Due to a ministry error, fuel distributors in FBiH pay more VAT into the state coffers

By: A. Aljović

The Federation annually pays hundreds of millions of KM more in VAT into the state coffers than the Republika Srpska entity. This practice is not only due to a stronger economy in the Federation but also due to some flawed legal solutions in this part of Bosnia and Herzegovina.

Companies from the Federation engaged in the sale of petroleum products have been paying VAT on the levy used to finance Federal petroleum reserves to the Indirect Taxation Authority of Bosnia and Herzegovina for almost three years, while distributors in the Republika Srpska entity do not pay such a levy and VAT.

Distributors of petroleum products from the Federation pay VAT on an entire levy more into the state coffers than distributors from RS.

This means that companies from the Federation of BiH annually contribute more to the functioning of Bosnia and Herzegovina's institutions than similar companies from the Republika Srpska entity.

It is estimated that petroleum product distributors from FBiH pay nearly two million KM in additional VAT annually, from which distributors from RS and Brčko District are exempt.

Patria has learned that petroleum product distributors from the Federation of BiH may soon initiate legal proceedings against the Federation.

One Fening per Liter of Fuel for Petroleum Reserves

The Law on Petroleum Products has been in effect in the Federation since mid-2014. According to this law, citizens pay one fening on each liter of fuel purchased, which is allocated to finance petroleum reserves in the Federation of BiH. The same law exempted this levy from VAT.

Just two months after the law came into effect in 2014, the Indirect Taxation Authority issued a different decision. The fening for petroleum reserves could remain, but it could not be exempted from VAT. The situation in the Federation of BiH is now such that petroleum product distributors, when selling fuel to customers, charge one fening per liter of fuel sold for petroleum reserves, as mandated by the Federal Law on Petroleum Products, and distributors pay VAT to the state on this levy because the ITA did not exempt the levy from VAT. The flawed legal solution from the Federal Ministry has disrupted the VAT collection system in BiH to the detriment of distributors from the Federation.

A Political Issue That No One Is Resolving

Only one oil company, whose representatives spoke to Patria, has paid several hundred thousand KM in additional VAT to the state so far, from which distributors from RS are exempt.

- The Federal Ministry of Energy, Mining and Industry, through its act of 11.08.2014, issued a clear clarification that the levy in the amount of 0.01 KM does not enter the base for VAT calculation, considering that its payment would disrupt the indirect taxation system in Bosnia and Herzegovina in such a way that citizens of FBiH would pay a higher amount into the unified account of the ITA compared to citizens of the other entity and Brčko District of BiH – explain petroleum product distributors.

- The Federal Decision was not in effect for long. The state law is older than the entity law, and it states that the levy for petroleum reserves cannot be exempted from VAT. Today, we pay VAT on the levy for petroleum reserves, while our colleagues in the Republika Srpska entity are exempt from this VAT – they add.

- We are asking the Federal Ministry of Finance to refund us the paid VAT amount, and also to resolve this issue as soon as possible, so that we do not have to seek VAT from the ministry on this basis in the future – further state the petroleum product distributors.

The Federal Ministry of Energy, Mining and Industry has known from the beginning that the VAT system in BiH is disrupted precisely because of this ministry's law, but they have not taken any action to resolve this issue so far. The issue of petroleum reserves in the Federation has become a political issue. The authorities in the Federation of BiH are knowingly overlooking the disruption of the VAT payment system. If they were to open this issue, it would mean that they would also have to change the system of financing petroleum reserves. The error of the Federal Ministry of Energy is currently being paid for by petroleum product distributors from the Federation, writes Patria.