Journal publishes results of research on areas: finance, financial markets, banking, marketing, insurance, accounting and control, business, entrepreneurship, application of mathematics, and ICT in economics.

1. ISSN 2534-9228 (online)
Journal of Scientific Papers
VUZF REVIEW
Volume 6, Issue 4, December 2021
https://papersvuzf.net/index.php/VUZF/
Public
organization:
VUZF
University
of
Finance,
Business
and
Entrepreneurship

2. VUZF review, № 6(4) – 2021 ISSN 2534-9228
Vol. 6, №4
December, 2021
Founded in 2016 by the VUZF University
The editorial board
Editor of the publication
Ivan TKACH Prof, Dr. of Sciences, Ukraine;
Deputy Editor-in-Chief
Radostin Vazov Assoc. Prof. PhD, Bulgaria;
Igor Britchenko Prof., Dr. of Sciences, Poland;
Members of the editorial board
Mitko Atanasov
Dimitrov
Prof., PhD, Chairman of the Academic Council of the Institute for Economic Research of the
Bulgarian Academy of Sciences, Bulgaria;
Igor Britchenko Prof., Dr. of Sciences, VUZF, Bulgaria;
Daniela Bobeva Prof. Dr., Professor at the VUZF, Bulgaria;
Mariana M. Petrova Assoc. Prof. PhD, St. Cyril and St. Methodius University of Veliko Turnovo, Bulgaria;
Stanislav Dimitrov Assoc. Prof. PhD, VUZF, Bulgaria;
Julia Dobreva Assoc. Prof. PhD, VUZF, Bulgaria;
Ali Veysel Assoc. Prof. PhD, VUZF, Bulgaria;
Desislava Josifova Assoc. Prof. PhD, VUZF, Bulgaria;
Manyu Moravenov Assoc. Prof. PhD, VUZF, Bulgaria;
Marián Mesároš Prof., DrSc, Rektor, University of Security Management in Košice, Slovakia;
Peter Lošonczi PhD., Vice-rector for scientific work and educational process, University of Security
Management in Košice, Slovakia;
Jozefína Drotárová PhD., Vice-rector for Science and Research (Department of Science and Research), University
of Security Management in Košice, Slovakia;
Marcin Jurgilewicz PhD, DrSc in social sciences in the field of security science, professor at the Rzeszów
University of Technology, Poland;
Bartosz Mickiewicz Dr. of Sciences, Professor, Dean of Faculty of Economics, West Pomeranian University of
Technology, Poland;
Petro Gudz Dr. of Science in Economics, Professor, Kujawy and Pomorze University in Bydgoszcz, Poland;
Tomasz Wnuk-Pel Poland;
Costas Siriopoulos Ph.D., Professor of Finance, College of Business, Zayed University, United Arab Emirates;
Prem Lal Joshi Professor, Dr., Senior Fellow, Indian Council of Social Sciences Research (ICSSR), India;
Mir Abdul Sofique Dr., Associate Professor Department of Tourism Management University of Burdwan, India;
Dio Caisar Darma Assist. Prof., Department of Management, Sekolah Tinggi Ilmu Ekonomi, Indonesia;
Omar Durrah Dr., Associate Professor of Management in Dhofar University, Sultanate of Oman;
Ahmar Uddin
Mohammed
Dr., Assistant Professor (Accounting and Finance), Dhofar University, Department of Finance
and Economics, Salalah, Oman;
Iryna Yepifanova Dr. of Science in Economics, Professor of Department of Finances and Innovative
Management, Vinnytsia National Technical University, Ukraine;
Nataliya Tanklevska Dr. of Sciences, Prof., State Higher Educational Institution "Kherson State Agrarian
University", Ukraine;

3. VUZF review, № 6(4) – 2021 ISSN 2534-9228
Vitaliy Shapran Professor, Ph.D. in Economics, Member of the National bank of Ukraine Council, Ukraine;
Dr Richard Tomlins Associate Head of School, Faculty of Business and Law, Enterprise and Innovation, School of
Marketing and Management, United Kingdom; Visiting Professor at the Early Childhood
Department, Muhammadiyah University of Ponorogo, Indonesia;
Dr Vladimir Danykiv Ph.D. in Economics, Credit Risk Manager, Fly Now Pay Later, United Kingdom;
Roman Blizkyi Dr. of Sciences, Prof. of the State University of Management, Member of the Institute of
Professional Accountants of Russia (IPAR), Russia;
Maksym
Bezpartochnyi
Dr. of Sciences, Prof. at the Department of Economics, Marketing and International
Economic Relations Faculty of Soft Engineering and Business National Aerospace University
named after N. Zhukovsky “Kharkiv Aviation Institute”, Ukraine;
Olena Chukurna Dr. of Sciences, Professor of State University «Odessa Polytechnic», Ukraine;
Viktor Trynchuk Ph.D., Assoc. Prof. of Department of Banking and Insurance National University of Life and
Environmental Sciences of Ukraine, Ukraine;
Yaroslava (Iaroslava)
Levchenko
Doctor of Economics, Professor of Kharkiv National Automobile and Highway University,
Ukraine;
Jurgita Sekliuckiene Professor of International Business, Kaunas University of Technology, Litva;
Sudhanshu Rai Associate Professor, Phd, Copenhagen Business School, Copenhagen, Denmark;
Panagiotis Kontakos Assistant Professor in International Business & Entrepreneurship, UCLan Cyprus University,
Cyprus;
Sahure Gonca Telli Prof. Dr., Dean Faculty of Economics and Administrative Sciences Dogus University, Turkey;
Mustafa Erdogdu Professor of Department of Public Finance, Marmara University Faculty of Economics,
Turkey;
Mariam Arpentieva Grand Dr. of Psychological Sciences, Associate Prof., Professor of the department of
development and education psychology, Tsiolkovskiy Kaluga State University, Russia;
Radmila Pidlypna Doctor of Economic Sciences, Professor, chair of the Department of Finance UTEI Kyiv
National University of Trade and Economics, Ukraine;
Andrii Nikitin PhD in Economics, Associate Professor, Professor Kyiv National Economic University named
after Vadym Hetman, Ukraine;
Yasheva Galina Doctor of Economics, Professor, Vitebsk State Technological University, Belarus;
Liudmila Bagdonienė Professor at Kaunas University of Technology, Litva;
Hans van Meerten Professor, Utrecht University - Utrecht Centre for Shared Regulation and Enforcement in
Europe – RENFORCE, The Netherlands;
Reinhard Magenreuter Dr., Private investor MG GbR, Germany.
e-mail: vuzfreview@gmail.com; tkachivan9@gmail.com https://papersvuzf.net/index.php/VUZF/index, тел. +38(093) 752-81-56
The authors of articles are responsible for the authenticity of facts, quotes, their own names, geographical names, names of enterprises,
organizations, institutions and other information. Opinions expressed in these articles may not coincide with the point of view of the
editorial board and do not impose any obligations on it.

4. VUZF review, № 6(4) – 2021 ISSN 2534-9228
CONTENT
1 Optimization of the mechanism of financial incentives for the development
of logistics activities in the polish construction industry
Bohdan Cherniavskyi …………….….……………………..………………….………………… 6
2 The economic effects of the COVID-19 pandemic on the polish economy
Iwona Dudzik, Irena Brukwicka …………….….……………………..………………….………. 15
3 Development of the taxation of retirement products in Bulgaria
Stanislav Dimitrov …………….….……………………..………………….…………………….. 22
4 Economic and mathematical models for forecasting the development of
the space industry
Svitlana Koshova, Igor Britchenko, Maksym Bezpartochnyi …………….….…………………… 33
5 Economic assessment and forecast models for the development of the agri-
food sector of the Republic of Belarus
Bartosz Mickiewicz, Antonina Efimenko……………………………………………………………………………. 42
6 Theoretical basis of formation and development of economic
potential of agri-food enterprises
Yekaterina Volkova ..…………………………………………………………………………………………………………. 49
7 Climate change as a challenge for the economy
Georgi Momchilov ………………………………………………………......................................................... 58
8 Financial risk management in the accounting system
Umantsiv Halyna, Novikov Vladyslav, Nikolaiets Oleksandra.................................................. 70
9 The influence of international offshore jurisdictions on the pricing strategy
Оlena Chukurna, Larysa Radkevych, Liliya Rudyk………………………………………………………………… 79
10 Clusterization of the Republic of Belarus economy: results and prospects
Galina Yasheva, Yulia Vailunova………………………………………………………………………………………….. 91
11 The role of innovative marketing in ensuring the competitiveness and
economic security of the enterprise
Olha Matviiets, Yuliia Krevnik…………………………………………………………………………………………….. 98
12 Financial security of enterprises from Poland, Germany, and Great Britain
Jolanta Puacz-Olszewska……………………………………………………………………………………………………. 103
13 Formation of marketing strategies of enterprises in the market of logistics
services in the context of world trends
Natalia Solidor, Svetlana Verytelnyk, Heorhii Anikin…………………………………………………………. 115
14 Risks of investing in the agricultural sector of Ukraine's economy in the
context of modernization of the industry
Alina Burliai, Oleksandr Burliai, Roman Zhuravel, Borys Okhrymenko……………………………….. 128

5. VUZF review, № 6(4) – 2021 ISSN 2534-9228
15 The analysis of the digital transformation trends in the Ukrainian economy
Hanna Snopenko, Olga Balueva, Olena Tanchyk…………………………………………………………………. 136
16 Managerial competences in family firms from the service and production
sectors
Izabella Kęsy, Marcin Kęsy, Patrycja Ślusarczyk …………………………………………………………………. 145
17 The consequences of ageing for the Polish economy
Iwona Dudzik, Irena Brukwicka …………………………………………………………………………………………… 157
18
Competitiveness of EU Member States Regarding the Implementation of the
Europe 2020 Strategy
Alina Walenia …………………………………………………………………………………………………………………….. 164
19
Role of tax incentives for increase in personal pensions saving
Stanislav Dimitrov ……………………………………………………………………………………………………………… 175
20
Selected financial indicators as a tool for optimizing local government units
management
Marek Wolanin …………………………………………………………………………………………………………………. 185
21
Monetary incentives and fiscal policy mutual influence
Vitaliy Shapran ….………………………………………………………………………………………………………………. 198
22
Mathematical model in the banking on the ex ample of simple percentage
Anna Małgorzata Jatczak….………………………………………………………………………………………………… 205
23
Use of design methods in optimising the economic resources of an
enterprise
Maciej Ślusarczyk, Izabella Kęsy, Patrycja Ślusarczyk…..…………………………………………………….. 213

