Reforms: Taxes and power are eternal, as long as there are sheep, there will be wool

By: Izudin Kešetović

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If the Document being drafted by those who aspire to form government in FBiH is to be believed, "comprehensive fiscal reforms" await us. They are "Bascara" budget-wise. Although "Bascara" is difficult. All in all, the point is taxes. How does this seem to the ordinary person? It is very difficult to present. Every government strives to retain the right over taxes. If we know what our government is like, then the question arises what are the taxes like. As they said, they want "comprehensive reforms".

Republika Srpska is not a state, but what remains is the truth, unfortunately, Republika Srpska has full fiscal sovereignty. The issue with VAT is a technical matter. The principle of consumption is fully represented. This is cemented like reinforced concrete. Let everyone interpret what this means for themselves. Therefore, the distribution of public revenues for RS is marginal. It is problematized for political reasons. The essence is different. It is similar to reading a water meter or an electricity meter. Nothing harder or easier when you have invoices and a payment system that follows financial transactions, everything is clear. The problem is in the Federation of BiH, if the Brčko District, which is "fed", is excluded. What does the system in FBiH boil down to? It boils down to the story of fiscal discipline and fiscal federalism.

What is that? First, fiscal discipline implies achieving fiscal goals. The goals are defined by policies. The realization is up to the tax administration. And that's the point. Fiscal federalism implies fiscal equalization. As we have already said, there is none at the entity level. There is only for Brčko District. The RS entity applies its own model of vertical and horizontal equalization. How good or bad it is is a matter of their model.

On the other hand, we have cantons, cities, and municipalities in FBiH. The model of revenue attribution we have is outdated within the given period of temporary status and should have happened within 6 years of VAT introduction. Unfortunately, it has not happened in the next 10 years. Therefore, the question arises about further reforms. Let's go in order. First, those at the entity level are cemented. Existing constitutional and legal solutions do not allow it. Solutions are possible at the entity level. In RS, that story has its course. In FBiH, it is standing still and regressing. The latest change in weights has no professional basis. Therefore, the starting point for reforming the fiscal system in FBiH should be below zero. Since everything is happening in real-time and under political demagoguery, the infamous taxation of gambling and the attribution of public revenues will come into play. From a professional standpoint, everything is clear. The question remains what is behind it.

If the third entity is behind it, then the logic of things would be the same as with RS. If not, then the order of things must be different. It must spread upwards and downwards, so-called vertical and horizontal equalization. Upwards would be according to the principle of fiscal separation towards state institutions. Downwards would relate to local administrations and self-governments. Therefore, let's conclude this story that "has no end".

A comprehensive fiscal reform is a difficult issue for the government. We are left to see if it will be approached. Logically, taxpayers should be asked. In these elections, taxpayers did not express their opinion on this issue as voters. The election results looked more like a population census based on ethnic affiliation. Therefore, the logic of things suggests that the processes of "comprehensive fiscal reform" will unfold differently. Of course, as will budget policies. The two are connected like "a bar and a drum". Speaking of drums, the logic of things is that "the bear will dance in front of every taxpayer's house". If we are to judge by what we have seen, everything will be according to the story of the bear and the rags. Taxes and power are eternal. As long as there are sheep, there will be wool.