Tax wedge on labour costs

National Statistical Institute

Statistics on Labour costs, Research and Development, Innovation and Information Society Department

Emilia Milosheva

State expert

2, P. Volov Str.

[email protected]

+35929857610

"Net earnings and Tax rates" is a group of indicators and variables based on illustrative models developed by OECD. Information is provided on:

a) net earnings - information is provided for the variables: total labour costs, gross earnings, social security contributions, income taxes, family allowances, net earnings;

b) tax rates;

c) tax wedge on labour costs;

d) unemployment trap;

e) low wage trap.

All indicators and variables are based on gross earnings, social security contributions, personal income tax, family allowances and other benefits.

Data refer to an average worker in different illustrative cases, defined on the bases of marital status (single vs. married), number of workers (in case of couples), number of dependent children and level of gross earnings, expressed as percentage of the average earnings of an average worker.

· National Classification of Economic Activities (NCEA-2003, for international use NACE.BG 2003) - up to 2007;

· Classification of Economic Activities (CEA-2008, for international use NACE.BG 2008) - since 2008.

Economic activities within sections C to K of NACE.BG-2003 from 2000 to 2007, and since 2008 in sections B to N of NACE.BG-2008.

All indicators and variables are based on gross earnings, social security contributions, personal income tax, family allowances and other benefits.

Data refer to an average worker in different illustrative cases, defined on the bases of marital status (single vs. married), number of workers (in case of couples), number of dependent children and level of gross earnings, expressed as percentage of the average earnings of an average worker. According to the model developed by OECD, the average worker (AW) is a full-time employee who receives the average earnings in industries and services - sections C to K of NACE.BG-2003 from 2000 to 2007, and since 2008 in sections B to N of NACE.BG-2008.

Gross earnings cover remuneration in cash, paid during the reference year by the employer, before tax deductions and social security contributions payable by employees and retained by the employer. All regular and irregular bonuses are included. Severance payments and payments in kind are excluded.

Net earnings are the annual net incomes for the corresponding family case, calculated from the gross earnings by deducting employees' social security contributions and personal income taxes, and adding family allowances (if applicable). The following situations are considered:

- single person with no children and earnings level of 50%, 67%, 80%, 100%, 125% and 167% of the AW respectively;

- single person with two children and earnings level of 67% of the AW;

- married couple with two children and the following levels of earnings of the AW: husband 100%/wife 0%; husband 100%/wife 33%; husband 100%/wife 67%; husband 100%/wife 100%;

- married couple with no children and earnings levels as percentage of the AW: husband 100%/wife 33%; husband 100%/wife 100%.

The average tax rate is defined as the income tax on gross earnings plus the employee's social security contributions less family allowances, expressed as a percentage of gross wage earnings.

The tax wedge on labour costs is defined as income tax on gross wage earnings plus employee's and employer's social security contributions, expressed as a percentage of the total labour costs. The total labour costs are defined as the total from the gross earnings plus employer?s social security contributions plus payroll taxes, paid by the employer (not applicable in Bulgaria).

The unemployment trap measures the percentage of gross earnings which is taxed away by the combined effect of the levied taxes and social contributions and the withdrawal of unemployment, and other benefits, when an unemployed person returns to employment.

The low wage trap (LWT) measures the percentage of gross earnings which is taxed away by the combined effect of the levied taxes and social contributions and the withdrawal of social benefits, when employee's gross earnings increase from 33% to 67% of the AW. LWT provides information on the financial consequences for an employed person when increasing his/her work efforts (either as an increased number of hours worked or due to changes in skills) and thus of his/her wages. The indicator is calculated for:

- single person with no children;

- one-earner married couple with two children.

Methods of calculations of indicators are described in the document "Net earnings and tax rates - definitions and models": https://www.nsi.bg/sites/default/files/files/metadata/Labour_Methodology_2.3_EN.pdf

The statistical unit is the family. All situations are illustrative and may not be representative in Bulgaria.

All families in Bulgaria.

Area of Republic of Bulgaria.

2000 - 2021

Not applicable.

BGN, percent (%).

Calendar year

The data are collected on the basis of gentlemen's agreements.

Not applicable.

· Law on Statistics (Statistics Act);

· Regulation (EC) No 223/2009 on European statistics (recital 24 and Article 20(4)) of 11 March 2009 (OJ L 87, p. 164), stipulates the need to establish common principles and guidelines ensuring the confidentiality of data used for the production of European statistics and the access to those confidential data with due account for technical developments and the requirements of users in a democratic society.

Not applicable.

Not part from the release calendar.

Not applicable.

Data are published on the website of NSI under heading "Labour market"  in accordance with Law on Statistics (Chapter 5) and the European Statistics Code of Practice respecting professional independence and in an objective, professional and transparent manner in which all users are treated equitably.

Annual

None.

None.

Indicators are accessible to all users on the NSI's website under heading Labour market - Annual statistics on employment and labour cost - Structural indicators:

· Net earnings and average tax rate: https://www.nsi.bg/en/node/6445

· Tax wedge on labour costs: https://www.nsi.bg/en/node/6448

· Unemployment trap: https://www.nsi.bg/en/node/6451

· Low wage trap: https://www.nsi.bg/en/node/6454

Not applicable.

Not applicable.

Methodology used is published in the annual editions of OECD:

· "Taxing wages" - http://www.oecd.org/media/oecdorg/directorates/centrefortaxpolicyandadministration/Methodology_2011.pdf

· "Benefits and Wages".

Methods of calculations are described in the document "Net earnings and tax rates - definitions and models: https://www.nsi.bg/sites/default/files/files/metadata/Labour_Methodology_2.3_EN.pdf

None.

According to Article 2, Para 3 of the Bulgarian Law on Statistics statistical information shall be produced in compliance with the following criteria for quality: adequacy, accuracy, timeliness, punctuality, accessibility and clarity, comparability and logical consistency.

Not done.

Main users are Eurostat and OECD. (Until 2007 NSI did calculations by the established methodology and delivered figures to Eurostat. Since 2008 calculations are done by OECD based on a questionnaire answered annually by NSI concerning characteristics of social and tax legislation in Bulgaria).

Survey on users' satisfaction is not carried out.

All indicators from the group are calculated.

Source of data on gross annual earnings in industries and services is the annual survey on "Employed persons, wages and salaries and other labour costs" which is an exhaustive statistical survey.

Not applicable.

Not applicable.

Deadline for publication: 12 months after the reference year.

Punctuality depends on the availability of data on gross annual earnings.

Definitions and methodology of OECD are applied.

Comparability over time is influenced by the change of the classification of economic activities used for definition of average gross annual earnings in industries and services - economic activities within sections C to K of NACE.BG 2003 from 2000 to 2007, and since 2008 in sections B to N of NACE.BG 2008.

Indicators within the data set are internally coherent.

All utilized models are illustrative, representing hypothetical situations and may not be representative at national level or compliant with other sources of similar information.

Survey on respondents' burden is not carried out.

It is applied only if there is revision of gross annual earnings which is base for calculation of the indicators.

It is applied only if there is revision of gross annual earnings which is base for calculation of the indicators.

Source of data on gross annual earnings in industries and services is the annual survey "Employed persons, wages and salaries and other labour costs" which is an exhaustive statistical survey:

https://www.nsi.bg/en/node/6437

Not applicable.

Not applicable.

Arithmetic checks are applied on the calculations.

Calculated are aggregated average annual earnings for sections B to N of NACE.BG-2008.

Not applicable.