6. ISSN 2534-9228 (2021) VUZF review, 6(4)
Optimization of the mechanism of financial incentives for the
development of logistics activities in the polish construction
industry
Bohdan Cherniavskyi * А
A VUZF University, 1 Gusla Str., Sofia, 1618, Bulgaria
Received: October 21, 2021 | Revised: October 28, 2021 | Accepted: December 25, 2021
JEL Classification: C18, C8, E66, F43, G18, H21, H54, L91.
DOI: 10.38188/2534-9228.21.4.01
Abstract
The article explores the role of various financial incentive instruments in optimizing the financial
mechanism of logistics development in the construction sector of the economy. The author
focuses on the necessary to use a synergistic approach in the study of efficiency issues of two
related industries - logistic and construction sectors of the national economy. Positive factors
such as convenient location, available transport potential, established logistics system, material
and resource base and the potential of domestic producers determine the rapid development
of the construction industry, which brings its significant contribution to the development of the
national economy of Poland. At the same time, the main factor contributing to the development
of construction business is domestic production of construction materials. In this context, it
should be noted that the country has developed the potential of its own production of building
materials, there is a sufficient fleet of construction machinery and construction equipment,
innovative technologies are being introduced, highly qualified personnel, etc. Comprehensive
assessment of financial-investment and transport-logistic potentials in the context of the
regions, as well as differentiated approach allowed to offer a matrix of financial stimulation tools
for the development of logistics in construction in a horizontal and vertical strategy. At a time of
intensifying crisis phenomena, simultaneous stagnation of regional development and increasing
competition in the globalized world, the issues of selecting effective instruments of financial
support for the development of national transport and logistics system and construction sector
of economy gain priority importance, as they can generate a significant increase in the gross
domestic income of the state budget and become one of the main sources of ensuring Polish
competitiveness.
Keywords: financial incentive mechanism, logistics in the construction business, financial
incentive tools, financial and investment potential, transport and logistics potential.
Introduction
As you know, logistics is a key unifying link, as
well as one of the main factors in the
development of practically all sectors of the
national economy. Its development almost
synchronously reflects changes in other areas of
the economic system, for which it is an integral
part of operations and business model (Yinping
Gao, Daifang Chang, Ting Fang, Tian Luo, 2018).
The events of recent years related to the
*
Corresponding author: Master, aspirant VUZF, e-mail: office@vuzf.bg, ORCID: 0000-0001-9174-6139
elimination of crisis phenomena during the
pandemic motivate us to search for optimization
of the logistics system, as well as effective
financial incentive tools (Riccardo Aldrighetti,
Daria Battini, Dmitry Ivanov, Ilenia Zennaro,
2021).
It should be noted that for any country in the
world, including Poland, construction has always
been an indicator and priority of socio-economic
6

7. ISSN 2534-9228 (2021) VUZF review, 6(4)
development. Being one of the most powerful
levers of growth, the systematic and effective
functioning of the construction sector
determines the comprehensive development of
both the economy of the regions and the
country as a whole (Giang Dang & Pheng Low,
2011).
The process of development of the
construction industry has a complex, composite
and multidirectional character, which also needs
state regulation and stimulation due to its
strategic importance. As the basic conditions
that determine the effectiveness of the
construction business, we consider it necessary
to recognize the transport, logistics and financial
and investment potentials (Jessop David, 1994).
Thus, the study of the current state and
conditions of development of the domestic
transport and logistics system, as well as the
existing financial and investment regional
opportunities create prerequisites for the
development of methodological and practical
recommendations of directions, mechanisms
and tools for financial support of construction
activities.
Material and methods
One of the main methodological principles of
the logistics concept is a systematic approach.
Logistics systems are included in the generally
accepted concept of systems, since they consist
of system-forming elements that are closely
interrelated and interdependent with each
other, which have ordered connections, and
form a certain structure with predetermined
features. These systems are distinguished by a
high degree of consistency of incoming
productive forces in order to control through
material flows (Natalia Antczak, 2017).
The following research method we used an
adaptive approach. A logistics system is an
adaptive feedback system that performs certain
logistical functions, consists of subsystems, and
has developed intra-system connections and
connections with the external environment. The
logistics system constantly interacts with the
external environment, thereby being an
indicator of stability in various sectors of the
economy, including in construction. In the
context of our research, adaptability is the
ability of a logistics system to change its
structure and choose behaviors in accordance
with new goals and under the influence of the
environment.
Because of the numerous specific threats to
safe development and their impact on the
logistics processes in construction in general and
on the implementation of a particular object in
particular, the methodological model should
include a situational approach. The situational
approach explores which methods and tools of
financial incentives and in which operating
conditions are considered effective in a specific
period of time and in a specific situation.
It should be noted that the situational
approach is considered one of the main ones in
management, it complements the system
approach and in the literature it is also often
called a functional approach.
The fundamental approach in this study is the
synergetic approach. A number of the author's
publications describe the attributive properties
of the logistics system as an artificial, complex,
open, ergatic, technical-technological,
ecological-socio-economic, spatial-temporal
system of optimization modeling of the delivery
of the right goods at the right time to a specific
consumer. The formation of logistics systems
and supply chains in construction unites all
subjects into a single coordinated mechanism of
relationships, allows you to organize
coordinated management of technical and
technological, economic and financial, material,
information flows and processes, and also
ensures their efficiency, synchronicity and high
efficiency. Hence follows the correlative
dependence of the efficiency of the construction
business described by many authors on a
successfully functioning transport and logistics
system (Lavine Marc, 2018).
According to the synergetic approach, the
complex structure of interdependent and
mutually complementary systems (construction,
7

8. ISSN 2534-9228 (2021) VUZF review, 6(4)
as well as transport and logistics) accelerates the
pace of development of the socio-economic
system as a whole, that is, the established rate
of development of the whole is higher than the
rate of development that was the fastest
developing structure that entered the whole
(Hall Bronwyn & Howard Kirsten, 2008). In this
context, we are talking about increasing the
level of socio-economic development of the
territorial entity - the country and its constituent
regions.
The importance of the synergetic approach in
the development of the logistics system in the
construction of Poland and its constituent
regions is shown in Fig. 1.
Fig. 1. Synergetic effect of logistics interaction in the construction business of Poland
Results and discussion
To determine the content of the mechanism
of financial stimulation of logistics activities in
any of the sectors of the economic system,
consider the concept of the financial mechanism
itself.
In the financial and credit encyclopedic
dictionary, the financial mechanism is
interpreted as a set of types and forms of
organization of financial relations, instruments
and levers of influence of public authorities on
➢ Improvement of financial and
statistical indicators of the regions
➢ Optimization of operational expenses
of activities
➢ Increase in entrepreneurial activity
➢ Growth of tax revenues to budgets of
all levels
➢ Modernization of construction and
related industries
➢ Strengthening transport security,
minimizing transport costs in construction
➢ The growth of innovation activity, as
well as the attraction of domestic and foreign
technologies
➢ Increasing the level of information
availability and awareness of all participants
in logistics and construction activities
➢ Expanding the boundaries of
government communication with business
entities
➢ Unified information, regulatory and
consulting platform
➢ Increasing the level of employment,
➢ welfare and quality of life of the
population
➢ Increasing the level of provision of
infrastructure facilities, as well as residential and
commercial real estate
➢ Increase in the level of business activity
of the population
SYNERGISTIC EFFECT:
- growth of competitiveness;
- growth of investment attractiveness;
- development of various forms of doing business;
- development of interaction between government and
business
Economic aspect
Social
aspect
Technical and
technological
aspect
Information
aspect
8

9. ISSN 2534-9228 (2021) VUZF review, 6(4)
the economic and social development of society
with the help of public finance (Gryaznova A. G.,
2004).
A panoramic review of the literature on this
subject indicates that the focus of the research
of the first group of scientists is focused on the
importance of the structure of the financial
mechanism, the second – on a system of
measures aimed at using objectively existing
financial relations, the third – on a set of
methods by which economic laws or a set of
forms, methods and levers used in financial
relations are put into effect (Tarakanov V.V.,
Kalashnikov A.A., 2016).
It should also be noted that the structure of
the financial mechanism itself is complex due to
the fact that financial relations are diverse and
depend on a large number of multi-vector
factors: regulatory, socio-economic, managerial
and other nature (Aleksandra Łuczak, Agnieszka
Kozera, 2021). The most common opinion of
scientists in the economic literature is that the
structure of the financial mechanism covers five
interrelated elements: regulatory, legal,
information support, financial methods and
financial levers.
All structural elements of the financial
mechanism are interdependent and
interrelated, integrated into a single ensemble,
and the combination of specific types, forms and
methods of organizing financial relations forms
the "architecture of the financial mechanism".
The subjects of the financial mechanism develop
the most favorable instruments that meet the
specifics of the activities of the main participants
in the economic process, including prices and
taxes, lending rates, duties and benefits, fines
and sanctions, grants and grants, subventions
and subsidies, interest and tariffs. These tools
are used adequately to the methods of financing
selected processes, their significance, level and
scale of implementation. Due to the wealth of
equipment with tools and methods, the financial
mechanism acts as the most dynamic part of the
financial policy formed by the country's
leadership.
Based on the general understanding of the
financial mechanism, it is possible to clarify the
content of the mechanism of financial incentives
for logistics activities in construction, taking into
account its specifics.
The mechanism of financial stimulation of
logistics activities in the construction business,
according to the author, expresses the diverse
connections between the subjects of transport
and logistics activities on the issue of creating
favorable conditions for construction on a
specific territory and stimulating its
development through the use of special tools.
The elements of this financial mechanism
include: directly the subjects of financial
incentives for logistics activities in construction,
the goals of enhancing the development of
logistics in the construction business, a set of
financial methods to achieve the goals and the
appropriate tools for their implementation,
sources of means to achieve the goals,
regulatory and information support for the
processes of financial incentives for the
development of logistics activities (see Fig. 2).
The subject of the author's in-depth research
is the study of the separation of effective tools
for financial incentives for the development of
the logistics system in construction from the
whole variety of tools that exist today (Bohdan
Cherniavskyi, Radostin Vazov, 2020). The
analytical research is based on the materials of
the analysis of financial, investment, transport
and logistics potential in the context of the
regions of Poland.
The overall assessment of the effectiveness
of the tools of financial incentives for the
development of logistics in the construction
business can be calculated using an integral
index. According to the formula (1), which is
calculated by the author as the product of the
geometric averages of the model.
n Pn
P
P
P
P
I ...
4
3
2
1 



=
Where - I is an integral index for evaluating
the effectiveness of financial incentives for the
development of logistics in construction; P n -
individual indices of individual development
potentials.
9

