BOSNIA MAY INCREASE VALUE ADDED TAX

SARAJEVO, Bosnia (August 14,2008) - Bosnia may increase Value Added Tax (VAT) to compensate for income lost from customs after the signing of the Stabilisation and Association Agreement (SAA) with the EU, the Bosnian Deputy Finance Minister Fuad Kasumović said.

In only one month, since the SAA came into effect, forcing Bosnia to reduce or abolish customs for some EU goods, income from customs has fallen by 10-20 per cent, Kasumović was quoted as saying.

“In the coming months, we will continue reducing or abolishing customs for other EU goods, which means further reduction of income,” Kasumović told the Banja Luka daily, Nezavisne Novine.

The minister said raising Bosnia’s flat 17 per cent VAT tax is one option for Bosnia when it seeks to compensate for the reduced income.

Kasumović admitted that this would have negative effects on ordinary people and businesses, which are already suffering from fast-rising food and fuel prices on the global and regional markets.

Because of this, an increase in VAT would only be a quick fix. A more long-term solution would be cuts to Bosnia’s huge and inefficient administration, Kasumović concluded.

Any attempt to increase VAT tax would certainly trigger public unrest. Many experts believe the 17 per cent VAT tax – introduced three years ago – is already providing ample funds for Bosnia’s administration. Some politicians and officials have proposed reduction of the tax rate, or introduction of a differentiated VAT for different products.

Any such move looks unlikely months ahead of October local elections. Also, any changes to the current taxation system can be introduced only after thorough analysis and preparation.

In reaction to the statement by the Bosnian Deputy Finance Minister Fuad Kasumović that the Bosnian government will increase direct or indirect taxes to make up for the loss in revenues from customs duties resulting from implementation of the provisional agreement with the EU, Bosnian trade unions, consumer protection associations and employers’ association expressed their strong opposition to any increase in direct taxes or VAT yesterday.

The head of the Bosnian Employer’s Association, Alija Remzo Bakšić, said that the government’s move was logical and expected, but warns that the introduction of new taxes would stifle development and employment. He proposed that excise duties should be introduced on high-tariff goods instead.
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