How much burden can Bosnian entrepreneurs and workers bear?!

By Mr. sci. Ajka Baručić, Institute for Youth Development KULT

We are again the worst in the region. Not only have neighboring countries surpassed us, but we have even dropped two places in the rankings compared to last year. On 81st out of 190 countries worldwide. What is it all about? It's not surprising that the answer to this question is – about the economy, business environment, and opportunities for starting a business. This year's World Bank Report on Ease of Doing Business showed such results. Although this is frightening information, it did not overly surprise economic analysts, businessmen, or ordinary citizens of our country. Unfortunately, we have probably gotten used to it.

Did it surprise government officials? More importantly, did it worry them? Well, it should. The question arises again when businessmen will feel concrete, tangible, visible positive effects of the reforms being implemented. According to them, these effects are still absent. It is still not any easier for Bosnian businessmen to keep their businesses alive. Bosnian businessmen are persistently burdened by a difficult business environment, high and diverse taxes, numerous parafiscal levies, and since last month, also by paying taxes on meal allowances and employee bonuses. So, new burdens instead of relief!

In the following week, the proposals for amendments to the Law on Contributions and the Law on Income Tax are to be discussed at the session of the FBiH Government, with their entry into force expected from January 1, 2017. Initially, it was announced that these amendments would be implemented simultaneously with the amendments to the Rulebook on taxation of meal allowances and bonuses, in order to achieve a so-called neutral fiscal effect. However, with the amendments to the Rulebook on taxation of meal allowances and bonuses, a measure of taxing meal allowances above 8.5 KM was introduced from October 3, 2016, and employers have additional costs when paying bonuses greater than 400 KM, while the announced reductions in contribution taxes have been omitted and postponed to next year.

Employers and unions reacted strongly to this measure, albeit unsuccessfully. Some employers bore the burden entirely on their own, some shared it with employees, and in some cases, the burden is borne by employees whose taxable portion of meal allowance has been completely abolished or whose calculated tax has been deducted from their total net salary. Thus, the monthly income of employed citizens, mostly in the private sector, has been reduced by amounts of around 50-100 KM. Depending on the net salary, these are significant reductions on an annual level, and it is clear that they are more significant for those with lower salaries. Therefore, ultimately, the living standard and quality of life of the ordinary citizen are reduced.

Workers and employers hoped that the new amendments to the Law on Income Tax and the Law on Contributions would correct this injustice, even with the reluctantly accepted reduced salaries in the last three months of 2016. However, it is highly questionable whether the new amendments to the mentioned laws will even neutralize the salary reductions for workers and lead to relief.

In the past few days, and after the session of the Economic and Social Council of FBiH held two days ago, information has appeared in the public that these amendments plan to abolish income tax for net salaries up to 600 KM, but also to increase the tax from 10% to 12% for salaries above 600 KM.

Therefore, relief for some at the expense of others! Then, a reduction in the contribution tax rate from gross 41.5% to 33% was announced, but now an increase in the rates of contributions for Pension and Disability Insurance (PIO) and health insurance is also being mentioned! If these amendments are indeed realized in this way, it is questionable and worrying how much they will relieve the worker and employer, and whether they will relieve them at all. The almost complete lack of information among citizens and employers about all these changes is also worrying, as they often face them only when new measures are adopted and when they are presented with a "fait accompli".

The International Monetary Fund, which is visiting BiH with this intention during November, will also comment on whether the reform measures are yielding results. There are also domestic analysts who have divided opinions regarding the progress made by the Reform Agenda. However, what do all these analyses, graphs, positions, viewpoints, considerations, comparisons mean to the Bosnian businessman? The businessman thinks about payments, employees, fees, operating costs, utility fees... About deadlines.

About the tenth of the month. Every tenth of the month is the deadline for paying value-added tax for all products and services that the businessman sold in the previous month. Even for those that were sold, i.e., invoiced, but have not yet been collected from the buyer. Often, the period for collecting receivables from buyers is very uncertain and lasts a long time, even several months or years, or receivables are never collected. All of this significantly jeopardizes the businessman's operations, limits new employment, and stifles the growth and development of his business. Very often, businessmen borrow from banks to cover these costs, thereby further deepening the problem with high interest rates and difficulties in keeping up with loan repayment dynamics.

Finally, the question arises: how much burden can an employer and an employee, or an ordinary citizen in Bosnia and Herzegovina, bear? How far?! Is there hope that things will get better?! And how realistic is that hope? What does the Reform Agenda actually bring, and what else awaits us?!