FRI, 26 OCT 2001 22:09:31 GMT

RS: What is to be Expected of Tax Reform

AIM Banja Luka, October 14, 2001

At its last session, the National Assembly of the Republic of Srpska (RS) adopted the proposed reforms of taxation laws. According to Government explanation, the set of laws on taxation policy, which the RS Government had proposed to the Assembly for adoption, is aimed at reducing the overall labour costs and, as a result, encourage employers to increase employment.

What is envisaged by the mentioned set of laws, whose adoption is of great interest for the Government, but on which it did not sufficiently inform the citizens? There are two types of taxes: the indirect ones, which are defined by the Law on Excise Taxes and Turnover Taxes, and the direct ones, which represent tax burden on profits, incomes and property.

The tax reform is aimed at eliminating tax evasion on retail sale of excise goods. For example, according to data out of 20 percent excise tax on coffee only 0.5 percent is paid, 2.3 percent on alcohol, 1 percent on cigarettes, etc. That means that most of the firms avoid paying the 20 percent rate of turnover tax by using fictitious firms for these purposes. That is why the Government has decided to increase the excise rate and reduce taxes from 20 to 10 percent.

An agreement has been reached with the Federation of Bosnia and Herzegovina for heating oil to be treated as oil because importers used to refuse paying taxes under the pretext that they were actually importing only heating oil. The Federation agreed with the proposed introduction of tax stamps instead of the existing control stamps, which are now in use in the RS and F B&H. That means that cigarette-importing firms would first have to pay excise and stamp taxes before they can import cigarettes. Milenko Vracar, Minister of Finance in the RS Government, said that the RS and FB&H have sent a joint letter to SFOR suggesting the marking of SFOR's cigarettes with special stamps, which was not the case till now and which was the reason these cigarettes were the main item on the black market in Bosnia an Herzegovina.

Regarding direct taxes, Minister Vracar pointed out that they have also been reformed. Reformed were laws on profit taxation, individual income tax, property tax, contributions, as well as on the use of state and mobile property, which is a new law of sorts. This group of laws were presented together as a set. However, their implementation requires the amending of some related laws, such as the Law on Local Self-Government, Law on Health Insurance, Law on Solidarity Funds, Law on the Chamber of Commerce and the Law on Waters. These laws envisaged the payment of dues on earlier fixed gross salaries, such as, for example, allocations for waters and chambers of commerce. Now, the character of these laws has been changed from obligatory to voluntary.

This is the first time that a tax on the use of space has been introduced, so that anyone owning a flat or house would have to pay 0.5 KM per square meter in taxes annually. Also, for example, the lots on which gas stations are located would also be taxed. Only pensioners and rural population would be exempt from these taxes. The Law on Individual Income Tax has been totally revised. All personal incomes, in addition to salaries, including vacation allowances, winter food provisions, per diems, etc. would be taxed at higher rates, while tax rates on personal incomes would be lowered from 76 to 50 percent.

Asked whether the Government had any projections as to what would be the practical results of this set of laws, Minister Vracar replied that the prepared projections have shown that budget revenues would not be reduced on account of these changes, because a larger number of tax payers would be paying these taxes. "Our data show that we have some 64 thousand registered shops and that each of them employs 0.3 workers, which is impossible. We expect 10 thousand additional workers to be registered on account of lowered taxes", said Vracar. Asked about the implementation method the Government intended to use for these laws in view of experiences with control authorities, Vracar explained that that would be also improved thanks to the Law on Tax Administration, which envisaged the integration of Financial Police and Accounting Service. According to him, this would make the collection of debts possible not only by blocking the accounts of firms, but also the entire property of their owners, including their personal property.

In contrast to parties in power, which have supported the adoption of the set of taxation laws, opposition parties were critical of it. According to the Party of Independent Social-Democrats (SNSD) of the Former Prime Minster, Milorad Dodik, as the strongest opposition party, the adoption of these laws would mean the introduction of "tax totalitarianism" and "economic Stalinism". A SNSD official, Rajko Vasic, said that "Prime Minister Mladen Ivanic's Cabinet is only looking for a way to replenish the budget and thus buy social peace until the elections, no matter what would that mean for the RS economy". The SNSD was against taxes and tax system, because according to it taxes should only be levied only in healthy and expanding economies. Vasic accused Ivanic's Government of deepening the recession and insisting on taxes, thus "robbing both citizens and employers".

Slobodan Gavranovic from the Democratic Socialist Party, said that the introduction of new taxation policy only meant the introduction of new burden for citizens. "These laws are appropriate for developed countries, but the living standard in the RS is far below that of normal countries", said Gavranovic. During the debates organised in all major communes and towns in RS, as well as on TV and radio stations, the greatest number of citizens' objections were related to the Law on Property Tax and the Law on Profits Tax.

It remains to be seen how will the adopted laws be implemented in a country whose citizens think that tax evasion is their most important task which also gives them the greatest pleasure. The Government is considered to be too optimistic. Former Prime Minister Dodik is making fun of the current Prime Minister's party by calling it - the Party of Added Taxes.

Mladen Mirosavljevic

(AIM)