10. ISSN 2534-9228 (2021) VUZF review, 6(4)
Fig. 2. Semantic content and structure of the mechanism of financial stimulation of logistics
activities in construction
Analytical evaluation of the investment
potential of logistics development in the context
of provinces were carried out on the basis of
generalization of statistical information from 2009
to 2019. The general trend line for all regions of
Poland is shown in Fig. 3. The dynamics by regions
in the context of the reporting periods (sample
years) is shown in Fig. 4.
Fig. 3. The trend of growth of the financial and
investment potential of logistics development
in the construction of Poland in 2009-2019
The assessment of transport and logistics
potential is shown in Fig. 5 and 6, respectively. It
should be noted that the generalized
characteristic of transport and logistics potential
contains both quantitative and qualitative
indicators. In particular, Figure 6 shows the
cartographic characteristics of the logistics
potential in the context of the regions of Poland
by the number of unloading and loading
terminals and logistics centers.
Fig. 5. Characteristics of Poland's transport
potential for 2010-2019
FINANCIAL INCENTIVE MECHANISM FOR LOGISTICS IN THE CONSTRUCTION BUSINESS
FORMS
OF
INCENTIVES:
-
direct;
-
indirect
Sources:
-
governmental;
-
non-governmental;
-
mixed
DEVELOPMENT TOOLS:
- EU Budget Cohesion
Funds;
- Polish National Road
Construction Program for
2014-2023;
- State program
investments in the Polish
railway industry 2023;
- Financing of the EU
ERTMS implementation
program [European
Railway Transportation
Management System];
- Support of the Polish
Information and Foreign
Investment Agency (PIFIA);
SUBJECTS:
- the state represented
by the authorized
authorities;
- public and private
domestic and foreign
investors;
- financial and credit
institutions;
- customers and
contractors;
- subjects of economic
activity;
Purpose: Result:
- modernization of
construction and
related industries;
- increase in
entrepreneurial
activity;
- improvement of
the investment
climate;
- growth of tax
revenues to budgets
of all levels;
- improving the
quality of life and
increasing the
welfare of the
population;
- improving the level
of national
competitiveness
-
innovative
development;
-
social
effects;
-
commercial
effects
FINANCIAL METHODS:
- financing (budget, venture,
mixed);
- co-financing;
- benefitment;
- lending;
- taxation;
- donation;
- subsidizing;
- investing;
- grant provision
FINANCIAL INSTRUMENTS:
- subsidies, subventions, budget allocations,
budgetary and private investments, loans and
borrowings, investment tax credit, tax
benefits and tax holidays, tax rates, special
investment regime; special taxation regime,
government contracts, financial assistance,
grants, public-private partnership instruments
Regulatory and legal support:
- regulatory and legislative acts of the EU and
Poland; National Development Strategy of
Poland; state development programs; budgets
of the country and its regions
Information support:
- information base on market conditions,
investment climate; regulations and legislative
acts, tenders, grants, FEZ (free economic zone)
functioning
10

11. ISSN 2534-9228 (2021) VUZF review, 6(4)
Fig. 4. Dynamics of changes in the financial
and investment potential of logistics
development in construction in the regions of
Poland for 2009-2019
Fig. 6. Characteristics of the logistics potential
of Poland, 2019
Diagram 7 clearly shows the comparison of
financial-investment and transportation-
logistics potential.
Fig. 7. The comparison of financial-investment
and transportation-logistics potential of the
regions of Poland
Financial instruments that can be used to
stimulate business activity in the construction
sector are grouped depending on the nature of
their impact on the construction business. In this
study, the total set of all instruments was
divided into: group I (instruments of direct
financial incentives), group II (package of mixed
instruments – combinations of direct and
indirect financial incentives), group III
(instruments of indirect financial support)
As a result of the analysis of each financial
incentive tool that is applicable to the logistics
of the construction industry, it was possible to
form a matrix of the use of financial instruments
in the context of a vertical and horizontal
strategy, which is presented below in table 1.
Table 1. - Matrix of the financial stimulation tools for horizontal and vertical logistics
development strategy of the construction industry
Incentives Horizontal strategy Vertical strategy
Adjustment tax rate The solution to the problem of
effective development transport
and logistics enterprise is possible
with regulation of the tax rate,
seems to be effective with a
horizontal strategy (+++)
Performance reduction
because of the possibility of
application of aggressive tax
systems planning (+)
11

12. ISSN 2534-9228 (2021) VUZF review, 6(4)
Incentives Horizontal strategy Vertical strategy
Tax holidays Application as an effective tool to
stimulate business in the context
of negative dynamics of the
macroeconomic indicators.
Providing market equilibrium (+++)
High risks of dumping in
regarding functioning subjects
are reduced efficiency of using
this tool (++)
Beneficial loans Implementation as an effective
tool for crisis management and
business stimulation in regional
development stagnation. Market
equilibrium and anti-crisis regional
development policy (+++)
With a vertical strategy the
opportunity to boost the
volume of domestic
investment increases in a
short-term perspective (++)
Benefits under
investment agreements
Reducing efficiency of benefits,
provided within the framework of
investment agreements under the
horizontal strategy are associated
with possible budget losses (++)
Application of benefits in the
framework of investment
agreements in the vertical
strategy is caused by
opportunities to attract
capital (+++)
Investment
subsidies
Low level of usage associated with
insufficient the effectiveness of
this incentive in a horizontal
strategy because of the overly
strict (+)
More effective with a vertical
strategy, and encouraging
targeted investment (++)
Export-oriented
incentives
The lack of popularity of this tool is
due to the existence of more
effective tools of incentives
Within a vertical strategy, it is
possible to intensify foreign
economic activity and
stimulate the growth of
foreign direct investment (FDI)
(+++)
Export processing zones Effective in creating free economic
zones (FEZ), industrial parks and
clusters (+++)
More effective in
combined with horizontal
strategy (++)
References
1 + - rarely used;
2++ - are used often, but inefficient use is possible;
3 +++ – active priority application.
In table 1, financial incentive instruments are
divided into three groups, depending on the
level of demand for stimulating the
development of logistics in the construction
sector of the economy:
- weak usage;
- active use;
- priority use.
The selection of financial incentive
instruments was carried out on the basis of the
published results of the study "CONFIDENCE
INDEX 2018/2019. Logistics and Supply Chain
Optimism Index for Poland" and "Five factors
influencing the development of the transport
and logistics industry. Overview of trends in the
development of transport and logistics in 2019".
12

13. ISSN 2534-9228 (2021) VUZF review, 6(4)
The effectiveness of the above tools in the
vertical strategy of financial incentives is
explained, first of all, by the possibility of
achieving a variety of goals when applying
specific financial incentives for development.
The main reason for using such preferences is
mainly to stimulate investment activity, improve
the investment climate and, especially, to
attract foreign direct investment (FDI). The
multiplicative effect of the inflow of FDI is not
only to increase the level of employment of the
population, as well as the increase in the
number of high-paying jobs in the country, the
introduction of advanced technologies, but also
can have a positive impact on the growth of
competition and increase the efficiency of
domestic markets, thereby making a significant
contribution to the overall economic
development of the country.
The innovative-investment vector of
development of the national economy as a
whole and of the transport and logistics system
in particular should become a national
development priority. These processes are
closely interlinked with issues of financial
provision, which is the subject of scientific
interest of many scientists. Blockchain
technology (Britchenko I., Cherniavska T., 2019),
automation and robotisation of processes
(Lehmacher Wolfgang, 2021), optimization
modeling and crowdsourcing are all becoming
current realities (Lóránt A.Tavasszy, 2020).
At the same time, it should be taken into
account that financial decentralization, being a
vertical incentive, has a positive effect on tax
revenues at the regional level, the activation of
the activities of executive authorities in the
context of maximizing the use of existing
positive factors in order to increase business
activity (Гореев Р.А., 2018).
The analysis of the advantages of using
financial instruments as vectors of the policy of
promoting the development of logistics in the
construction industry of the Polish economy,
first of all, allowed us to conclude about the
possibilities of using various types of financial
incentives and instruments, divided into three
main groups depending on their priority in a
particular region. Thus, it is of practical
importance to select effective tools for
improving financial incentives for industrial
production, consisting of a matrix of using tools
to stimulate the development of logistics
activities with horizontal and vertical strategies
(Qaiser F.H., Ahmed K., Sykora M. et al., 2017).
Conclusions
Therefore, we can conclude that in the world,
and in Poland in particular, the stimulation of
logistics development through the use of
effective financial instruments in all sectors of
the economy, including construction, is a
strategic decision. In the conditions of financial
resources shortage and limited budget funds, it
is recommended to use indirect and mixed
instruments of financial stimulation.
Identification of strengths and weaknesses,
parametric evaluation of actual financial-
investment and transport-logistic potentials
allow to form an ensemble of effective
instruments of financial stimulation of
construction logistics development in the
context of Polish regions, thereby optimizing the
financial mechanism. In order to strengthen the
position of Poland as a competitive state, a
broad configuration of financial tools as
incentives for the progressive development of
the system of transport and cargo logistics is
proposed.
References
Yinping Gao, Daifang Chang, Ting Fang, Tian Luo,
(2018). Costs of resilience and disruptions in
supply chain network design models: A
review and future research directions. The
13

14. ISSN 2534-9228 (2021) VUZF review, 6(4)
Asian Journal of Shipping and Logistics.
Volume 34, Issue 1, March 2018, Pages 27-32.
Aldrighetti, R., Battini, D., Ivanov, D., Zennaro, I.
(2021). Costs of resilience and disruptions in
supply chain network design models: A
review and future research directions.
nternational Journal of Production
Economics. Volume 235, May 2021, 10810.
Giang, Dang & Pheng, Low. (2011). Role of
construction in economic development:
Review of key concepts in the past 40 years.
Habitat International – HABITAT INT. 35. 118-
125.
Jessop, D. (1994). Logistics: An integrated
approach. European Journal of Purchasing &
Supply Management. 1. DOI: 10.1016/0969-
7012(94)90045-0.
Antczak, N. (2017). Systematic Approach to the
Sustainable Logistics Chain of Supply.
Wymiary logistyki: ujęcie systemowe. 2017 /
51. P.103-112.
Lavine, Marc. (2018). Synergistic approach to
localized delivery. Science. 359. 649.7-650.
DOI: 10.1126/science.359.6376.649-g.
Hall, Bronwyn & Howard, Kirsten. (2008). A
Synergistic Approach. Journal of Mixed
Methods Research. 2. 248-269.
Gryaznova, A. G. (2004). Finansovo-kreditnyy
entsiklopedicheskiy slovar [Financial and
Credit Encyclopedic Dictionary]. Moscow,
Finansy i statistika Publ. 1168 p.
Tarakanov, V.V., Kalashnikov, A.A. (2016). The
mechanism of financial stimulation of
investment activity. URL:
https://cyberleninka.ru/article/n/mehanizm-
finansovogo-stimulirovaniya-
investitsionnoy-deyatelnosti
Five factors influencing the development of the
transport and logistics industry. Overview of
transport and logistics development trends in
2019. URL:
https://www.pwc.ru/ru/publications/transp
ort-and-logistics-trends-2019.html
ONFIDENCE INDEX 2018/2019. Wskaźnik
poziomu optymizmu w zakresie logistyki i
łańcucha dostaw w Polsce. URL:
https://confidenceindex.industrialgo.pl/
Central Statistic Office (2019), GUS, Transport –
wyniki działalności w 2019 roku. URL:
https://stat.gov.pl/obszary-
tematyczne/transport-i-
lacznosc/transport/transport-wyniki-
dzialalnosci-w-2019-roku,9,19.html
Britchenko, I., Cherniavska, T. (2019). Blockchain
Technology in the Fiscal Process of Ukraine.
Списание «Икономически изследвания
(Economic Studies)». – Институт за
икономически изследвания при БАН,
София (България). – Volume 28, Issue 5 –
2019. – P. 134-148.
Lehmacher, W. (2021). Digitizing and
Automating Processes in Logistics.
10.1007/978-3-030-61093-7_2.
Lóránt A.Tavasszy (2020). Predicting the effects
of logistics innovations on freight systems:
Directions for research. Transport Policy
Volume 86, February 2020, Pages A1-A6.
Łuczak, A., Kozera, A. (2021). A model to assess
the development priorities of local
administrations through the hierarchy of
strategic factors. Journal of Policy Modeling.
Volume 43, Issue 2, March–April 2021, Pages
474-492.
Cherniavskyi, B., Vazov, R. (2020). Innovative
logistics as a tool to increase the
competitiveness of the polish construction
industry. VUZF review, 5(2). P. 3-10.
Гореев, Р.А. (2018). Features of tax incentives
for industrial production. URL:
https://cyberleninka.ru/article/n/osobennos
ti-nalogovogo-stimulirovaniya-
promyshlennogo-proizvodstva
Qaiser, F.H., Ahmed, K., Sykora, M. et al. (2017).
Decision Support Systems for Sustainable
Logistics: A Review and Bibliometric Analysis.
Industrial Management & Data Systems, 117
(7). pp. 1376-1388.
14

