The government of the Federation of Bosnia and Herzegovina (FBiH), headed by Prime Minister Nermin Nikšić, stands at an important policy intersection. The fiscal reforms in Bosnia everyone has been talking about recently are not merely a series of policy adjustments; they are strategic decisions with far-reaching implications for the future of larger entity within Bosnia and Herzegovina. Their objective is to find answers to long-term economic problems and to establish a fairer and more efficient economic environment. The reforms to which the government is committed are evidence of a clear vision for the future: a state invested into its citizens’ welfare and economic stability.
It is of utmost importance to understand that the government must now operate with precise planning and clear execution. A fiscal reform of this magnitude can bring significant improvement of standard of living, but also the political benefits if implemented correctly. Conversely, the initiative could completely fail if the government does not implement online fiscalization swiftly and misses to adequately cover taxpayers or prevent typical VAT evasion strategies. The stakes are high, and the success of these reforms will depend on the government’s ability to address these issues effectively.
5 Key Takeaways of Fiscal Reforms in Bosnia
- Fiscal Reforms Planned: The Government of the Federation of Bosnia and Herzegovina (FBiH) commits to strategic fiscal reforms to address long-term economic problems and establish a fairer and more efficient economic environment.
- Precise Planning and Clear Execution: Prime Minister Nermin Nikšić emphasizes the need for precise planning and clear execution to ensure the success of the fiscal reforms, highlighting the importance of online fiscalization to prevent VAT evasion.
- Significant Raise of Minimum Wage: The government plans to raise the minimum wage to BAM1,000 as part of the reform package, aiming to stimulate economic growth by increasing workers’ disposable income and driving demand for goods and services.
- Online Fiscalization System Wanted: The introduction of an online fiscalization system is crucial for recording all business transactions in real-time, ensuring accurate tax collection, and reducing tax evasion. Additional Offline capability required!
- Revenue Authority Fortification: The government recognizes the importance of fortifying the Revenue Authority by increasing staffing levels and integrating advanced technologies to enhance tax compliance and enforcement capabilities.
Fiscal Reforms in Bosnia: Latest from the PM
In a recent interview for Dnevni Avaz, a local Sarajevo daily, Nikšić said: “We need to first develop, thoroughly plan, and test the entire process before implementation. This is crucial for the sake of taxpayers and workers, to ensure that business operations are not jeopardized by potential systemic deficiencies and to prevent any possible abuse to the detriment of workers.”
He also reminded that the Government of the Federation of Bosnia and Herzegovina is simultaneously working on three major reforms – the fiscal system, tax policy on earnings, and establishing the minimum wage as a legal standard.
“Every cog must function flawlessly for the reform to be implemented efficiently, successfully, and to the benefit of citizens and entrepreneurs. When we start the process, we want everyone involved to feel the positive effects as soon as possible, and this is only possible with a detailed analysis and elimination of all risks, as well as maximum involvement and readiness of all institutions,” Nikšić emphasized.
Certainly, the political course taken by the government is praiseworthy, as it shows a dedication to improving the economic landscape and providing better opportunities for its citizens. By focusing on strategic reforms, the government is laying the groundwork for sustainable growth and development. The government must continue on this path, implementing all measures with the highest level of efficiency and transparency. The citizens of FBiH will greatly benefit from these reforms, and the government’s efforts to create a more prosperous and equitable society should be encouraged and supported.
Economic Questions and the Need for Reform
As we have noted on the ground, Federation of Bosnia and Herzegovina has faced long-standing economic problems, including high unemployment, a large informal economy, and widespread tax evasion. These issues have stifled economic growth and hindered the government’s ability to provide improvement of essential services to its citizens. The fiscal reforms in Bosnia being proposed aim to address these considerable difficulties by creating a more equitable and transparent economic environment. The introduction of an online fiscalization system is central to this effort, as it promises to improve tax collection, reduce evasion, and ensure that the government has the resources necessary to support its main fiscal reform initiatives.
“In the current economic environment, it is essential that tax reform is put in the broader context of reviewing the expenditure side of the government budget,” said Prof. Dr. Jeffrey Owens, Head of the Vienna University Global Tax Policy Center of the Institute for Austrian and International Tax Law. Professor Owens confirmed for the RegTech that “achieving better tax compliance will be easier if citizens perceive that the government is delivering the services they want in an effective, fair, and transparent manner.”
