UPDATE 1-Bulgaria plans to cut taxes for restaurants and catering services

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SOFIA, May 15 (Reuters) - Bulgaria’s centre-right ruling coalition on Friday proposed cutting value added tax (VAT) on food provided by restaurants and catering services to 9% from 20% from July to help an industry hit hard by the coronavirus crisis.

The cut would run through 2021 as a temporary measure to help the sector recover, a draft law before parliament showed, with estimated losses to state finances of 255 million levs ($141 million).

The cut would not affect alcoholic drinks in restaurants and provided by caterers, which will still attract a 20% VAT rate.

The plan was floated by Prime Minister Boyko Borissov earlier this week despite the opposition of his finance minister and was also criticised by economists who say it would open the door for many more industries to seek tax cuts.

Borissov has said the decision is political and the state should help restaurants and caterers by bringing their VAT rate into line with hotels. Restaurants, cafes and bars were ordered to close in March to combat the virus.

Bulgaria, which has 2,138 confirmed cases of the coronavirus and 102 deaths, has started to ease some restrictions and hopes to attract tourists to its Black Sea resorts after July.

The country expects its economy to shrink by 3% this year and run a fiscal deficit of 3% of economic output.

VAT, set at 20% for all goods and services except hotels, is the main revenue source for a country that keeps income and corporate taxes at 10% - among the lowest in the European Union.

The coalition would also seek to cut VAT for book sales to 9% from July until the end of next year.

Opposition parties have already made their own proposals for VAT cuts that include a 9% rate for toddlers’ foods, medicines and pampers, as well as for gyms and sports halls.

All need parliamentary approval.

$1 = 1.8087 levs Reporting by Tsvetelia Tsolova; Editing by Edmund Blair and Giles Elgood