Every third mark from excise duties for roads spent on patching the budget

SARAJEVO, (Patria) - In three years, drivers in Bosnia and Herzegovina paid 637 million marks in road tolls for road maintenance, but less than 445 million was actually spent for that purpose.

An analysis by Transparency International in BiH showed that in the period from 2015 to 2017, 191.7 million was not allocated to road companies. According to this calculation, almost every third mark from road tolls for road maintenance was spent on patching the budget and repaying foreign debts, although the Excise Law clearly defines that this is earmarked money.

Drivers in Bosnia and Herzegovina pay one excise duty on each liter of fuel, the purpose of which is determined by the entity governments, and two road tolls whose purpose is already defined by law – one for the maintenance and construction of roads and the other for the construction of highways. Regardless of the legal provisions, in practice, the earmarked 0.15 KM for roads in the analyzed period did not end up in the accounts of road companies, as clearly shown by the official documents of the entity governments, and the difference between what was collected and what was invested in roads increased drastically year after year.

The Indirect Taxation Authority of BiH, along with all other revenues from VAT, customs duties, and excise duties, allocates road toll funds to the entities to their single accounts, and due to the specific way of redistribution between entities, local communities, and road companies, the money going to roads is incomparably smaller. The first reason is the growth of foreign debt, and the second is that the predictions that road companies would receive more than they were entitled to due to economic development and increased VAT revenues did not materialize. In fact, the opposite happened.

Federation of BiH

In the Federation of BiH, entity and cantonal road directorates do not receive 0.15 KM in their accounts, but 3.9% of what remains from total indirect tax revenues after the foreign debt of the FBiH Government is repaid. This is defined by the Law on Revenue Allocation[1] in FBiH, and the difference between the collected funds for road tolls and 3.9% of what remained in 2017 and was invested in roads amounted to 51.2 million marks. This is how much road companies in the Federation of BiH were damaged due to higher installments for the repayment of this entity's foreign debt. This is a debt that directly falls on the burden of the FBiH budget, but due to the specifics of the law itself, municipalities, cities, cantons, and road directorates bear part of the burden. However, road tolls, which represent earmarked income for road directorates, suffer the most, and due to their increasing share in the repayment of the FBiH debt, they have more and more problems repaying their own debts. This was one of the main reasons for the latest increase in road tolls, so drivers will have to set aside an additional 0.05 KM for this purpose.

Source: ITA BiH data and FBiH Government Framework Budget Document 

The 3.9 percent of what remains is further divided, with 60% allocated to cantonal road directorates and 40% to JP Roads of the Federation of BiH. Data from the Indirect Taxation Authority of BiH show that there has been significant growth in these revenues in recent years, but this has not significantly affected investments in road infrastructure. If the data from the ITA BiH are compared with the official data of the FBiH Government, it is clear that the portion received by the road directorates has remained almost the same despite the growth in road toll revenues.

Republika Srpska

The distribution of total indirect tax revenues in Republika Srpska is defined by the Law on the Budget System, such that 72% of what remains after servicing foreign debt goes into the RS budget, 24% to municipalities and cities, and 4% to JP Roads of RS. Among the total revenues distributed from indirect taxes is the road toll, but the difference between what drivers pay for this purpose and the 4% that remains is drastically increasing. Thus, last year, 26 million marks less money was invested in roads. The Government of Republika Srpska regularly states the amounts of allocated funds to the Public Enterprise JP Roads of RS in the Budget Execution Report, and the last three reports show almost the same phenomenon.

Source: RS Framework Budget Document

Due to increasing installments for the repayment of foreign debts, a smaller and smaller portion of the money collected as earmarked road tolls is deposited into the accounts of JP Roads of RS. Data from the Indirect Taxation Authority of BiH show that drivers in Republika Srpska paid 207 million KM in road tolls over three years, but the Government of RS invested 59.8 million KM less in roads.

