material produced in accordance with Bulgarian legislation, applicable veterinary and phytosanitary requirements, registered farms and operators on the territory of the country, demonstrable batch traceability along a short supply chain;

  • up to 5% VAT for organically certified food for human consumption produced and processed in Bulgaria, where the main ingredient is a Bulgarian organically certified raw material.

 

The measure is of a general nature and applies under equal conditions to all economic operators that meet the objective criteria, regardless of their size and legal form. We propose to apply reduced rates of value added tax (VAT) as a temporary regime for a period of 36 months, in view of exceptional market imbalances in the agri-food sector on the basis of Art. 122 TFEU - exceptional economic circumstances. If a positive impact on the agri-food sector, domestic production and processing of food from Bulgarian raw materials is established, the regime may be extended by a subsequent decision of the competent institutions.

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We propose to introduce the measure on the basis of Art. 98 and Annex III, item 1 of Directive 2006/112/EC - supply of food for human consumption. The specific proposal does not exclude foods by nationality, but defines technological and production characteristics.

II. Main objectives of the measure

The measure aims:

  • Development of the agri-sector by stimulating the consumption of high-quality and bio-certified foods produced in Bulgaria, as well as farm products - produced on the territory of the country with raw materials as the main ingredient;

  • Promoting domestic production and processing in Bulgaria instead of exporting raw materials and importing finished products;

  • Increasing the competitiveness of food and products made from Bulgarian raw materials on the domestic market;

  • Protecting the market and consumers from cheap imported products without proven origin and without traceability of raw materials;

  • Strengthening food security through the development of Bulgarian agriculture and the processing of quality and healthy foods based on Bulgarian raw materials;

  • Reducing the carbon footprint by promoting local and short supply chains "from farm to consumer";

  • Preservation and development of traditional production and local food products;

  • Ensuring better, fairer and wider access of citizens to quality Bulgarian food.

III. Social justification

The price burden on quality foods with proven Bulgarian origin creates unequal access to healthy nutrition for part of the population. The higher price threshold limits the consumption of traceable and nutritionally more valuable products and directs some households towards cheaper and lower-quality alternatives.

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The reduced VAT rate, applicable only to food and products made from Bulgarian raw materials intended for human consumption as the main ingredient, will reduce the price barrier and improve access to quality and healthy nutrition.

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The measure will increase the public and market value of traditional Bulgarian foods, encourage the transmission of food traditions between generations, and support the development of products produced in Bulgaria with high quality and proven beneficial properties, recognizable and competitive on international markets in the long term.

IV. Scope of the measure - mandatory requirement for a Bulgarian main ingredient:

A reduced VAT rate of up to 9% applies to supplies of food for human consumption that simultaneously meet the following conditions:

  • Food for human consumption, produced or processed on the territory of Bulgaria;

  • The main ingredient must be produced in a registered farm or facility subject to official control according to the Bulgarian.

  • There must be demonstrable batch traceability along the supply chain.

  • The product must be clearly identifiable by type, item and batch.

  • Minimum threshold of Bulgarian raw materials - for example ≥70% of the mass of the main ingredients.

​​

A reduced VAT rate of up to 5% applies to the production of food for human consumption that simultaneously meet the following conditions:

  • Food for human consumption, produced or processed on the territory of Bulgaria;

  • The main ingredient must be produced in a registered farm or facility subject to official control in accordance with Bulgarian and European legislation, holding a valid biocertification certificate from an official control biocertification body in accordance with Regulation/EU/2018/848

  • The main ingredient is a biocertified raw material in accordance with Regulation/EU/2018/848 and must be produced in Bulgaria;

  • There must be demonstrable batch traceability along the supply chain;

  • The product must be clearly identifiable by type, item and batch; Minimum threshold of Bulgarian raw materials — e.g. ≥70% by weight of the main ingredients.

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The measure is horizontal in nature and does not constitute individual granting of state aid.

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Definition of “main ingredient”

A main ingredient is an ingredient that:

  • represents more than 50 percent of the weight of the product, or

  • determines the name and nature of the food (e.g. milk in yogurt, flour in bread, fruit in jam, meat in a meat product).

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The methodology for determining the main ingredient, the permissible technological exceptions and the minimum thresholds are determined by an ordinance of the Minister of Finance, jointly with the Minister of Agriculture and Food.

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Permissible technological exceptions

Without a requirement for Bulgarian origin, they may be:

  • water, salt, starter cultures, yeast;

  • spices and additives in a small percentage;

  • technological ingredients below a certain threshold (e.g. <10%).

Exceptions to the measure:

  • alcoholic beverages;

  • restaurant and catering services;

  • highly processed products high in added sugars and hydrogenated fats.

V. Mechanism for proving Bulgarian origin

Proofing to be carried out through:

  • Documents of origin of the raw material;

  • Accounting documents from producers;

  • Batch traceability;

  • Registration of operators;

  • Organic certificate (where applicable);

  • Declaration of main ingredient produced in Bulgaria.

 

The determination of the main ingredient will be carried out according to a methodology approved by a Regulation of the Minister of Finance and the Minister of Agriculture.

