IMF Warning: Indirect Taxation Authority Must Remain Unified

(Patria) - Andrew Jewell, Resident Representative of the International Monetary Fund in Bosnia and Herzegovina, commented on the announcements that Republika Srpska will withdraw from the agreement on the establishment of the Indirect Taxation Authority of Bosnia and Herzegovina.

“The Government of Republika Srpska has announced its intention to withdraw from the Indirect Taxation Authority (ITA). Setting aside the legal issues, which the International Monetary Fund is not in a position to comment on, we believe such a move would have significant economic consequences. The ITA is one of the most successful institutions in Bosnia and Herzegovina (BiH). The indirect taxes collected by the ITA are the most significant source of revenue for the governments of the Federation of BiH, Republika Srpska, and Brčko District of BiH. These revenues are used to finance schools, hospitals, build roads and highways, and pay pensions. Except for 2020, when we were hit by the pandemic, these revenues have shown steady growth in recent years. With the economic recovery, we expect revenues from indirect taxes to reach their highest level ever this year.

This proven framework for collecting and distributing indirect taxes would collapse if Republika Srpska withdrew from the ITA. Bosnia and Herzegovina would then likely return to the situation before the ITA was established, when tax competition between entities and widespread tax evasion reduced revenues across the country. Lower revenues in this case would jeopardize the key services that governments currently provide.

The dissolution of the ITA would also jeopardize the timely servicing of Bosnia and Herzegovina's external debt, which the ITA currently ensures through an automatic mechanism isolated from political interference. Even if the entities remain committed to servicing their obligations, the transition from this proven mechanism would likely weaken investor sentiment and increase borrowing costs.

For all these reasons, we encourage the authorities to preserve the integrity of the Indirect Taxation Authority. The ITA, like the Central Bank, is a pillar of the economy that serves the citizens of Bosnia and Herzegovina well,” the IMF stated.