15. ISSN 2534-9228 (2021) VUZF review, 6(4)
The economic effects of the COVID-19 pandemic on the polish
economy
Iwona Dudzik* А
; Irena Brukwicka B
A, B
Bronisław Markiewicz State Higher School of Technology and Economics in Jarosław, Czarnieckiego str. 16, Jarosław, 37-500 Poland
Received: November 08, 2021 | Revised: November 11, 2021 | Accepted: December 26, 2021
JEL Classification: D24, D81, I38, J45, L83.
DOI: 10.38188/2534-9228.21.4.02
Abstract
The date of the end of the COVID-19 pandemic is difficult to forecast. Apart from the undoubted
humanitarian and social consequences, its development and spread will also contribute to changes
in the economy. This paper describes the economic effects of the COVID-19 pandemic for the Polish
economy. Depending on the way the pandemic will develop, the Organization for Cooperation and
Economic Development predicts that the Gross Domestic Product in Poland will drop by -7.4%, and
will rebound to 4.8% by the end of 2021. It is also assumed a broad-based recovery with GDP
rebounding by 2.4% in 2021. The COVID-19 pandemic had a negative impact on the labor market in
Poland. It is assumed that the Polish economy has been affected less by the effects of the pandemic
than other European countries. The coronavirus pandemic contributed to significant changes in the
organization of work, that is, an increase in the percentage of people doing a household work.
Humankind has already learned how to overcome global crises, but their burdens have never been
evenly distributed. Losses and threats bring new chances and opportunities. In line with the Pareto
principle, it is stated that even if 80 percent of people suffer losses due to the COVID-19 pandemic,
the remaining 20 percent of them will ultimately benefit from it. The aim of this article is to analyze
the economic effects of the coronavirus pandemic in Poland and to present the most affected
industries. In the opinion of the authors of the study, this issue should be described in greater detail.
Keywords: COVID-19 pandemic, economy, financial crisis, financial reserves, anti-crisis shield,
micro-enterprises, GDP.
Introduction
The SARS-CoV-2 virus, which was recognized in
the Chinese city of Wuhan at the end of 2019,
became the most important problem in the entire
globe within a few months. Its presence in our
country was officially confirmed at the beginning
of March 2020 (A. Matyja, 2020).
The outbreak of the COVID-19 pandemic has
brought about the economic disorder which has
never been the case before. This situation forced
governments to take unprecedented measures.
The sudden occurrence of supply and demand
shocks made the real threat of a permanent
recession. Therefore, governments took a number
* Corresponding author:
А PhD, adjunct, The Bronisław Markiewicz State Higher School of Technology and Economics in Jarosław, e-mail: iwona.dudzik@op.pl
B
PhD, adjunct, The Bronisław Markiewicz State Higher School of Technology and Economics in Jarosław, e-mail: brukwicka.irena@op.pl
of anti-crisis measures aimed at protecting jobs
and reduction of the economic effects of the
pandemic resulting from the need to introduce
temporary lockdown (K. Bolestwa, B. Sobik, 2020).
When analyzing the effects of the coronavirus
in Polish economy,it isworth notingthat there has
been a constant increase in the incidence (gov.pl,
2021),despite the fact that a year haspassed since
the pandemic began. It is also high time to present
the impact of the coronavirus on the economic
situation (biznestuba.pl, 2021). Poland, along with
Greece and Romania, is among the European
countries most affected by the crisis caused by the
15

16. ISSN 2534-9228 (2021) VUZF review, 6(4)
pandemic. The date of the end of the COVID-19
pandemic is difficult to forecast. However, apart
from the undoubted humanitarian and social
consequences, its development and spread will
also contribute to changes in the economy.
Material and methods
The method of statistical analysis is used in the
paper. Domestic and foreign data provided by
banks and data from the Ministry of Justice are
also used.
The closure of the economy caused by the
coronavirus outbreak resulted in consumer and
business confidence decline. The sectors that
were most affected by the closure of the economy
are the following ones (gov.pl, 2021): hotel
industry, catering services and transport. It should
be noted, however, that these sectors account for
only a small share in the Gross Domestic Product
(T. Rokicki, 2020).
In April 2020, a 23% decrease in retail sales was
also observed, in comparison to 2019. Small
enterprises and micro-enterprises with
insignificant financial reserves face particular
threats. In order to counteract the crisis,
entrepreneurs began to reduce salaries in order to
limit short-term losses and maintain financial
liquidity to such an extent that there was no need
to lay off employees (gov.pl, 2021).
Nevertheless, there was a decline in
employment and its level has been the highest
since 2009. In households and in enterprises,
however, there is awareness of the possibility of
an unemployment increase. In accordance with
the recommendations of the Organization for
Cooperation and Economic Development, the
authorities of the world, including Poland, are
obliged to provide funds that effectively support
entrepreneurship in relation to small enterprises,
micro-enterprises and large enterprises. In the
Republic of Poland, there is a significant share of
micro-enterprises in the economy, which are
often characterized by a low level of productivity
and are significantly vulnerable to threats in case
of introduction of measures limiting the spread of
the COVID-19 pandemic (T. Rokicki, 2020).
7 out of 10 respondents declared that they
currently have less income, which has a direct
impact on the enterprise. 1/2 of the respondents
indicated that, in their opinion, an economic
collapse or recession can be expected in the
nearest future. Consumers were trying to improve
situation, as nearly ¾ of the respondents indicated
that they didn’t buy the products with
international brands, they preferred to buy local
products in stores to support Poland
(biznestuba.pl, 2021). It should be noted that
Poland, as well as other European countries, have
introduced restrictions concerning such issues
(biznestuba.pl, 2021): travel, eating, exercising
outside the house, shopping (A. Jarynowski, D.
Płatek, K. Czopek, 2020).
The restrictions affected almost all sectors of
the economy, however, such sectors as catering,
recreation and hotel industry were affected the
most. Even in the case of entrepreneurs who
survived on the market in the era of the
coronavirus, in most situations it is not possible to
speak of a satisfactory financial situation
(biznestuba.pl, 2021).
The economic effects of the outbreak of the
COVID-19 pandemic also affect the consumers
themselves, as a result of financial pressure there
is a need of timely payment of invoices (forbes.pl/,
2021). Entrepreneurs and consumers show a
significant relationship between them. It is
especially noticeable during the economic crisis
(D. Wnukowski, 2020). Undoubtedly, in case of of
reopening, the businesses that were closed,
expect support from consumers. At the same
time, however, it should be emphasized that the
economic crisis caused by the coronavirus
pandemic in many cases results in greater
awareness of spending money and managing
personal budget (biznestuba.pl, 2021).
Amongthe biggest problemsresultingfrom the
economic crisis in Poland, enterprises struggle
with the need to maintain financial liquidity (D.
Wnukowski, M. Wąsiński, 2020). In addition, there
is still a need to secure a steady cash flow by
rebuilding demand for the services and products
offered. The pandemic contributed to a reduction
in purchasing power and sparked the desire to
16

17. ISSN 2534-9228 (2021) VUZF review, 6(4)
support domestic interests. All the more that
making purchases is one of the most basic
activities (biznestuba.pl, 2021).
People aged 22-37 have also been affected by
the crisis caused by the COVID-19 pandemic. In
this case, the largest decline in employment was
recorded. It was noted the loss of employment
and lower income than before the pandemic. The
perception of the future has also changed, it has
become uncertain; it has not guaranteed the
possibility of putting away amounts that
consumers had before the pandemic. This is
especially terrible for people who are concerned
about the cost of living in retirement. The COVID-
19 pandemic also results in radical restrictions in
economic, social and tourist activities. Thus,
consumption has decreased. Due to absence of
employees in factories, disturbances in the
functioning of global value chains appeared. There
have been difficulties, therefore, in keeping
production, even when restrictions have not yet
beenintroduced.Itresultedinthecrisisindemand
and supply (D. Wnukowski, M. Wąsiński, 2020).
Referring to the effects of a long-term nature,
it should be noted that the COVID-19 pandemic
will permanently change the image of the world
economy, thus causing a partial retreat from the
globalization process. The model that has been in
use so far has made it possible to minimize
production costs. In addition, in a situation where
restrictions on the movement of goods or people
are maintained, a further decline in international
trade turnover and its share in the global Gross
Domestic Product can be observed. The
importance of digital services in the economy will
also increase, as they are most often used for work
and shopping during the introduced social
restrictions. Undoubtedly, the economic
consequences of the COVID-19 pandemic include
anincreaseinstatespendingonhealthcareandthe
purchaseofmedicalproducts.This,inturn,willlead
to changes compared to other budget items.
Military spending is very likely to be reduced.
Allocating funds for combating the pandemic and
introduction of stimuluspackageswillcontribute to
state interventionism and increase in private and
public debt (D. Wnukowski, M. Wąsiński, 2020).
The chart below presents the revision of the
estimates of the Gross Domestic Product and the
potential product in Poland, in line with the
opinion of the European Commission, taking into
account: – potential product, as a forecast for
2020,
- the output gap, as a forecast for 2020,
- potential product, as a forecast from 2019,
- the output gap, as a forecast from 2019,in the
period 1995-2021.
Figure 1. Revision of the estimates of the Gross
Domestic Product expressed in billions of Polish
zlotys at constant prices from 2015 and the
potential product in Poland expressed in %
according to the European Commission
Source: www.obserwatorfinansowy.pl [Access:
17.05.2021.]
It is difficult to estimate how long the economic
effects of the coronavirus pandemic will last. It is
also difficult to determine whether these effects
will cease simultaneously with the end of the
pandemic, or on the contrary, will be present
many years after the end of the pandemic (J.
Growiec, 2021). When analyzing the economic
effects in Poland resulting from the COVID-19
pandemic, it should be noted that the Gross
Domestic Product does not take into account
intensity fluctuations in the short-term period. On
the other hand, the level of potential product
depends on the supply of production factors and
their unit productivity (J. Growiec, 2021).
Negative impact caused by the COVID-19
pandemic is partially limited by the Anti-Crisis
Shield. It is a counter-cyclical fiscal impulse,
accounting for approximately 10% of the Gross
Domestic Product. Provision of support services,
17