Aware of this phenomenon, foreign creditors have requested that money from highway tolls be set aside in a separate sub-account of the ITA BiH, while money for roads has been used to patch budget holes for years. The latest excise law has only set aside an additional 0.05 KM for roads in a separate sub-account, while the remaining 0.15 KM will be distributed as before.

Source: ITA BiH data and RS Government Budget Execution Report

Thus, JP Roads of RS, in addition to money from the special sub-account, will continue to receive 4% of indirect tax revenues, but given that the RS Government will repay a record installment of foreign debt this year, the additional 0.05 KM will only compensate for the loss that this public enterprise should experience. This situation was one of the main reasons for the additional increase in road tolls, as this company is finding it increasingly difficult to meet its existing obligations.

- JP Roads of RS has so far failed to meet its obligations under the agreement with the EBRD, which may therefore demand immediate payment of claims. This is stated in the independent auditor's report, as the coverage ratio of debts should not be less than 1.1, and at the end of 2016, it was 0.53.

- In addition, a significant portion of investment expenditures has been suspended or slowed down due to a lack of financial resources. This fact indicates the existence of significant uncertainty that may raise doubts about the company's ability to operate on a going concern basis. The company's management believes that the company will secure the necessary funds to meet its due obligations with the support of the founder, according to the independent auditor's report.

Brčko District

Unlike the entities, which have legally determined the portion of road tolls that will actually be used for roads, the Brčko District of BiH does not yet have clear legal regulations, so it often happens that not a single mark from road tolls is invested in roads.

Republika Srpska and the Federation of BiH take 28% - 29% of road toll revenues to patch budget holes, while Brčko District did not direct 72% of the collected road tolls in the observed period to the competent Public Enterprise Roads of Brčko. Despite the fact that the Law on Roads of Brčko District (Article 57) clearly defines that money from the fee for roads from the retail price of fuel is income for JP Roads of Brčko, this company did not receive a single mark in 2015.

Source: ITA BiH and JP "Roads of Brčko" data

- Due to the lack of a decision on the allocation of the fee for roads of 0.15 KM, which would determine the procedure for redirecting these revenues to the accounts of JP Roads of Brčko, the Directorate of Finance has no basis to redirect these funds - states the response from the director of the Directorate of Finance of Brčko District.

This practically means that everything depends on political will and special decisions of the assembly of Brčko District. In the last two years, by decision of the Assembly, 2.7 and 3.7 million KM were transferred to JP Roads of Brčko, while in 2015, not a single mark was transferred out of the total of 6.8 million collected as road tolls. In addition to the Law on Roads of Brčko District, the agreement with international creditors also obliges the earmarked spending of these funds, but the money still does not go to the competent company. Financial and audit reports of JP Roads of Brčko, available in the Transparentno.ba database, show that significantly less funds are invested in roads, and the independent auditor also points this out in their report.

- The company generated revenues from the 0.15 KM road toll in 2016 on a one-time basis based on a decision of the Brčko District BiH Assembly in the amount of 2,700,000.00 KM. We draw attention to the provision on support for the Loan Support Agreement concluded between Brčko District BiH and the European Bank for Reconstruction and Development, which stipulates that Brčko District BiH will ensure that in each fiscal year, the revenues redirected to the Public Enterprise relating to road fees (road toll of 0.15 KM per 1 liter of fuel) and highways (0.10 KM per 1 liter of fuel) are equal to the amount collected by BiH in the name of Brčko District BiH - states the independent auditor's report.

Since there is no highway in the District nor a company responsible for managing highways, the highway toll also represents income for JP Roads of Brčko. This type of revenue is regularly directed to the Public Enterprise, which uses this money to service obligations and maintain the existing road network. Thus, paradoxically, in Brčko, money for highway construction is used for road maintenance, while money for roads is used for patching the budget. Despite these revenues representing a good starting point for the development of road infrastructure, investments have been lacking due to a shortage of projects and political will to regulate this issue. In recent years, the Assembly of Brčko District has directed only as much money to the public enterprise as was necessary to repay debts for existing projects, while the rest went into public spending.