FBiH Government further reduces income tax and contribution rates

SARAJevo, (Patria) – Prime Minister of FBiH Fadil Novalić said after today's session of the FBiH Government that an important set of laws on notaries has been completed, enabling the obtaining of various permits and approvals that were pending. The Law on Union Representativeness is part of the Employers' Association's package of laws that will be forwarded to the FBiH Parliament. Minister of Finance Jelka Milićević explained that there has been a reduction in income tax.

“A solution has been reached whereby, due to the increase in the average salary, the threshold will be increased to 800 KM net salary, which will be exempt from income tax, and all others will be taxed at 13 percent. Within this law, we have expanded the base,” said Milićević. 

She explained that employers currently have a contribution cost of 41.5%, and with these amendments, they will achieve a reduction to 32.5%. 

“Our minimum wage was low, so employers used that. All employers with salaries paid up to 650 KM will have the same costs. Everything above 650 KM will have a lower rate. We have simplified the salary rates, three rates and three contributions, and it is simply easier for tax inspectors to control. I hope we will continue to lower these rates,” said Milićević. 

Novalić also spoke about the situation in the mines, stating that the mining sector is in crisis, and investments are large. 

“It would be very irresponsible to build blocks if the mines cannot supply those blocks for which loans and obligations must be repaid. We have said that the Banovići, Kakanj, and Kreka mines should be restructured, which means rationalization of operations, procurement, and servicing of debts,” said Novalić. 

Explanation of the FBiH Government's Amendments

The Government of the Federation of Bosnia and Herzegovina today adopted several amendments to the proposals of three laws that are in the parliamentary procedure, which will become an integral part of the laws and aim to create a more favorable business environment in the Federation of Bosnia and Herzegovina. The goals of the amendments (a total of 21) to the Bill on Accounting and Auditing in FBiH are to create conditions for more efficient work, reduce costs, and facilitate business. One amendment stipulates that in retail and wholesale establishments with frequent price changes, an inventory of assets is not necessary if inventory indicators can be provided through accounting records. However, the obligation to conduct an annual inventory of assets remains.

Regarding auditors, the amendments provide for the reduction of procedures and facilitation of their work by revoking licenses for a certain period and the obligation to submit an application for their extension after three years. However, conditions under which a license may be revoked have also been established. In order to relieve employers, among the nine amendments to the Bill on Contributions are two that reduce the contribution rate for pension and disability insurance by 0.5 index points, which is also the reduction of contributions for unemployment insurance.

Three amendments are related to the proposed reduction of the aggregate contribution rate by one index point, with 0.5 index points each for pension-disability insurance and unemployment insurance. In this way, the currently proposed aggregate rate of 32.5 percent consists of 18 percent for pension, 13.5 percent for health, and one percent for unemployment insurance.
As foreseen, the application of this law would begin on January 1, 2020. Through the proposed seven amendments to the Bill on Income Tax, the income tax rates have also been changed to 10 percent and 13 percent, and further regulated by the Law that all income, with the exception of income from capital investments, i.e., dividends, will be taxed at a uniform rate of 13 percent.

According to one of the amendments, income received by individuals - citizens in the form of gifts from their immediate family has been added to the income not included in the income tax base. Although this issue is regulated by cantonal regulations, this income is also included in the exempt income from income tax, with the aim of avoiding different interpretations of cantonal tax regulations and taxation of assistance received by individuals from their families.

Through the personal deduction, progressive taxation of income from non-independent and independent work has been introduced with the aim of protecting the so-called low income, which is set at the threshold of 800 KM, and the tax burden has been shifted to other income. The protection of income from employment, which amounts to less than 800 KM per month, through the introduction of a personal deduction, will be reflected as a zero income tax rate on earnings up to 800 KM. In this way, employees with earnings up to 800 KM are exempt from paying income tax.

As this is a tax law that requires application from the beginning of the tax period, i.e., the calendar year, a new deadline of January 1, 2020, has been set for its application.