18. ISSN 2534-9228 (2021) VUZF review, 6(4)
for example in the labor market, made possible to
reduce the scale of layoffs, as well as the negative
impact of the pandemic on the long-term level of
structural unemployment and overall labor
productivity (M. Myck, M. Oczkowska, K. Trzciński,
2020). On the basis of the obtained support, it was
possible for entrepreneurs to maintain financial
liquidity, thus also reducing the number of
enterprises bankruptcies and avoiding the risk of
losing camouflaged physical capital and specific
competences of employees. At the expense of
these activities, accumulation of public debt is of
great importance. At the beginning of the COVID-
19 pandemic, the European Commission
predicted that the government sector debt would
increase from 46% in 2019 to 58.5% of the Gross
Domestic Product in 2020. However, the
macroeconomic significance of this type of cost
will be partially limited by the nature of the
current slowdowns (J. Growiec, 2021).
In addition, proposals for anti-crisis measures
have been formulated, which may contribute to
mitigating the effects of the economic crisis
caused by the COVID-19 pandemic in Poland.
Although the analysis was conducted during the
pandemic phase in spring 2020, it is also possible
now to indicate postulates related to the
implementation of anti-crisis solutions, which are
presented below.
1. Maximum simplification of administrative
procedures when providing financial aid to
entrepreneursand shorteningthe waitingtime for
a decision.
2. Establishing a fund to help start-ups to
complete the interrupted financing rounds.
3. Implementation of strategic infrastructure
investments.
4. Support for young entrepreneurs up to 26 in
the form of an interest-free loan in running a
business.
5. Introduction of a preferential loan for
innovative enterprises (by PDF or BGK).
6. Introduction of a voluntary option to obtain
a grace period for working capital loans for
enterprises,aswellasloansfor naturalpersonsfor
a short period of time (for example, 3 months).
7. Introducing the possibility of re-employing
people fired during the pandemic and sending
them on vacation, during which they will receive
remuneration co-financed by the state (K.
Bolestwa, B. Sobik, 2020).
Results and discussion
The COVID-19 pandemic is considered to be a
kind of exogenous shock that has affected the
global economies and their labor markets. There is
no doubt that European countries have been
subjected to external shocks in the past. However,
they were usually of economic character
(money.pl, 2020). In early 2020, economies around
the world faced a fierce external shock. And that
kind of shock was caused by other reasons than
before.
After the World Health Organization declared a
pandemic, most governments issued the
administrative decisions focused on stopping
economies. Such decisions also contributed to the
emergence of disturbances in the functioning of
the labor market. As a result of the above sudden
decisions, the unemployment rate increased and
economic inactivity rose. These decisions also
referred to the relationship between the employee
and the employer.In order to mitigate the negative
effects of the COVID-19 pandemic, they introduced
cost-effective solutions for enterprises.
The mechanism of response to the exogenous
shock that occurred in Poland was very similar to
general mechanisms in the European Union.
However, the labor market in Poland is
characterized by greater resilience, therefore, the
effects of the crisis caused by the COVID-19
pandemic are not as severe as they could be
(worldbank.org/pl/, 2021). It should be noted that
the coronavirus pandemic influenced the situation
of people taking up a job, among others there are
those who:
- had a job but could not perform it for various
reasons,
- worked shorter than usual due to the reasons
related to the workplace.
The above situation is presented in the Figure 2
below.
18

19. ISSN 2534-9228 (2021) VUZF review, 6(4)
Figure 2. Situation on the labor market in
Poland in the period from Q1 2009 to Q2 2020
Sourse: K. Radlińska, (2020), Pandemic COVID-19
implications for the Polish labor market, „ Scientific
Journals of the Faculty of Economic Sciences”, No 24,
p. 113-126.
The COVID-19 pandemic resulted in a surge
of working people, who were not working, but
the most common reason was a break in the
workplace due to the virus. In the second
quarter of 2020, the number of people who
worked shorter than usual increased by over
100% for reasons related to the workplace itself,
as this number was 207,000 in the first quarter,
and 513,000 in the second quarter (K. Radlińska,
2020).
Conclusions
The COVID-19 pandemic has negatively
affected the labor market in Poland. The
negative effect caused the reduction in the
number of people taking up a job in Poland. It
was compensated however by the increase in
the number of people who were not involved in
job. In Poland, there is a tendency to increase
the underutilization of labor resources in the
labor market. The number of people who are
not at work grows abruptly due to interruptions
in the activities of the employing institutions
during the COVID-19 pandemic. The coronavirus
pandemic undoubtedly contributed to the
significant changes in the organization of work,
and thus to an increase in the percentage of
people undertaking work in the household (K.
Radlińska, 2020).
According to the estimates of the Federation
of Polish Entrepreneurs, during the first year of
the coronavirus pandemic, the Polish economy
suffered losses of over PLN 185 billion. This
amount corresponds to the estimated value of
GDP that was not generated due to the spread
of the COVID-19 pandemic
(Magazynprzemyslowy.pl, 2021).
In addition, it should be emphasized that
Poland found itself in a recession that we have
not seen in our country for decades. While
macroeconomic indicators, such as GDP or
consumption, rebound and assuming that due
to vaccinations we will slowly return to the
economic growth which was before the crisis,
the pandemic has forced or accelerated the
changes that will stay with us for years, and
maybe forever. Some of the changes were
unimaginable a year ago. If white-collar workers
stay at home longer, taking over jobs by robots
in factories and services will progress. There will
be also more inequalities between and within
countries, and governments will play a greater
role in the lives of citizens. Moreover, in some
industries as well as professions, remote work
has suddenly become the norm. Last year
showed and made us realize that many matters
and important business meetings can be
organized from house, sitting and working in
front of a laptop. This can be problematic for
those companies that provide service for old
office infrastructure: from commercial real
estate to transportation. On the other hand, big
profits get those who build new infrastructure.
It should be emphasized that since the outbreak
of the pandemic, the share prices of the Zoom
videoconferencing platform on the New York
Stock Exchange more than tripled.
In addition, less frequent business trips is
another change that may exist for longer time.
This change is introduced not because of
restrictions, but due to cost cutting. This in turn
may change the business model of hotels and
19

20. ISSN 2534-9228 (2021) VUZF review, 6(4)
restaurants in many countries. More and more
companies are going to build safety buffers for
themselves and use, if possible, the electronic
sales channels. It should be noted, that the
pandemic has accelerated all these changes. A
new risk has also been added to the entire
business calculations, that is, the risk of a
lockdown or limitation of activities due to
restrictions. In addition, COVID-19 has triggered
new concerns about physical contact in
industries where social distancing is tough - like
retail, hospitality or warehousing. One of the
solutions, therefore, seems to replace humans
with robots. It has been observed that during
the pandemic, companies has accelerated the
development of machines involving the hotel
guest check- in procedure, cutting salads in
restaurants or collection of fees. These
innovations will probably increase the
productivity of economies, however, some
employees will have to change the profession
(A. Unton, 2020).
It seems that the Polish economy should be
less affected by the effects of the pandemic than
other European countries. Firstly, because in
comparison for example, to the German
economy, the Polish economy is less dependent
on exports and less economically linked with
China. Secondly, the tourism and entertainment
sector accounts for a smaller percentage of GDP
compared to the countries of southern Europe.
The Polish economy is also quite diversified.
Thirdly, the higher rate of economic growth in
Poland compared to Germany or other Western
countries creates more space before a potential
recession appears. Nevertheless, a slowdown in
economic growth is predicted (A. Sieroń, 2021).
Summarizing the above mentioned, it can be
noted that though, mankind has emerged
victorious from every global crisis, the burdens
have never been distributed evenly. In places of
losses and threats, chances and new
opportunities appear. According to the Pareto
principle, it can be assumed that even if 80% of
people affected by the coronavirus crisis suffer
losses, the remaining 20% will ultimately benefit
from it (M. Szczepański, 2021).
References
Analysis of the impact of the Covid-19 pandemic
on the Polish economy, Available from:
https://biznestuba.pl/biznes-na-
zywo/analiza-skutkow-pandemii-covid-19-
dla-polskiej-gospodarki/ [Access:
23.03.2021.]
Bolestwa K., Sobik B., (2020), Analysis of crisis
response during the COVID-19 pandemic in
European countries, „ Scientific Journals of
the Polish Economic Society in Zielona Góra”,
No. 13, p. 18, p. 28-29.
Growiec J., Will the COVID-19 pandemic lower
the potential product long-term? Available
from: https://www.obserwatorfinansowy.pl/
tematyka/makroekonomia/trendy-
gospodarcze/czy-pandemia-covid-19-
dlugotrwale-obnizy-produkt-
potencjalny/#fullimg0 [Access: 25.04. 2021.]
How much damage is done to the Polish
economy by the coronavirus? Available from:
https://www.magazynprzemyslowy.pl/artyk
uly/jak-duze-sa-straty-polskiej-gospodarki-
na-skutek-koronawirusa [Access:
20.06.2021.]
Jarynowski A., Płatek, D. Czopek, K., (2020),
Attempt to understand public health relevant
social dimensions of COVID-19 outbreak in
Poland, 2020, No 4, p. 17.
Who is exposed to the financial impact of a
coronavirus pandemic? Available from:
https://www.forbes.pl/finanse/koronawirus-
w-polsce-komu-najbardziej spadna-
dochody/wze7t37 [Access: 323.03.2021.]
Matyja A., The pandemic has dramatically
demonstrated that public health is a uniquely
valuable asset that determines the strength
of a nation's economy and security, w:
CASUS, Quarterly, Autumn/Winter 2020, No.
98/99, p. 5.
Myck M., Oczkowska M., Trzciński K., (2020),
The scale of financial risk to households: the
first wave of economic consequences of the
20

