Isović for NAP: Tax Administration Conducting Analysis to Show Tax Burden by Municipality

The FBiH Government ordered the Tax Administration of the Federation of Bosnia and Herzegovina to suspend the collection of public debts from debtors with a majority state capital share, i.e., those founded by the FBiH Government and cantonal governments, Patria reports.

The FBiH Tax Administration had started collecting at least part of these debts a few days earlier. The debt of public companies in FBiH has grown to over 2 billion KM to date! And that is alarming!

The largest debtors are Željeznice FBiH (about 200 million KM in debt), GRAS Sarajevo (116 million), Rudnici Kreka Tuzla (110 million), University Clinical Hospital Mostar (55 million), Agrokomerc from Velika Kladuša (40 million KM)...

Šerif Isović, Director of the Tax Administration of the Federation of BiH, explains in an interview with the Patria news agency that the Tax Administration did not intend to fully block the accounts of companies. The goal, Isović points out, was to stop further borrowing by these companies but also to gradually reduce their debt. And there is room for that.

Patria: Small firms, large companies and public enterprises owe millions of KM to FBiH. The practice of managers of companies in FBiH is to look for „loopholes“ in the law and try to avoid paying taxes wherever possible. How much can the FBiH Tax Administration fight such problems if reforms are not carried out in the entire system in FBiH?
Which links in FBiH are the weakest when it comes to tax collection? 

Tax „loopholes“ can and should be resolved through tax reform. The FBiH tax system needs serious reforms. I believe that no reform can be as successful as needed if the legal framework is not regulated first. One of the prerequisites for a more successful operation of the Tax Administration is that tax laws are reasonable, comprehensive, do not produce ambiguity and vagueness, and that their quality minimizes the need for adopting by-laws, except only in the domain of technical implementation. 

Laws should not be changed frequently, because that means they were made by incompetent people, that they are not visionary, and on the other hand, such laws call into question the legal security of business. 

Tax system reform should lead to fairer tax burden, efficient and more rational tax collection, prevention of evasion of public revenues, increase of public revenues, directing tax incentives and reliefs towards contributing to the production of new values, exports, employment growth and development of society in general, ensuring long-term sustainability and stability of tax solutions to reduce the risks of non-payment, evasion and fraud, i.e., the uncertainty brought by any change in tax policy…

The tax system is one of the most important pillars of any developed and organized state, and if it is regulated and stable and functions well, it provides a good environment and opportunity for all other pillars that make up the state to be stable and function successfully. On the contrary, if the tax system is “unstable”, does not provide the necessary financial resources for financing state institutions, then the other pillars, important for the stability of the state, will be “unstable” because they will have scarce funding to perform their functions.

Patria: You have shown that you are very strict, sometimes it seems you have no mercy for non-payers. 
The FBiH Government asks you to collect debts from debtors, and then makes a decision to stop blocking the accounts of non-payers. Who is in charge here? What would happen if you actually blocked the accounts of mines and similar companies? Would those companies fail? On the other hand, can the problem be solved if its solution is constantly postponed? Do you have a compromise solution, something that would suit both debtors and the FBiH Tax Administration?

First of all, the Tax Administration did not block accounts as was attempted to be presented to the public and to mobilize forces against the Tax Administration, i.e., against the activities that the Tax Administration has been undertaking in recent days within its competence. The Tax Administration did not issue a decision under Article 52 of the Law on the Tax Administration of the Federation of BiH, in which case all funds and all inflows to accounts would be directed solely to paying the tax debt, thereby preventing the payment of obligations necessary for their smooth operation. 

The decision was made in accordance with Article 51 of the Law, which only limited the right to dispose of funds in the account. 

All entities to which such a decision was issued could work and, with the consent of the Tax Administration, pay all their obligations related to their activity, whether paying obligations to generate income or to perform their social function. 

These entities were not allowed to pay salaries and fees subject to taxes and contributions without simultaneously paying these obligations. They were also not allowed to pay obligations not related to generating income or performing a social function, such as procurement of fixed and current assets not related to business. Depositing funds, buying shares, stakes and other financial assets were not allowed, nor was the payment of profit, sponsorships, advertisements, donations, representation and the like allowed. This means that all entities to which this decision was issued could absolutely, with the consent of the Tax Administration, pay all obligations necessary for performing their social function or generating income. 

The debt of public entities has been accumulating over the last 15 years, and it is quite clear that these entities will not be able to pay the existing debt in a shorter period and under existing legal solutions. 

Activities in resolving this debt should be grouped into three main goals: resolving the existing debt, preventing the creation of new debt, i.e., the growth of debt, and rationalizing the operations of these debtors. 

