Products supposedly intended for Kosovo Serbs are returned to Serbia and sold, providing tax-free income for some Serbs.
By Linda Karadaku and Ivana Jovanovic for Southeast European Times in Pristina and Belgrade -- 07/11/12
Serbia removed the VAT on products bound for Kosovo in 2005. [AFP]
Serbia must exercise greater control of goods sent to and returned from Kosovo to end tax evasion and smuggling, which have deprived the state budget of at least 300 million euros, economic analysts said.
In 2005, Serbia removed the VAT for products bound for Kosovo to provide the Serbs there with affordable goods.
Tax evasion soon mushroomed as many firms and individuals found that without strict border controls, they could easily return some of the goods to Serbia and sell them there without paying VAT.
Goods worth 840,000 euros are sent to Kosovo daily.
Commercial traffic through the border crossings in the north is concentrated at Podujevo and Gnjilane, so most of the goods enter Kosovo illegally via secondary roads, according to Kosovo customs officials.
"This situation is a reflection of the developments in the north and the road blockades," Adriatik Stavileci, spokesperson for the Kosovo customs office, told SETimes.
"Based on the information we have, there is illegal entry of goods through some secondary roads -- or through the 'green border' as we call it -- but obviously in smaller quantities since our customs officers were sent to the Number 1 and 31 border crossings," Stavileci said.
According to Tanjug, the abuses are possible due to the fact that the Tax Administration of Serbia, Kosovo Customs and EULEX do not share the records that could help determine the actual amount of goods imported to Kosovo.
Kosovo Serbs said removing the VAT was necessary economically to make Serbian products more competitive.
"If these goods were not made cheaper by 20 percent [by voiding the VAT], then goods from Croatia, Hungary or other places would have had to be imported," Marko Jaksic, vice president of the Association of Serbian Municipalities in Kosovo, told SETimes.
But economic experts argued that regardless of whether the decision to remove the VAT was political or economic, it allows very significant funds to slip through state coffers at a time of severe economic crisis.
However, instead of the Serbs in northern Kosovo benefitting from the VAT removal, individuals and companies in Serbia are taking the advantage.
"The country's integrity can not be protected by closing our eyes to the fact that Serbia has allowed tax evasion against itself …," Aleksandar Stevanovic, economist at Serbia's Centre for Free Trade in Belgrade, told SETimes.
"Serbia must begin controlling the goods entering and [leaving] Kosovo, together with conducting periodic control of companies that do business with Kosovo," Stevanovic said.