21. ISSN 2534-9228 (2021) VUZF review, 6(4)
COVID-19 pandemic, „Center for Economic
Analysis”, No. 3, p. 1-4.
Poland's economy will shrink in 2020 due to the
epidemic and then begin to gradually
recover, Available from:
https://www.worldbank.org/pl/news/press-
release/2020/10/07/polish-economy-to-
shrink-in-2020-due-to-pandemic-then-it-
may-start- moderate-recovery [Access:
28.03.2021.]
Radlińska K., (2020), Pandemic COVID-19
implications for the Polish labor market,
“Scientific Journals of the Faculty of
Economic Sciences”, No 24, p. 113-126.
Rokicki T., (2020), Changes in Poland's economic
prosperity as a result of the COVID-19
epidemic, “Legal and Economic Review”, No.
3, p. 105-126.
Sieroń A., Will the COVID-19 pandemic cause the
global economy to collapse? Available from:
https://uni.wroc.pl/czy-pandemia-covid-19-
spowoduje-zapasc-globalnej-gospodarki/
[Access: 20.06.2021].
The effects of Covid-19 on the Polish economy,
Available from: https://www.gov.pl/web/
oecd/skutki-covid-19-dla-polskiej-gospodarki
[Access: 23.03.2021.]
Szczepański M., (2021), Coronavirus outbreak as
a black swan event, in: Pandemic – economic
and social impacts, M. Dobska, M Mikulewicz,
R. Kamiński red., „ Economic Review”, Journal
of the Polish Economic Society Poznań
Branch, Poznań 2021, p. 12.
The Crisis Shield. How Poland is fighting a
pandemic compared to other countries,
Available from: https://www.money.pl/
gospodarka/tarcza-antykryzysowa-jak-
polska-walczy-z- pandemia-na-tle-innych-
krajow-6490349504362625a.html [Access:
25.03.2021.]
Unton A., A year with coronavirus. Six examples
of how a pandemic changed the economy
forever, Available from:
https://www.money.pl/gospodarka/rok-z-
koronawirusem-szesc-przykladow-jak-
pandemia-na-zawsze-zmienila-gospodarke-
6614161610320512a.html [Access:
20.06.2021.]
Wnukowski D., (2020), Consequences of the
Coronavirus outbreak for the EU economy,
“Bulletin of Writings”, Polish Institute of
International Affairs, No 2, p. 3.
Wnukowski D., Wąsiński M., (2020), The impact of
the COVID-19 pandemic on the global
economy, “Bulletin of Writings”, Polish
Institute of International Affairs, No. 84, p. 17.
www.obserwatorfinansowy.pl [Access:
26.03.2021.].
21

22. ISSN 2534-9228 (2021) VUZF review, 6(4)
Development of the taxation of retirement products in Bulgaria
Stanislav Dimitrov * А
A VUZF University (Higher School of Insurance and Finance), 1 Gusla Str., Sofia, 1618, Bulgaria
Received: November 10, 2021 | Revised: November 28, 2021 | Accepted: December 28, 2021
JEL Classification: H24, G51, G52.
DOI: 10.38188/2534-9228.21.4.03
Abstract
Retirement products are long-term savings products. It is widespread government to encourage the
savingvia tax incentives. Bulgaria follows favourable taxationof saving involuntary pension funds. The
paper is searchinganswer whether the appliedtax policy of personal retirement products inBulgaria is
efficient. The research is focused on three main areas: the nature of the tax incentives in the country;
the development of the taxation of pensions across European Union and the areas for improvements
of the tax policy taking into account the characteristics of the Bulgarian socio-economic environment.
The efficiency of the tax advantages often is under doubt in the literature. These studies omit the fact
that without tax reliefs the coverage and the efficiency of saving in personal pension plans will be low.
One of the conclusions of the current research is that the tax incentives for personal retirement
products have to be a part of the design of the plans and these reliefs need to be adapted to the
changing economic environment. The paper reaches the conclusion that evolution of the taxation of
pensions in the country is needed. The positive changes will increase the trust in the personal
retirement products and will improve the adequacy and sustainability of the overall pension system in
Bulgaria. This evolution can be done through set of measures that will encourage people to save and
will be factor for improving the results from the saving in personal pension plans.
Keywords: personal retirement products, taxation of pensions, tax incentives for household
savings.
Introduction
Retirement products are long-term savings
products. It is widespread government to
encourage the saving via tax incentives. Bulgaria
follows favourable taxation of saving in voluntary
pension funds. The favourable tax treatment is
expressed in EEE (tax Exempt) scheme on the three
mainflowsofthesaving.Theinsuranceinvoluntary
pension funds in the country functions since 1994.
27 years is a period that gives opportunity to
analyse the tendencies and the results of the
voluntary pension insurance in the country,
particularly the effect of the tax incentives and
potential improvements in the fiscal policy of
private pensions. 645 569 are the number of the
individual accounts in the Voluntary pension funds
(VPF). It represents 11.52% of the people above 19
years in the country. The number of voluntary
* Corresponding author: Ph.D, Associate Professor., Head of Pensions and Insurance research unit, VUZF Lab, e-mail: sdimitrov@vuzf.bg,
dim_stanislav@yahoo.com
pension funds are nine that are managed by nine
pension insurance companies (PIC). Tenth pension
company is licensed in the middle of 2020 and
tenth voluntary fund is supposed to start activity.
The accumulated assets in VPF are EUR 629 mln. as
of the end of 2020. It is 1.04% of the GDP which is a
verylowpenetrationratio.Theannualin-payments
in the funds stand at EUR 58.8 mln. for 2020. The
annual out-payments from the funds are EUR 52.4
mln.(whenanalysingthenumbersweneedtohave
in mind that 2020 is the first year of the COVID-19
pandemia). The annually newly insured for the last
three years are approximately 28 thousand (22
thousand for 2020). The in-payments are three
types in terms of the person/entity that is paying
the contribution: from employer; from the insured
person and from third party. The contributions
22

23. ISSN 2534-9228 (2021) VUZF review, 6(4)
from the insured person stand at 69.93% of the
total, those at the expense of the employer
represent 29.76% and third-party payments are
0.31% of the total. The monthly contributions are
close to 62% and 38% are in-payments of another
periodicity. The number of people who are insured
inVPFunder employer’scontractsare413 360.The
average monthly contribution is approximately
EUR 45 which is around 6.4% from the average
monthly salary. In addition to VPFs there is
Voluntarypension fund with occupational schemes
(VPFOS). Because the saving in VPFOS is based on
collective bargaining and employer’s contract it is
not included in the current study. The average
charge of a contribution in VPF is 3%. The average
annual investment return of VPF is 4.36% (for
period of 19 years, 2002-2020). It exceeds the
inflation with 0.82% annually. Tax incentives are
encouraging the saving in VPF since the very
beginning of the activity - 1994. The taxation of
private pensions in Bulgaria has undergone some
changes during these 27 years. Very important to
note is that taxation of personal pensions has not
changed significantly during the last 15 years. This
fact raises some questions as whether it is the right
policy, whether could be implemented better
decisions, is there “best practice” that can be
followed and others.
The study is searching answer whether the
applied tax policy in Bulgaria is efficient. The
research isfocused on threemain areas: the nature
of the tax incentives in the country; the
development of the taxation of pensions across
European Union and directions for improvements
of the tax policy taking into account the
characteristics of the Bulgarian socio-economic
environment. The paper reaches the conclusion
that evolution of the taxation of pensions is
needed. The favourable tax treatment has to be
embedded in the overall social security and fiscal
policy. The positive changes of the taxation can be
reached through set of measures.
Material and methods
The aims of the research are reached through
the following methodology: analysis of the
literature on the nature, effect and changes in
taxation of personal pensions; description of the
development of the tax advantages for saving in
Voluntary pension fund in Bulgaria; review of the
tax treatment in the European Union (EU);
discussion of the possible improvements in the
taxation of saving in personal pension products.
Numerous authors examine the problem of
adoptingandsustainingfiscalincentivesofsavingin
retirement products. Particularly the condition, the
effect, the impact analysis and future development
is focus of (Dieleman, 2020), (Butler, 2021),
(Carbonnier et al., 2014) (Hinz, 2009), (Stevens,
2019), (Kuper et al., 2016), (Marcinkiewicz, 2017),
(Rutecka-Góra et al., 2018) and others.
Retirement plansare long-term products.At the
same time, people tend to be short-term
orientated. As a consequence, governments have
to stimulate by different policy measures people to
save in personal retirement products. Favourable
tax treatment is one of the fiscal stimuluses for
participation in such insurance. Creatinga “pension
friendly environment” is a recommendation of the
High-Level group of experts on pensions (European
Commission, 2019) including social, labour, tax law
and appropriate prudential framework.
People tend to be short term orientated in their
decisions. Their behavior is influenced by short
term results and emotions. From the behavioral
economics we know that people tend to save too
little for pension because of procrastination, inertia
and short-sightedness. That is why long-term
decisions needs bigger effort for convincing the
potential savers to buy certain retirement product.
In addition, pensions are not “sexy” topic. That is
why personal pension products need some
stimulus. This could be advice, advertisement,
social nudge, fiscal stimulus or others. Tax reliefs
are elements of the fiscal stimuluses. Others are in
form of additional payment from the state to the
contributed sum. In this chapter it is not the main
aim to justify the saving in personal pension
productsthrough indicatingthe advantagesof such
saving but for the purposes of the supporting the
tax advantages it is needed to say again that there
are many positive effects from the saving in
personal retirement products such as increased
personal responsibility, improved financial
23

