BiH Increases VAT Rate After Elections

Bosnia and Herzegovina will very soon, likely immediately after the municipal elections on October 5, raise special duties on oil, cigarettes, coffee, and alcohol, and shortly thereafter, an increase in the value-added tax (VAT) rate will follow, announced the Deputy Minister of Finance of BiH, Fuad Kasumović.

In a statement reported by "Dnevni avaz" on Monday, he said that it is certain that the expected increase in duties will not be sufficient to fill the growing budget deficit. This implies that an increase in the current VAT rate from 17% to 20% or 21% has become necessary as losses in the budget must be compensated due to the gradual abolition of customs duties on imports from the European Union (EU).

Only in July, when BiH abolished customs duties on about ten percent of products from the EU, its budget had as much as 24% less funds than in the same month of 2007. From January 1, 2009, BiH plans to abolish customs duties on as much as 95% of the products it imports from the EU, and it is estimated that this will result in a budget deficit greater than 60 million euros. Kasumović warned that VAT must be increased also due to the increasing expenditures for financing public consumption.

The Deputy Minister of Finance of BiH explained that in recent months, salaries in the cantonal, entity, and state authorities have significantly increased, and these increases were not based on real economic growth. "Entities are competing to see who will increase the salaries of employees more, and the state has joined this race," said Kasumović. The fact that none of the prominent politicians in the country want to talk about the increase in VAT was explained by Kasumović with the assertion that it is an unpopular topic before any elections.

He also assessed that the tax increase will primarily hit the poorest segments of the population, calling such a policy "shameless and unacceptable." "In the end, it will happen that the people will be left without money, we will destroy the economy from the ground up, and only we who work in the state bureaucracy will have regular salaries and enjoy," he sarcastically concluded, the Deputy Minister of Finance. (H)