The Sustainability of Public Debt and the Tax System in Bosnia and Herzegovina Becomes Questionable
Sarajevo, 22 October 2018 – Today, within the framework of the project “CSOs as Equal Partners in Monitoring Public Finance”, the workshop “Public Debt and the Tax System in Bosnia and Herzegovina” was held. At the same time, this was an opportunity to discuss with representatives of the BiH Ministry of Finance, the Tax Administration and civil society organisations from Bosnia and Herzegovina how to resolve the unsustainable levels of public debt in BiH and whether it is possible to reduce tax inequality in BiH.
The analysis of public debt showed that there is a great need to introduce mechanisms that would enable civil society organisations and citizens to systematically participate in the monitoring of public finances, from budget expenditure to their analyses and analyses of tax policies. By enabling citizens to participate in matters that directly concern them, greater transparency and accountability in public finances can be influenced. There is a need to legally formalise mechanisms for independent and public involvement in debt auditing, meaning that a citizens’ debt audit should exist. It is also important to emphasise that it is necessary for annual debt audits to be conducted by independent auditors, while citizens should be informed by the State Audit Office about the fiscal performance of the Government, state institutions and the work of the audit office itself.
Andreja Živković, one of the authors of the analysis on the tax system, believes that regardless of the reforms that have taken place in our tax system, it is still based on the taxation of consumption rather than wealth. While citizens with average incomes are overburdened, corporations pay one of the lowest rates in Europe. With such a narrow tax base, it is difficult to finance public services or stimulate investment. Tax inequality is also directly linked to debt.
We advocate for the introduction of a progressive tax system based on the ability of citizens to pay. We also advocate for stronger measures against the grey economy, which remains a major problem in Bosnia and Herzegovina. During the workshop, a representative of the FBiH Tax Administration emphasised that there was an 8% increase in the collection of old debts in 2017, and all of this is based on voluntary tax reporting. It was also highlighted that no one in this country has data on the size of the grey economy as a share of our GDP. The focus of the tax administration should always be to inform citizens, not to sanction them. It should be noted that citizens are overburdened and exposed to large expenditures; the tax administration does take some actions, but they simply do not lead to relief.
In Bosnia and Herzegovina, the contribution tax rate is the lowest in the region, but the problem is that wages are low while contributions on wages are the highest. It is a mistake that experts from ministries, although employed on the basis of their expertise in those ministries, are not involved in the drafting of laws despite their willingness to participate. A major ongoing problem is that there is a large amount of cash in our payment system — it is estimated that around 25% of total employer payments are made in cash, allowing employers to reduce their tax burden, but this information is mere speculation. Institutions are aware that it is often more profitable for employers not to pay taxes and instead periodically pay fines. Therefore, it is important to begin with greater education of employers so that everything does not remain at the level of sanctioning.
For more information: Emina Hasanagić, emina.hasanagic@wings-of-hope.ba; +38762772168
The press release is available here.