24. ISSN 2534-9228 (2021) VUZF review, 6(4)
discipline, better justice in social policy, improved
financial literacy, developed financial markets,
added value in the economic development of the
country and others.
The European Commission (EC) pursue
consistent policy for the taxation of the
occupational pensions. As it is stated the EC is
determined to remove any remaining tax obstacles
to a Single Market for occupational pensions.
According to the EC most Member States tax
occupational pensions according to the EET system
(Exempt contributions, Exempt investment income
and capital gains of the pension institution, Taxed
benefits) or ETT principle (Exempt contributions,
Taxed investment income and capital gains of the
pension institution, Taxed benefits). This means
that: the contributions by both employer and
employee are tax deductible, the investment
resultsofthepensionfundareusuallyexempt(they
are taxed only in Denmark, Italy and Sweden) and
the benefits are taxed.
Different taxation is applied for saving in
voluntary pension plans. Too costly for the budget
wouldbe ifthere isnolimitofthetaxadvantagesat
anystageofthesaving.Wehavetotakeintoamind
that in fact there could be four sources of the
voluntary contributions: the employer; the
employee; the state and a third party.The personal
pension insurance is retail based. It is retail based
because the decision to start the saving is made by
the physical person. Being retail products personal
pension productsare considered costlyones. Often
these products are sold by intermediaries. Usually,
the intermediaries are paid commissions. That is
why positive effects, as tax advantages are treated
as such,are an important milestone of the savingin
personal retirement products.
The supported by the EC policy option is the
system of deferred taxation. The stated arguments
of the EC are three: the contributions to pension
funds diminish a person's ability to pay taxes; it
encourages citizens to save for their old age and it
will help Member States to deal with the
demographic time-bomb, as they will be collecting
more tax revenues at a time when more elderly
people may call on the State for care.
As a consequence of the fact that there is no
common legislation on taxation of personal
pensions in the EU double taxation agreements
have to clarify some arising problems. Concerning
the out-paymentsfrom personal pension products,
especially the pan-European personal pension
product (PEPP), (Dieleman, 2020) points out that
“…PEPP retirement benefits is generally covered by
tax treaties in case the saver has contributed to
PEPP while residing in several Member States or if
the saver does not reside in the state of residence
oftheprovider”.However,hecontinuesthat“…the
pensionrelatedprovisionsoftaxtreatiesfrequently
deviate from the OECD Model Tax Convention”.
(Butler, 2021) also expresses opinion that “…it will
fall to Member States to mitigate the burden of
double-taxation through the conclusion of double-
taxation agreements”.
On the level of the expressed opinions in the EC
is that of the High-Level group of experts on
pensions (European Commission, 2019). The note
is related with the taxation policy option to
differentiate the tax reliefs in terms of income
groups. According to the High-Level group of
expertsonpensions“fiscalincentivestogetherwith
direct subsidies aimed at making personal pension
savings attractive also to middle and lower-income
groupsresultedinthehighestincreasesofcoverage
rates in the Czech Republic and Germany (though
with rather limited savings amounts)”. If high
earners are in position to benefit more than others
it could lead to increased inequality (distributional
consequences - Whitehouse E.). Some research
papers (Carbonnier et al., 2014) come to the
conclusion that “… the deduction scheme is
effective in boosting the demand for annuity of the
richest savers whose marginal tax rate is the
highest, especially for the oldest savers (aged 45
and above). In most cases, it fails to raise
contributions of younger and less wealthy savers”.
(Hinz, 2009) is searching answers to the three
“most important questions” according to him,
namely: “…does participation in voluntary pension
system improve with the level of tax incentives; do
they lead to an overall increase in savings on an
individualornationallevel;andisthedistributionof
subsidies fair and desirable”.
Itisinterestingtoseetheexpenditureforthetax
reliefs. OECD is presenting figures (Pensions at a
Glance 2017, p. 144). For the calculation is applied
24

25. ISSN 2534-9228 (2021) VUZF review, 6(4)
theconceptof“taxexpenditures”,developedinthe
1960s. The tax expenditure measures the value of
the preferential tax treatment relative to a
benchmark tax treatment. The value is in % from
the country GDP. For the majority part of the
analysed countries (more than two-thirds out of 21
OECD countries) the expenditure for tax breaks for
private pensions are 0.2% of GDP or less. Only in
four countries(Australia,Canada,Germanyand the
United Kingdom) the figure is worth 1% of GDP or
more. The average is 0.4% of the GDP.
If the tax expenditure could be the perspective
of the government from the view of the potential
saver it is useful to measure the tax advantages.
Such value is calculated by the (OECD, 2018). The
value is the overall tax advantage provided to an
average earner. The meaning behind the “overall
taxadvantage”isthatitisthepresentvalueoftaxes
saved over a lifetime, as a percentage of the
present value of contributions. The value differs
vastlyamongthecountrieswith8%forSwedenand
up to around 50% for Israel, Mexico, Lithuania and
Netherlands. The value is between 24% and 29%
for the countries with the largest private pensions
markets – USA, UK, Canada, Australia, Denmark
andSwitzerland.Variousfactorsinfluencethevalue
of the metric. The characteristicsof the tax reliefs is
one of them. The second is the applied tax system
andincometaxrate.Onevenconditions,thehigher
the income tax rate is the higher is the overall tax
advantage. This explains why Bulgaria with EEE
system holds value below 20% thanks to the low-
income tax rate – flat 10%.
There are different possible ways of taxation of
contributions (in-payments, premiums) in personal
pension plans. Three main categories of personal
pension products can be formed in terms of tax
treatment of contributions: taxed, partially exempt
and partially exempt/taxed. For the visualization of
the product categorisation we use the tree
developed bya consultancycompanymandated by
the European Commission to perform a study on
the feasibility of a European Personal Pensions
Framework (E&Y, 2017).
Figure 1. Categorisation of personal pension products in light of the tax regime for in-payment
Source: E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, p. 31
25

26. ISSN 2534-9228 (2021) VUZF review, 6(4)
In the group “Taxed” are classified 7
products that do not have tax advantages for
the contributions. These 7 products are from 6
member states (Denmark, Germany, Greece,
Malta, Poland and Sweden). In such cases the
contributions are made from the net income
after taxes.
In the group “Partially exempt” are
classified 39 products. In this group are the
prevailing number of personal pension
products. These products are from 24 member
states. Products from four sub-groups are
included in “Partially exempt” group. The sub-
groups represent four types of tax reliefs
related to contributions: tax reduction;
reduced tax base; tax credit or other. The
group with the highest number of products is
from the type “tax base reduction”. This form
of tax relief means reduction of the taxable
base subject to personal income tax. For
example, if the primary tax base is EUR 3 000
and the contribution with right of tax relief is
EUR 300 then the final taxable base is EUR 2
700. This form requires taxable income.
Bulgaria is part of “reduced tax base” sub-
group. The applied tax relief is of “income
limitation” type. Personal contribution up to
10% from tax base benefits tax advantage.
With this sum is reduced the initial tax base.
In countries with relatively high proportion
of informal economy, the policy option using
the base of taxable income, could be an
element of the system of measures to
stimulate official economy, “white” (formal)
labour contracts and “white” labour income.
29 products from 19 Member States are
included in the “Reduced tax base” subgroup.
Four options for appliance of this tax
technique are seen in the “Reduced tax base”
subgroup. 12 products are classified in
“Income limitation and maximum amount”.
The products from this option are mainly from
Member States from Western Europe –
Ireland, Portugal, Spain, France. In this
category are products also from Cyprus and
Estonia. Another 12 products encompass the
type “Maximum amount”. In this option are
products from 11 Member States. So, the
highest number of Member States apply the
type “Maximum amount” as the preferred
option within the “Reduced tax base”
subgroup. 4 products are in the category
“Income limitation” – from Bulgaria, Latvia
and Lithuania. One product represents the
option “No limitation”. This product is from
Denmark – Alder product (local name
Alderspension).
The reduction in the tax base can be
limited. The limit can take the form of an
amount of the contribution (EUR 300 per
month as an example). Another form of the
limit could be as a percentage of income
(example of 10%). There could be combination
– maximum amount of the contribution
limited to a percentage of income (up to 10%
from the income but no more than EUR 300
monthly). Also, there are variants from the
base of the calculation – taxable income or tax
base. Generally, tax base is formed after from
the taxable income are deducted compulsory
payments and some other deductions. So,
when the tax relief is calculated from the
taxable income it is higher in absolute terms
compared to calculation from the tax base in
equal terms.
“Tax reduction” is the second subgroup in
“Partially exempt” group. This form of tax
incentive represents a decrease of the amount
of income tax due. 6 products from four states
(Belgium, Germany, Hungary and UK) enter in
the “Tax reduction” sub-group. There are two
policy options in the sub-group. The first policy
option is to apply combination between
income limitation and maximum amount. Two
products from the UK apply this policy option.
The second policy option is to define maximum
amount. Four products from 3 states (Belgium,
Germany and Hungary) apply this policy
option.
“Tax credit” is the third sub-group in
“Partially exempt” group. This form of tax
incentive represents a tax amount deductible
from the personal income tax due. Two
products from two states (Malta and Portugal)
enter in the “Tax credit” sub-group. For
example, for the private pension contributions
26

27. ISSN 2534-9228 (2021) VUZF review, 6(4)
in Malta an individual who contributes to a
qualifying personal retirement scheme is
eligible for an annual tax credit equivalent to
25% of contributions made, capped at EUR 750
per annum (as of 2021). So, in the specified
case, with the annual tax credit being
equivalent to 25% of contributions made, or
limit of EUR 750, the annual contributions
which may be made into a qualifying scheme
and which will be eligible for an annual tax
credit stands at EUR 3 000. It is positive feature
of this tax advantage that it can be carried
forward. The policy option enables individuals
who are not subject to income tax during a
given year to benefit from the tax advantage
in subsequent fiscal years.
“Other” is the fourth sub-group in “Partially
exempt” group. This form of tax incentive
represents other types of advantages such as
financial contributions paid either by the State
or the employer. Two products from two
states (Austria and Croatia) enter in the
“Other” sub-group. For these products the
saver is not able to tax benefit directly from
contributions. For example, there is a
government subsidy for the members of third
pillar voluntary pension funds in Croatia
(Draženović, 2021). The incentive is equal to
15% of the total contribution paid over a
calendar year. The maximum subsidy equals
HRK 750 (approximately EUR 100) per year per
fund member which is calculated from the
maximum contribution base of HRK 5 000.
In the third main category “Partially
exempt/taxed” are classified three products
from Netherlands. The reason that is formed
the category is that the tax relief is
conditional. The tax benefit can be obtained
under condition for certain maximum income.
As a consequence, the earners above the
income ceiling cannot benefit from the tax
incentive.
The taxation of the investment yield
(investment return) of personal pension
products can be divided in two main
categories: taxed and exempt.
Figure 2. Categorisation of personal pension products with regard to the taxation applicable to the yield
Source: E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, p. 35
Products that fall in the “Exempt” category
are prevailing – 37 in number. Those products
are from 23 states. In the “Taxed” category are
classified 12 products. These 12 products are
27

28. ISSN 2534-9228 (2021) VUZF review, 6(4)
from 6 states. In one country (Germany) there
are personal products which have different
taxation on the investment yield.
In the category “Exempt” there are two
sub-groups. The first sub-group is “exemption
with no conditions”. In that sub-group are
classified 35 out of 37 products from the main
category “Exempt”. These 35 products are in
23 states. Bulgarian VPF (in the figure
Bulgaria_UVPF) is part of this sub-group. The
tax relief in the country is applied no matter
the time of receiving by the saver of the
investment return – before or after
retirement. In the second sub-group there are
conditions to qualify for exemption. In the
second sub-group are classified two products
from one country (Poland). Poland has
products that are classified in both of the sub-
groups – “exemption with no conditions” and
“exemption with conditions”.
The following figure presents information
about the distribution of personal pension
products with regard to the taxation of the
outpayments.
Figure 3. Categorisation of personal pension products with regard to the tax regime during the
decumulation phase
Source: E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, p. 36
The survey shows that the retirement
payment is “Taxed” in 31 products. “Exempt”
are the decumulation payments in 13
products. Another 5 products have payments
that are “Taxed” or “Exempt” depending on
certain conditions.
The decumulation payments are divided in
two main categories based on the criterion
whether there is or not mandatory option
when the decumulation starts: “Mandatory
option” category and “No mandatory option”
category. The first category “Mandatory
option” applies when there is only one
payment option. In the second category “No
mandatory option” are included products in
which there are at least two possible
payments. Nine products have mandatory
unique option for outpayments. The
outpayment is annuity. The payments from 6
of these products (from 5 states – France,
Denmark, Finland, Germany and Sweden) are
taxed. Three products from one state
(Netherlands) are taxed or exempt depending
on the amount of the income – there is a tax
exemption if the saver’s income is above
certain ceiling.
40 products are in the second main
category “No mandatory option”. In the
Decumulationtax regime
Mandatory unique
option for
outpayments(annuities)
Taxed
France_MadelinTS
France_MadelinAgr
Denmark_RPFinland_IP
Germany_Rürup
Sweden_IPS
Taxed or exempt
Netherlands_RAInsA
Netherlands_RAInsD
Netherlands_RBSA
No mandatory unique
option for outpayments
With default option
Taxed
Belgium_PPCroatia_OPF
Denmark_Alder
France_PERP
Malta_PPPa
Malta_PPPna
Without default option
Taxed
Belgium_LP
Germany_Riester
Germany_PP
Ireland_RAC
Ireland_PRSA Italy_PIP
Italy_OPF Latvia_PPF
Luxembourg_IPS
Poland_IKZE
Portugal_LifeInsR
Portugal_PPR
Romania_SPP
Slovenia_VSP Spain_IPP
Spain_MP Spain_PPA
United Kingdom_SIPP
United
Kingdom_Stakeh19
Austria
Depends on
decumulation option
Austria_PZV
Cyprus_IIP
Exempt
Bulgaria_UVPF
Bulgaria_PVPF
Czech Republic_SSP
Denmark_Aldersop
Estonia_VSF
Greece_PRSP
Hungary_PRS
Lithuania_VF Poland_IKE
Poland_PPE Slovak
Republic_PPF
Portugal_LifeInsH
Portugal_P
28