Fiscal Reforms in Bosnia: Raising the Minimum Wage to BAM1,000
The government’s decision to raise the minimum wage to BAM1,000 is one of the most significant components of this reform package. This initiative is not just about improving the standard of living for workers; it is also a key strategy for stimulating economic growth. Subsequently, higher wages mean that workers will have more disposable income, which in turn most likely drives demand for goods and services. This increased demand is expected to encourage businesses to invest and expand, creating a virtuous cycle of economic growth.
However, it is essential to recognize that raising wages alone will not be sufficient to achieve the desired economic outcomes. The government definitely understands this as it plans to address the structural issues that have obstructed economic growth in the past. This includes already mentioned: reducing the burden on businesses by lowering social contributions and implementing a modern online fiscalization system to improve tax compliance and increase the collected tax revenue.
Fiscalization – a Motor for Fiscal Goals
The introduction of an online fiscalization system is essential to the Federation of Bosnia and Herzegovina’s fiscal reform efforts. Fiscalization involves recording all business transactions in real-time, ensuring that sales are accurately reported, and taxes are properly collected. The urgency of implementing such a system has become increasingly evident, as the current fiscalization law has proven ineffective in ensuring taxpayer compliance, allowing widespread tax evasion to persist.
The government recognizes that the success of these reforms depends on the timely and comprehensive implementation of the online fiscalization system. This system must be in place fairly quickly – possibly within six months since enactment, with coverage extending to all taxpayers, including those operating within the informal economy. This inclusion is vital, as the informal sector represents a significant portion of economic activity that has largely evaded taxation under the current system.
A Failure Jeopardizes the Entire Reform
A failure to meet these objectives would jeopardize the entire reform effort. Without effective online fiscalization, tax evasion will continue to erode the government’s revenue base, and the goals of the fiscal reform will remain unmet. The government cannot afford delays or partial implementation; it must ensure that the system is fully operational, comprehensive, and robust enough to address the challenges that have plagued the current framework.
The implementation of this system is more than just a technical upgrade. It is a necessary measure to ensure that the government can collect the taxes it is owed, thereby strengthening its revenue base and enabling it to fund essential public services. Moreover, it sends a clear message that tax compliance is non-negotiable, and that all economic activities will be subject to the same standards of accountability.
Finally, the government’s ability to implement the online fiscalization system effectively will be a decisive factor in the success of its broader fiscal reform agenda. It is evident that the time to act is now, and the government must show its commitment to this critical reform with tangible deliverables.
Fiscal Reforms in Bosnia: Role of the Revenue Authority
On the other side, the Revenue Authority is a pillar in the effective implementation of the online fiscalization system, yet it is currently grappling with significant issues. The recent election process of a new head of the Authority has created an atmosphere of uncertainty, coupled with a critical shortage of labor that hampers the organization’s capacity to enforce tax compliance.
Although heavily invested in being in the field and communicating their work on the ground to the wider public, lack of manpower has resulted in enforcement gaps, allowing non-compliant businesses to operate without proper oversight, thus undermining the very goals of the current VAT system. The Authority’s current state is a bottleneck in the broader effort to modernize the tax system and secure much-needed revenue for the Federation of Bosnia and Herzegovina.
Fortifying the Revenue Authority
To mitigate these issues, the government is taking decisive steps to fortify the Revenue Authority. Increasing staffing levels is a key component of this strategy, ensuring that the Authority is sufficiently equipped to meet its enforcement responsibilities. Additionally, there is a strong emphasis on enhancing the skills and capabilities of the existing workforce through targeted training programs. These measures empower the Authority to adopt a more assertive stance in ensuring that all businesses, regardless of size or sector, meet their tax obligations. A more robust and proactive Revenue Authority is essential not only for closing the current gaps in enforcement but also for restoring public confidence in the government’s ability to manage fiscal policy effectively.
