CCI: Off-budget funds endangered by tax debt exceeding 4.5 billion KM

SARAJEVO, (Patria) - The Center for Civil Initiatives (CCI) recently published the "State of the Nation" report, which monitors the implementation and effects of reforms in Bosnia and Herzegovina. This report contains a comprehensive overview of information on the formal implementation of measures from the Reform Agenda, and the measurement of effects in various areas such as public finance, business climate, labor market, rule of law, social policy, etc. One of the areas of analysis is tax debt in BiH.

CCI reminds that although official statistics in 2017 record an increase in collected direct and indirect taxes, the total tax debt in BiH (based on direct and indirect taxes) amounts to an incredible 4.5 billion KM! Furthermore, the organization states, the debt for direct taxes alone (income tax, contributions for pension and disability insurance, health insurance, unemployment, etc.) amounts to about 3.8 billion KM. For comparison, the total tax debt is almost 4 times higher than the last multi-year arrangement with the IMF.

Graph 1: Total tax debt in BiH

Based on indirect taxes, the debt value exceeds 770 million KM, which includes debts for unpaid VAT, customs duties, and excise taxes. For comparison, the amount of this part of the uncollected debt is close to the total annual borrowing of governments from commercial banks in 2017. In the total debt for customs duties (graph 2), twenty debtors account for over 66%, meaning two-thirds of the total customs debt is owed by 20 companies.

"When we talk about direct taxes, according to data from the Tax Administration of FBiH, the total uncollected tax debt in FBiH alone amounts to two billion and 596 million KM, which includes debts for unpaid income taxes, contributions for pension and disability insurance, health insurance, unemployment, as well as taxes and other fees. Graph 3 shows the total debt and the debts of the largest debtors. The largest debtors for unpaid public revenues are taxpayers with state capital participation, i.e., public enterprises or companies with state (co)ownership, and public institutions. If we consider only the top 20 largest debtors, we find that these debtors account for as much as one billion and 185 million KM, or 46% of the total tax debt in FBiH! Most of this debt should have financed pension and health funds. Let us recall that the amount and regular payment of pensions, as well as the quality of healthcare, most directly depend on the payment of contributions. The very poor state of the Pension and Disability Insurance Fund and health funds is the result of years of law violations by those who did not pay taxes and those who allowed it, thereby causing enormous damage to off-budget funds, the quality of citizens' lives, and the public interest," the CCI report states.

Graph 2: Tax debt in the Federation of BiH

"According to unconfirmed data (because the Tax Administration of RS refuses to publish details of tax debt), the total uncollected tax debt in the Republika Srpska, based on direct taxes, amounts to one billion and 167 million KM this year, as shown in graph 4. The largest debtors for unpaid public revenues are, again, taxpayers with state capital participation, i.e., public institutions and public enterprises. The top 10 largest debtors owe 171 million KM, or 15% of the total tax debt, and among them, public institutions and public enterprises account for 53% or 90 million KM," the report further states.

Graph 3: Tax debt in the Republika Srpska

CCI states that this data indicates a chronic absence of the rule of law, "because such a lack of good governance, equality before the law, and tolerance for non-payment of taxes and contributions by public enterprises and institutions is inexplicable, leading to the accumulation of enormous internal debt, budget deficit, off-budget fund deficit (primarily pension and health), and seriously shaken confidence of citizens and legal entities in the rule of law and equality before the law."