The only way to resolve the existing debt is to pass a law that would regulate the payment of this debt. Otherwise, the alternative to this position would be „do nothing and sweep the debt under the rug“ or strictly apply existing legal solutions and initiate bankruptcy or liquidation proceedings, which in this case would certainly result in a significantly lower overall social effect, because creditors in bankruptcy usually collect up to 20 percent. 

Furthermore, measures should be prescribed to prevent the growth and creation of new debt in the future, and precisely, the Tax Administration's decision to limit the right to dispose of funds in debtors' accounts was one of the measures to prevent the debt from increasing, from growing, and to ensure that only the remainder of funds after settling necessary business obligations is directed towards paying the earlier debt... The Tax Administration, in order to resolve this situation, played an active role and proposed several solutions for resolving the debt and improving the situation...

Also, measures to regulate the debt must inevitably be accompanied by a reform of the debtors' operations, i.e., their more rational and efficient operation, because if any measures are created for these entities, they will not have a significant effect if the operations and management of these entities do not change. Confirmation of this statement is also the fact that previous laws in force have not had significant results. On the contrary, the debt of some of these entities has only increased...

Patria: Some economists believe that if the FBiH Tax Administration could regularly collect taxes, FBiH would not need to borrow from the IMF or commercial banks. Is that correct thinking?

The three key levers or instruments of economic policy are: monetary, credit and fiscal policy. Given that BiH has a currency board system that limits measures from the monetary policy part, and that credit policy also has certain limitations, it can be concluded that significant things can be addressed through fiscal policy measures, i.e., tax policy. 

The tax system is one of the most important parts of the overall economic system of any country and represents a significant means for achieving numerous economic, social, political and other interests. The tax system consists of legal regulations and the Tax Administration, and if it is ensured that these two elements function together to achieve a common goal and purpose, then it is to be expected that the need for credit funds, and thus IMF funds, will be significantly less. 

Tax reform should include reform of legal regulations and reform of the Tax Administration that will enable fairer taxation and more efficient work of the Tax Administration, and thus ensure public revenues sufficient for current consumption. With different budget spending, significant potentials can be provided towards stabilization and economic growth, because without economic growth there is no significant progress of society. 

BiH is a developing country and it would be frivolous to claim that our country, regardless of the efficiency of public revenue collection, will not need credit funds. However, these credit funds should be directed exclusively towards new values for capital investments, and not for current budget consumption.

Patria: How accurate are media reports that some parts of FBiH have so far been beyond the reach of the FBiH Tax Administration? Specifically, I mean western Herzegovina. Can inspectors knock on the door of any non-payer, no matter which part of FBiH they are located in? 

The Tax Administration strives to have the same attitude towards all taxpayers, regardless of what activity they perform and in which area of the Federation of BiH they work.  Tax inspectors are authorized to carry out control throughout the entire territory of the Federation in accordance with prescribed procedures. 

However, tax inspectors cannot be in all areas and with all taxpayers at the same time. Also, in inspection supervision, we have certain strategic goals. The Tax Administration is currently conducting an analysis of public revenue payments by municipality, which includes data from census results and which will show the tax burden on taxpayers by municipality, so that the strategy of inspection supervision and the work of the Administration will also be based on the results of this analysis. 

Also, all remarks about unequal treatment are reviewed and analyzed, and after that, according to the established results, the Tax Administration plans and carries out activities. For this purpose, the Administration continuously and publicly invites all citizens to report to the Tax Administration any irregularities related to the operations of both taxpayers and Tax Administration employees. 

Patria: It is obvious that the FBiH Tax Administration is mentioned more often in the media since you came to the head of the Tax Administration. Does this mean that the Administration is working much more now than before? How many inspectors does the FBiH Tax Administration lack? It is known that inspectors work a lot, some of them even on weekends. Are you all together too tired? 

I will not comment on the work of the Tax Administration before my arrival and I would not waste energy on that. My goal is for the Tax Administration to currently, according to its available capacities, maximally fulfill the obligations and tasks for which it is responsible. 

The Tax Administration has significant problems when it comes to human resources. According to the existing Rulebook on Internal Organization, 1,744 positions are systematized in the Tax Administration, and it is currently filled with 1,192 employees, so all employees of the Tax Administration are overloaded with the volume of work they perform. 

Objectively, the Administration needs a larger number of employees in all areas of work. When it comes to inspectors, they have made a great contribution to the work and affirmation of the Tax Administration through their activities. Currently, 210 inspectors are employed in the Administration, which is insufficient compared to the volume and complexity of the work they perform and the need to raise tax discipline to a higher level in all areas of business.