In tandem with these human resource improvements, the government should also explore the integration of cutting-edge technologies into the fiscalization framework. Introducing advanced tools already successfully used in other jurisdictions in Bosnia and Herzegovina (Republic of Srpska), such as secure blockchain transactions and machine learning algorithms, could revolutionize the way the Revenue Authority monitors compliance. These technologies would enable more precise tracking of transactions and help identify patterns indicative of tax evasion, thus significantly enhancing the Authority’s ability to root out non-compliant taxpayers. By positioning the fiscalization system at the forefront of technological innovation, the government can ensure that it remains resilient and effective in the face of evolving challenges, ultimately securing a more stable and transparent revenue base for the country.
Customer Compliance Award Program – A Game Changer
Going further, Customer Compliance Award Program should stand as a pivotal strategy in enhancing tax compliance and fostering a culture of accountability within the economy of FBiH. This innovative program invites customers to actively participate in the fiscalization process by requesting and collecting fiscal receipts for every purchase they make.
These receipts, which are crucial for verifying transactions, would serve as entries into a loyality or lottery system with prizes awarded to incentivize participation. Businesses themselves or the Ministry of Finance and the Revenue Authority could potentially manage and sponsor the program. The program could motivate consumers to ensure that all taxpayers issue proper receipts for all transactions, thus reinforcing the integrity of the fiscal system.
Culture of Transparency and Fairness
By integrating a customer-driven approach to fiscal compliance, such a program would build a culture of transparency and fairness. When consumers actively request and verify their receipts, they become informal inspectors of the fiscal system, contributing to a broader culture of accountability. The public’s active participation discourages businesses from evading taxes and creates a more level playing field where all businesses must adhere to tax regulations. The goal is to bridge the gap between the government’s enforcement efforts and public cooperation. This approach makes it harder for businesses to engage in tax evasion and rewards those who support the compliance effort.
Moreover, the program’s impact can extend beyond just increasing compliance rates. By reducing the informal economy and enhancing the government’s revenue base, it provides the necessary financial resources to support other aspects of the fiscal reform agenda. Through these combined efforts, the Customer Compliance Award Program will significantly contribute to a more equitable and efficient Bosnian economic system. It will drive forward the government’s broader goals of economic reform and sustainable growth.
Fiscal Reforms in Bosnia: Offline Capability Essential to Fight Tax Evasion
As the Government prepares to launch its new online fiscalization system in foreseeable future, the inclusion of offline capability emerges as a critical feature with significant implications for the effectiveness of tax compliance measures. In a country where internet connectivity can be unreliable, this feature records and reports all business transactions, even in areas with poor or intermittent internet access, addressing a crucial gap.
The offline capability maintains the integrity of the fiscal system and prevents businesses from exploiting connectivity issues to evade taxes. By enabling electronic fiscal devices to store transaction data locally during periods of internet unavailability, the system ensures that no sales go unreported. When the internet connection is restored, the system uploads the stored data to the central system. Therefore, this ensures that the system accurately reflects all transactions and contributes to the government’s revenue base. This continuous recording process prevents businesses from claiming that technical difficulties caused their transactions to go unrecorded, thereby reducing the potential for fraud.
Finally, the government shouldn’t oversee the implementation of this feature as it is crucial to its commitment to a robust and reliable fiscal system. Deciding to skip this system capability can deeply hurt the fiscal system’s resilience, lower essential compliance numbers, deliver underachieving monetary results, and, ultimately, shatter the entire Fiscal reform.
Addressing Communication Challenges
One of the most pressing concerns now has been the government’s communication strategy regarding preparatory activities. It seems that the government has faced significant difficulties in clearly and consistently conveying timelines and action plans, leading to repeated delays and missed deadlines. This is rather unfortunate, as such a behaviour erodes trust and contributes to uncertainty among businesses and citizens alike. While some skepticism exists about the successful execution of the reforms, the government can quickly address this by publicly presenting a clear roadmap for the reforms and promptly delivering on transparent milestones.
Recognizing the importance of effective communication, the government must ensure that it’s messaging clearly outlines the benefits and obligations associated with the fiscal reform package. Businesses must fully understand their responsibilities, particularly regarding the collection and remittance of VAT. They must understand that the collection of VAT is a state-mandated duty and that any failure to comply will have serious repercussions. Similarly, the government must actively engage and motivate citizens to participate in the customer compliance award program. Only by effectively communicating the objectives and requirements of these reforms, the government can build trust, enhance compliance, and drive the successful implementation of its fiscal agenda.
