Experts say compliance with tax laws is essential, but governments must improve tax collection institutions and procedures.
By Muhamet Brajshori and Ivana Jovanovic for Southeast European Times in Pristina and Belgrade -- 18/04/13
Kosovo is trying to improve tax collection efficiency by using fiscal cash registers. [AFP]
Curbing tax evasion is a significant challenge for authorities in Kosovo and Serbia, where unpaid taxes are damaging government budgets and creating space for unfair competition across many markets. Experts are urging governments to improve tax collection institutions and procedures.
According to the UN Development Programme, tax evasion in Kosovo is primarily a result of two factors: the high costs of complying with convoluted rules and a large informal economy that operates safely outside the system.
According to the UN, tax evasion includes 30 to 40 percent of the country's enterprises.
Fatlum Gogiqi, executive director of Yellow Training Centre in Pristina, told SETimes there is still a fragile mentality when it comes to voluntarily declaring taxes, and there is inadequate staff within the institutions that collect taxes.
"Not voluntarily disclosing taxes by businesses results in a weak economy that Kosovo has now," Gogiqi said. "The denunciation of corruption and tax evasion by citizens enables the development of a healthy economy."
The government's primary goal, Gogiqi said, should be to build a tax system based on voluntary compliance, creating public confidence in the objectivity, competence and integrity of the tax administration.
He added that the Kosovo Tax Administration had a successful year in 2012. A fiscalisation system was introduced, including the installation of fiscal cash registers at businesses for tax collectors to monitor incomes. The country also added several time-saving services for taxpayers.
In Serbia, officials are also striving to increase the ease of the system for taxpayers. Laws aimed at increasing tax payments have significantly reduced the financial burden for businesses, instead generating revenue from VAT, excise taxes and taxes on profit.
"The law on abolition of some para-fiscal charges came into force in September 2012, while the tax on profit increased from 10 percent to 15 percent in January," Dejan Stojanovic, deputy director of the Serbian Tax Administration, told SETimes.
A law on conditional write-off of interest and tax debt provides businesses up to two years of tax debt inaction, but with the obligation to make regular payments of current taxes.
"In this way, taxpayers became ... fiscally relaxed while the tax administration is able to insist on regular tax payment in 2013 and 2014, as well as to take measures of enforced collection in situations of impiety," Stojanovic said.
Although there are some tax administration efforts to increase budget incomes, some remain unsatisfied.
Sasa Radulovic, owner of the economic consulting company EMarket, told SETimes that Serbia annually raises 5 billion euros through taxes on consumption and 4.5 billion euros through income taxes. Tax evasion occurs in both areas, but strong controls are helpful only when it comes to taxes on consumption.
"In order to control evasion of income taxes [such as social insurance for workers] it is necessary to catch workers who work at [unregistered] workplaces and get their testimony and confession that they receive money without paying taxes. Nobody wants to talk about this. If someone does, they'll lose these jobs or the company would be closed," Radulovic said.
"Serbia needs tax system reform," Radulovic continued. "Without this reform, all efforts for improvement of income taxes collection will be dead. Unreasonable tax cannot be charged. Expecting from someone who is earning 300 euros to give 120 to the state is unreasonable."
Serbian economist Branko Dragas said the solution for better tax collection is to decrease tax rates. "In order to stabilise the system and have better tax collection, the state should decrease current tax rates. The key is smaller rates, better payment."
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