VI. Market protection and competitive function

The reduced VAT rate applies only to food and products produced in Bulgaria, which:

  • Gives a real price advantage to local production and processing;

  • Does not subsidize the use of imported raw materials;

  • Limits unfair price competition from cheap products without proven origin;

  • Protects the consumer by requiring a traceable and demonstrable origin of the main raw material;

  • Maintains added value along the food chain in Bulgaria;

  • Increases demand and consumption of Bulgarian food and Bulgarian agricultural raw materials;

  • Supports the development of the agricultural sector and the food processing industry;

  • Contributes to maintaining and increasing national food security.

VII. Shrinkage of the agricultural sector and increasing import pressure - market risk

In recent years, there has been a significant decline in the number of agricultural producers and farms (approximately 15–25% according to different statistical scopes), which indicates a growing structural risk for local production and the Bulgarian raw material base. Both the number of active farms and the capacity for domestic production and processing are decreasing.

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If this trend continues over the next five years, a further significant contraction of the sector can be expected - both in terms of the number of producers and in terms of domestic production and processing potential.

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The current moment should be considered critical, as adverse factors are simultaneously accumulating - increased import pressure, increased production costs, climate risks, price competition from foreign markets and the disappearance of small and medium-sized farms.

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The structural trade model further exacerbates the risk: Bulgaria exports mainly agricultural raw materials with low added value, but imports a significant volume of processed food and products for final consumption. The strongest import pressure is observed for meat, dairy products, fruits and vegetables. This leads to the displacement of Bulgarian foods produced from Bulgarian raw materials from the domestic market.

 

In the absence of targeted economic incentives and market corrections, there is a real risk of accelerated loss of competitiveness of the Bulgarian agricultural sector and weakening of its ability to provide a sustainable food base for the population.

VIII. Environmental, health and strategic rationale

Support for food produced in Bulgaria from Bulgarian raw materials as the main ingredient has the following priority strategic, economic, environmental and health effects:

  • Strengthens national food security through the development of local production and processing;

  • Supports the sustainable development and competitiveness of the Bulgarian agricultural sector and the food processing industry;

  • Retains added value in the country and stimulates the domestic market for Bulgarian food;

  • Preserves and develops traditional Bulgarian food practices and products and promotes continuity between generations;

  • Builds a culture among the younger generation about the value of local food, the origin of raw materials and responsible consumption;

  • Reduces the ecological footprint by shortening transport distances and promoting short supply chains "farm-market-consumer";

  • It creates health benefits through wider access to fresher and seasonal food, produced and delivered in the same region, with a shorter time from harvest to consumption and better preserved nutritional qualities.

IX. Financial justification—effect on the sector and expected consumption in the event of a VAT reduction

The fiscal effect of the measure is limited and targeted, as the reduced VAT rate applies only to food produced in Bulgaria from Bulgarian raw materials as the main ingredient. Thus, the budgetary impact is significantly smaller compared to a general VAT reduction for all food products.

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Expected effect on prices and consumption:

When reducing VAT from the standard rate to 9% and 5%, a decrease in the final consumer price is expected in the range of approximately 9–15% when the tax effect is actually passed on to the end customer. This decrease has a direct potential to increase the demand for Bulgarian food and products made from Bulgarian raw materials, especially among price-sensitive consumer groups.

 

Expected effect on the sector:

  • growth in domestic consumption of Bulgarian food and raw materials;

  • redirection of part of the demand from imported to Bulgarian products;

  • increasing the turnover of local producers and processors;

  • stimulating investments in processing and added value in the country;

  • increasing employment along the chain - agriculture, processing, logistics and trade;

  • greater market sustainability of small and medium-sized farms.

 

Compensating fiscal effects:

Partially compensating budgetary effects are expected through:

  • higher declared turnover;

  • expanded tax base as a result of sales growth;

  • increased collection of taxes and social security contributions with increasing employment;

  • lightening of some of the small producers and direct sales;

  • retention of added value in the national economy instead of leakage to imports.

X. Control and evaluation

  • legal definition of a Bulgarian main ingredient;

  • register of eligible products;

  • product codes;

  • cross-checks;

  • assessment of the effect at 12, 24 and 36 months.

XI. Conclusion

The differentiated VAT reduction, applicable only to food and raw materials produced in Bulgaria, is a targeted and strategic measure for the protection and development of the national agri-food sector, for access to quality food and for sustainable food security.

VAT on food in other countries

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REASONS

to the Law on Amendments and Supplements to the Value Added Tax Law

 

Reasons for the adoption of the law

In recent years, the agri-food sector in the Republic of Bulgaria has been facing increasing structural and market imbalances, expressed in:

  • a significant decline in the number of active agricultural producers and farms;

  • limited capacity for domestic production and processing of food;

  • increased import pressure on the domestic market, including for basic food products;

  • increasing dependence on external raw materials and international price fluctuations;

  • limited access of part of the population to quality and traceable food due to price factors.

 

The existing standard VAT rate on food in Bulgaria, which is among the highest in the European Union, further increases the price pressure on consumers and limits the competitiveness of local production and processing. In this context, it is necessary to introduce a targeted, limited in scope and duration fiscal measure aimed at overcoming the established market imbalances, without violating the principles of the internal market of the European Union.

CIVIL PETITION

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