Tax framework in the Western Balkan countries an overview Warsaw School of Economics (SGH), 15/05/2017

Transcription

1 Tax framework in the Western Balkan countries an overview Warsaw School of Economics (SGH), 15/05/2017 Lejla Lazović-Pita, PhD School of Economics and Business, University of Sarajevo, BiH

2 Contents Introduction Historical background and main macroeconomic indicators Tax framework of Western Balkan countries Business surrounding and business opportunities Conclusions

3 Introduction According to the EC trade, Western Balkans (WB 6) include: Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Montenegro, Serbia, Kosovo Before entering the EU in July 2013, Croatia was also considered a Western Balkan country

4 Introduction Out of all Central and Eastern European countries, the Western Balkan countries have undergone the most turbulent period in the pre-transition and transition process Constant political uncertainty has direct effects on economic activity and performance of these countries We will analyse five WB countries (Albania, Croatia, BiH, Serbia and FYR Macedonia) Kosovo will not be analysed due to lack of long-term data and Montenegro due to lack of official comparable macroeconomic indicators (IMF)

5 Historical background and main macroeconomic indicators Most of WB5 come from similar macroeconomic circumstances (former Yugoslav states) However, they have entered transition process (transition shock) at different times (as early as 1992 for Slovenia unlike 1995 for BiH, or late 1999 for Serbia & Montenegro &Kosovo) Differences in macroeconomic performances are somewhat expected and can be comparable to pre-transition process

6 Macroeconomic issues What do you think are currently the major burning macroeconomic issues that WB5 face? Political uncertainty, high levels of corruption, ethnic tensions High unemployment especially high youth unemployment Significant public-private wage differentials

7 Historical background and main macroeconomic indicators Gross domestic product based on purchasing-power-parity (PPP) per capita GDP, Current international dollar ø ø ø Albania Bosnia and Herzegovina Croatia FYR Macedonia Serbia Source: IMF, World economic outlook database, april N.B. Data prior to 2000 ( ) for most WB5 countries is mostly missing.

8 Historical background and main macroeconomic indicators 70 Inflation, end of period consumer prices, %Δ ø ø ø Albania Bosnia and Herzegovina Croatia FYR Macedonia Serbia Source: IMF&WB database.

9 Historical background and main macroeconomic indicators Unemployment rate, % total labour force ø ø ø Albania Bosnia and Herzegovina Croatia FYR Macedonia Serbia Source: IMF&WB database.

10 Historical background and main macroeconomic indicators General government expenditures follow the trend of revenues 60 General government revenue, % of GDP ø ø ø Albania Bosnia and Herzegovina Croatia FYR Macedonia Serbia Source: IMF database.

11 Tax framework of Western Balkan countries Due to high public spending in most WB5 countries, an adequate tax policy is very important However, most tax reforms in the last twenty years were brought ad hoc and followed general suggestions and recommendations from the international financial institutions ( one size fits all )

12 Tax framework of Western Balkan countries For example, IMF advices could be summarised: Single, broad based VAT rate in the 10-20% range; Progressive PIT rates not exceeding 40%; Single, proportional CIT rate so that top PIT rate and CIT rate are equal (Stotsky, 1995) In terms of revenue collection, what is the most significant source of tax revenues?

13 Tax framework of Western Balkan countries Share of major tax types to total revenues, by country 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0% ø share of taxes on income, profits&capital gains ø share of taxes on goods&services ø share of SSC Albania ( ) BiH ( ) Croatia ( ) FYR Macedonia ( ) Serbia ( ) N.B. difference to 100% goes to other revenues. Source: IMF GFS statistics, except FYR Macedonia (national statistics)

14 Tax framework of Western Balkan countries If WB5 rely on indirect taxes in terms of revenues, namely VAT revenues, what are the VAT rates? Albania BiH Croatia FYR Macedonia VAT standard rate 2009 VAT standard rate 2013 VAT standard rate 2017 Serbia 2 0 Albania BiH Croatia FYR Macedonia VAT reduced rate(s) 2009 VAT reduced rate(s) 2013 VAT reduced rate(s) 2017 Serbia N.B. Croatia has another reduced VAT rate: 0% (2009); 5%(2013); 5% (2017). Source: PWC, taxes at a glance, 2009, 2013 & Deloitte tax highlights, 2017