29. ISSN 2534-9228 (2021) VUZF review, 6(4)
category there are two sub-groups: with and
without default option. The default option
means that there is an outpayment which
applies automatically when the saver does not
choose another payment. Six products (from 5
states – Belgium, Croatia, Denmark, France
and Malta) are with default option. The
outpayment of these products are taxed.
Another 34 products are in the sub-group
“Without default option”. The “No default
option” means that the saver has to choose
the type of outpayment. In this sub-group,
within the highest number of products, 19
from 12 states, are classified as “Taxed”. 13
products are “Exempt”. Bulgarian VPF is part
of this group. That is why the taxation of VPF
is designated as EEE.
Results and discussion
Based on the analysis reached is the
conclusion that further development of the
taxation of pensions is needed and can be done
through set of measures. The set of measures
has to take into account the tendencies in the
taxation of pensions across the EU and the
characteristics of the Bulgarian socio-economic
environment.
The taxation of personal contributions in
voluntary pension fund in Bulgaria since the
start of the saving is presented in the following
table.
Table 1. Taxation of personal contributions in voluntary pension fund in Bulgaria
for the period 1994 – 2021
Source: author’s analysis of the taxation of personal income
The information from the table shows
that tax reliefs exist since the very beginning
of the activity of VPFs. The first six years the
tax advantage has a limit calculated from the
minimum monthly salary for the country.
Two years, 2000 – 2002, the tax advantage
was generous – there was no limit of the sum
that benefit the tax advantage. At the same
time the personal income tax scheme was
progressive, with highest tax rates up to
40%. The current tax regime was introduced
2002. It is very important to note that since
2008 the progressive taxation was
substituted with flat tax of 10%. The flat tax
decreases the tax that is reduced by a saver
through contributions in VPF. The
progressive taxation with higher tax rates
than 10% leads to higher tax benefits for the
savers.
The following figure represents
information about the paid personal
contributions in VPFs for the period 2006 –
2020.
Figure 4.
Source: Data by Financial Supervision Commission,
www.fsc.bg
The information from the figure shows that
there is steep decrease in the personal
contributions after 2007. The main reason is the
financial crisis from 2007-2008 but also very
important factor is the introduction of flat tax on
personal incomes since 2008. Ten years later in
2017 and 2018 there is increase in the paid
personal contributions to the precrisis volumes.
The main driversfor thistendencyare the increase
in the households’ income, the good results from
years 1994 - 1998 1998 - 2000 2000 - 2002 2002 - 2021
tax
deduction
sum up to 20% of
the minimum salary
sum up to 30% of
the minimum salary
the full amount of
the contribution
sum up to 10% of
the tax base
63,249
108,463
52,680
22,550
21,177
22,849
24,339
27,720
55,951
89,964
67,881
107,199
112,704
99,023
80,714
2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0
PERSONAL CONTRIBUTIONS IN VPF
(IN BGN THOUS.)
29

30. ISSN 2534-9228 (2021) VUZF review, 6(4)
asset management for the previous years (5.25%
and7.46%for2016 and2017respectively)andthe
more aggressive sales behaviour from the pension
companies.
Regardless the increase in the personal
contributions we can conclude that still the saving
in VPF is not widespread. The following table
displays the working people in income groups.
Table 2. Income groups in Bulgaria by annual tax base in BGN (BGN 1.95583=EUR 1)
Source: Data by National Revenue Agency for 2018 and author’s calculations
The information from the figure shows that
more than 50% of the people are in the group of
the lowest income (around the minimum salary
at that time) – more than 53%. Only 24% from
the taxpayers receive more than EUR 500
monthly. The total annual tax base is BGN 34.2
billion (EUR 17.5 billion). Theoretically the
maximum amount of tax benefitted
contributions stands at EUR 1.3 billion
(excluding the lowest income group). The paid
personal contributions are around EUR 50 mln.
annualy or 3.8% from the maximum tax
benefits. Additionally, the paid contributions
include sums for which is not applied tax
advantage.
The information for the market shows
another evidence for the low up-take of saving
in VPFs. The people who switch VPF is very low
– 0.20% compared to 5.62% and 5.08% for
Universal pension funds (UPF) and Professional
pension funds (PPF) respectively. The last two
funds constitute the second pillar of the pension
system in the country. Another problematic area
is the very high inequality between men and
women that are insured in VPF. Women are less
than men covered with voluntary pension saving
– women are 43% of the insured in VPF. In
addition, women have 22% lower accumulated
assets in VPF compared to men. We have to
point out that the average accumulated assets
are very low as a whole – it is close to EUR 1 000.
This sum is even 50% lower than the average
accumulated capital in UPF. This leads to the
conclusion that saving in VPF not attract enough
young people and the in-payments are not
regular.
Based on the analysis we can draw a
conclusion that the taxation policy of private
pensions is not efficient. Nevertheless, the
applied tax scheme is EEE which is favourable
the advantages are not generous. Family
incentives and higher advantages for low- and
middle-income earners are possible directions
for improvement of the taxation. Not only direct
financial incentives can improve the efficiency of
the taxation of pensions. Other measures are
efforts to decrease the fees on contributions, to
improve the disclosed information, to develop
further the payment phase in VPF, to implement
integrated analysis of the three pillars of the
pension system, to construct pension rights
tracking service, to calculate income
annual taxbase
number
persons
share persons
income groups
due personal income
tax
sumof the annual tax
base
≤ 6720 1,688,923 53.85% 579,836,000 5,798,360,000
6 720 - 12 000 695,261 22.17% 628,767,000 6,287,670,000
12 000 - 24 000 529,347 16.88% 860,431,000 8,604,310,000
24 000 - 36 000 111,304 3.55% 322,438,000 3,224,380,000
36 000 - 72 000 77,688 2.48% 381,236,000 3,812,360,000
72 000 - 108 000 16,237 0.52% 141,812,000 1,418,120,000
> 108 000 17,763 0.57% 506,420,000 5,064,200,000
total 3,136,523 100.00% 3,420,940,000 34,209,400,000
30

31. ISSN 2534-9228 (2021) VUZF review, 6(4)
replacement ratio by the three pillars. Carry
forward tax incentives is another policy option
taking account the uneven career path. In order
to make the pension products more accessible it
is logical to introduce insurance intermediaries
like insurance brokers – to have the right to
distribute products of more than one pension
company. A measure towards improvement of
the trust in the retirement plans is to increase
the tax advantage for employer’s contribution in
VPF from the current 60 BGN to 200 BGN or
around 30% from the minimum salary. When
introduced it was more than 50% from the
minimum monthly salary and now is below 10%
of it.
Conclusions
Bulgaria follows favourable taxation of saving
in voluntary pension funds. The accumulated
assets in VPF as percent of the GDP is very low -
1.04%. The personal contributions are around
3.8% from the maximum tax benefits. The low
coverage indicates problems in the social and
fiscal policies. High inequality exists between
men and women. Women are 43% of the
insured in VPF and have 22% lower accumulated
assets in VPF compared to men. Saving in VPF
does not attract enough young people and the
in-payments are not regular. The flat tax rate on
personal incomes decreases the tax advantage
that is benefitted by a saver through
contributions in VPF.
Tax incentives are encouraging the saving in
VPF since the very beginning of the activity –
1994. The current tax scheme is not changed
during the last 15 years. The paper reaches the
conclusion that evolution of the taxation of
pensions is needed. Family incentives and higher
advantages for low- and middle-income earners
are possible directions for improvement of the
taxation. Other measures are efforts to
decrease the fees on contributions, to improve
the disclosed information, to develop further
the payment phase in VPF, to implement
integrated analysis of the three pillars of the
pension system, to construct pension rights
tracking service, to calculate income
replacement ratio by the three pillars. Carry
forward tax incentives is another policy option
taking account the uneven career path. The
favourable tax treatment has to be embedded in
the overall social security and fiscal policy.
References
Butler, Gr., (2021). “Private Pensions and EU
Internal Market Law: Enhancing Retirement
Provision through Harmonisation”, European
Business Law Review, vol. 32, issue 5, pp. 853
– 876
Carbonnier C., A.; Direr and I. Slimani Houti,
(2014). “Do Savers Respond to Tax
Incentives? The Case of Retirement Savings”,
Available from: https://www.researchgate.
net/publication/286527569
Chetty, R., J. Friedman, S. Leth-Petersen, T.
Nielsen and T. Olsen, (2012). “Active vs.
passive decisions and crowd-out in
retirement savings accounts: evidence from
Denmark”, Available from:
https://www.nber.org/papers/w18565
Dieleman, B. (2020). “Tax Treatment of the
PEPP: The New Pan-European Personal
Pension Product”. EC Tax Review, (2020/3)
Dimitrov, St. (2020). “The Basic PEPP – safe,
transparent and cost-efficient product”. pp. 5
- 17, in: “PEPP – Regulation and Technical
Standards for Market Realization”.
Conference proceedings, VUZF Sofia, ISBN
978-954-8590-93-8, Available from:
https://vuzflab.eu/en/collections/
Dimitrov, St. (2020). “The Average Values of
Pension System Parameters in Bulgaria”, pp.
55 – 65, in: “PEPP – Regulation and Technical
Standards for Market Realization”.
Conference proceedings, VUZF Sofia, ISBN
978-954-8590-93-8, Available from:
https://vuzflab.eu/en/collections/
Draženović, B. (2021). “Voluntary pension funds
31