Millionaires from Parliamentary Seats and Fairy Tales about Lower VAT

By: Amina Čorbo-Zećo

Politicians in Bosnia and Herzegovina have been successfully surviving on populist topics for years, using them to ride through three or four terms, comfortably seated in parliaments. One of the longest-lasting examples of such rhetoric is the story about introducing a differentiated VAT rate.

The dream of "fairer taxation," as many like to call it, was finally shattered today. After a meeting between the leaders of the International Monetary Fund (IMF) and representatives of the Indirect Taxation Authority of BiH, it is clear that there will be nothing from multiple VAT rates.

The proponents of such initiatives know this well themselves, but they do not miss the opportunity to say what the public wants to hear, even though they are aware that such ideas will never come to life in practice.

The recent amendment to the VAT Law served as a new occasion to revive ideas about introducing a lower rate for basic foodstuffs and a higher rate for luxury goods. However, international and domestic fiscal experts clearly state that the current system of a single VAT rate in BiH functions stably, efficiently, and transparently.

During today's visit of the IMF delegation to the Indirect Taxation Authority of BiH, representatives of that institution explicitly warned that introducing multiple rates would require complex technical solutions, additional administrative capacities, and significant costs with a real risk of revenue loss.

Economist Admir Čavalić clearly stated back in 2022 that the story about a differentiated rate is just a "political smokescreen." But it is still smoking today. Citizens almost believe in the fairy tales of populists.

"If a differentiated VAT rate is introduced, it would mean the collapse of the budget in Bosnia and Herzegovina. That is why I am skeptical that anything will happen on this issue. The state does not like to give up its own revenues, even if it records records in that regard due to higher prices," Čavalić said at the time.

And while the idea of a lower VAT rate for bread and milk sounds appealing to voters, politicians are aware that such a move would seriously jeopardize the country's fiscal stability. Therefore, everything, at least for now, boils down to the already known matrix of pre-election promises and false concern for citizens without concrete plans and readiness for implementation.

In a country where the fiscal framework rests on fragile political consensus, and the entity structure slows down even the most basic reforms, the chances of Bosnia and Herzegovina getting differentiated VAT rates remain more theoretical than real. And they only serve to win new mandates for those who, having sat in parliaments for years, have long since become millionaires by selling fairy tales to the people.