GOING TO PARLIAMENT New fiscal laws will enable wage growth for workers in FBiH, as well as their pensions

(Patria) - Next week, the Bill on Income Tax and the Bill on Contributions will be before the BiH Parliament. These are legal solutions that have been discussed for years, and whose goal is to relieve employers, but also to increase workers' wages.

For example, Croatia changed these so-called fiscal laws 15 years ago, Serbia 10 years ago, while the contribution rate in FBiH is higher than the European Union average, which has a negative impact on the cost of labor and wages.

The proposed new law on contributions reduces the gross burden on wages from 41.5% to 32.5% and creates preconditions for wage growth in the private sector. The newly proposed law will calculate the contribution for pension and disability insurance at a rate of 17.5%, health insurance at 13.5%, and unemployment insurance at 1.5%. A novelty is that currently non-taxable benefits such as meal allowance, transportation, and holiday pay will be taxed.

Due to savings on wage contributions, workers will not be at a disadvantage due to the taxation of other benefits.

What is good news is that future contribution payments on currently non-taxable items will be included in the pension base, which will ultimately result in higher pensions for workers.

When drafting the proposals for these two laws, the Ministry of Finance and the FBiH Government adopted numerous amendments from the business community and other interested parties.

Adnan Muminović, external economic advisor in the office of FBiH Prime Minister Fadil Novalić, explained to Patria that the new fiscal laws will aim to simplify the current system and make it more transparent, which would attract more foreign investors and be significant in the fight against the grey economy.

“Federation of BiH is currently the only territory in the whole of Europe where non-taxable benefits such as meal allowance, transportation, holiday pay, etc. still exist. It is true that these things will be taxed in the future, but the savings due to the reduction of the aggregate contribution rate will be more than sufficient to compensate workers for any loss and even increase their wages. Estimated savings for the economy are around 400 million KM annually. In addition, this means that workers will have higher pensions one day,” said Muminović.

Given the income tax which foresees the taxation of freelancer income, Muminović explains that they have paid contributions so far but have not been entitled to health insurance.

“Freelancers will, for the first time, be entitled to health insurance, which has not been the case so far. And everything they pay towards pension and disability insurance will be included in their pension base. They will indeed pay higher rates than is currently the case, but they will be the same as for all other workers in the Federation of BiH, and they will finally be able to enjoy the rights that are currently denied to them. In addition, the new Law on Crafts and Related Activities in the Federation of BiH, which came into force last year, offers freelancers new opportunities for business registration,” he says.

Those employed under work contracts and freelancers currently pay health contributions (4%) and pension and disability contributions (6%), but are not entitled to health insurance, nor does anything count towards their pension base. With the adoption of the new laws, they will pay 17.5% for pension and disability contributions and 13.5% for health contributions, only if they are not health insured on some other basis. If they are, they will only pay the pension and disability contribution.

Given the data in FBiH, the new laws will not cover almost half of the workers whose income is up to 800 KM.

“All income above that will be taxed at a rate of 13 percent, but the new solution will only be more expensive for about 5 percent of workers in the Federation of BiH who have high incomes. Although the tax deduction for children is abolished, the new proposal will be more favorable for large families who have, or plan to have, up to four children,” stated Muminović.

Given the public debate, Muminović pointed out that these laws do not provide for a tax on any savings or on interest on citizen savings, nor a tax on inherited or gifted real estate if it has been paid at the cantonal level, which is currently the case.