15 Tax framework of Western Balkan countries The share of direct taxes (PIT, CIT) to total revenues is relatively low (on average 12%). Are the rates also low? Albania FBiH BiH RS Croatia FYR Macedonia Serbia Personal income tax rate(s) 2009 Income from employment 10% 10% 8% 15%-45% 10% 12% Personal income tax rate(s) 2013 Income from employment 10% 10% 10% 12%-40% 10% 12% Personal income tax rate(s)c2017 Income from employment 13%-23% 10% 10% 24%-36% 10% 10% Corporate income tax rate % 10% 10% 20% 10% 10% Corporate income tax rate % 10% 10% 20% 10% 15% Corporate income tax rate *% 10% 10% 18*% 10% 15% *reduced rate of 5% and 12% respectively for certain levels of turnover applies. Source: PWC, taxes at a glance, 2009, 2013 & Deloitte tax highlights, 2017

16 FDI net inflow in WB5? Business surrounding and business opportunities in WB5 Prior to 2000, the inflow of FDI (as % of GDP) was insignificant in all WB5 Foreign direct investment, net inflows (% of GDP) ø ( ) ø ( ) Albania Bosnia and Herzegovina Croatia Macedonia, FYR Serbia Source: WB database

17 Business surrounding and business opportunities in WB5 Bearing in mind that all WB5 are facing current account deficits and low FDI inflow, what keeps balance of payments balanced? Remittances 25 Personal remittances, received (% of GDP) ø ø Albania Bosnia and Herzegovina Croatia Macedonia, FYR Serbia Source: WB database

18 Business surrounding and business opportunities in WB5 Are these economies competitive? Results from the WEF Competitiveness report ( ) out of 140 countries The Global competitiveness ranking is based upon an index (GCI, 1-7) which consists of twelve pillars which are then organised into three groups: Factor driven economies (pillars 1-4); Efficiency driven economies (pillars 5-10); Innovation driven economies (pillars 11-12).

19 Business surrounding and business opportunities in WB GCI Instutio ns Infrastruct ure Macroecono mic environment Health and primary education Higher education and training Goods market efficiency Labor market efficiency Financial market development Technologic al readiness Market size Business sophisticatio n Innovatio n Albania BiH Croatia FYR Macedonia Serbia Source: WEF, 2016.

20 Business surrounding and business opportunities in WB5 Most problematic factors for doing business (executive survey) in 2016? - 16 areas and questions covered Factors (2016) Inefficient government bureaucracy Corruption Government instability Policy instability Tax regulations Tax rates Access to financing Inadequately educated workforce Inadequate supply of infrastructure Crime and theft Restrictive labor regulations Poor work ethic in national labor force Insufficient capacity to innovate Inflation Poor public health Foreign currency regulations Source: WEF, 2016.

21 Business surrounding and business opportunities in WB5 Results for WB5 in three areas: Albania (out of 16) BiH (out of 16) Croatia (out of 16) FYR Macedonia (out of 16) Serbia (out of 16) Tax rates 2 Inefficient government bureaucracy 1 Inefficient government bureaucracy 1 Inefficient government bureaucracy 5 Tax rates 1 Inefficient government bureaucracy 6 Tax regulations 5 Tax rates 2 Tax regulations 9 Inefficient government bureaucracy 2 Tax regulations 11 Tax rates 6 Tax regulations 4 Tax rates 13 Tax regulations 6 Source: WEF, 2016.

22 Business surrounding and business opportunities in WB5 WB Doing business report analyses ten areas: Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting minority investors Paying taxes Trading across borders Enforcing contracts Resolving insolvency

23 Business surrounding and business opportunities in WB Albania BiH Croatia FYR Macedonia Serbia Doing business rank Starting a business rank Legal form Limited liablity company Paid-in minimum capital requirement 0 Limited liablity company 1000 BAM (cca. 511 EUR) Limited liablity company Limited liablity company Limited liablity company HRK (cca EUR) 0 0 Paying taxes rank Europe& Central Asia OECD high income Payments indicator (number per year) 34,0 34,0 31,0 7,0 33,0 17,6 10,9 Time indicator (hours per year) 261,0 411,0 206,0 119,0 225,5 221,5 163,4 Total tax rate (% of profit) 36,5 22,6 20,9 13,0 39,7 33,8 40,9 Postfiling index (0-100) 83,0 47,9 97,9 84,2 94,0 71,9 85,1 Source: WB, doing business report, 2017.

24 Business surrounding and business opportunities in WB5 What is the position of the tax collection authority in WB5? Even though directly responsible for tax collection, tax administration reforms are usually left behind in the transition process They usually do not offer attractive or highly paid positions since they are civil servants (with high responsibilities) Tax administrations are mostly understaffed under Ministry of Finance s supervision

25 Conclusions and recommendations Since the outbreak of GFC in , WB5 face significant political and macroeconomic issues Relatively cheap labour force and closeness to EU markets might be opportunities for WB5 After reductions in public spending in most WB5, tax policy should be carefully tailored

26 Thank you for your attention! Questions&Comments? Lejla Lazović-Pita, PhD School of Economics and Business, University of Sarajevo, BiH