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Serbian flat taxpayers left in limbo for a second year

A beauty parlour in Serbia. [Serbiainfo]

Some 250,000 small entrepreneurs in Serbia – ranging from hairdressers to dentists and lawyers – are in limbo, because the government has not cleared their tax application for the second year in a row. EURACTIV Serbia reports.

It is becoming more difficult for businesses to operate in Serbia, warn entrepreneur representatives, adding this is also detrimental to the country’s budget.

The right to a flat tax in Serbia is granted to small businesses and entrepreneurs, who are unable to keep their own books or whose operations would be significantly hampered by normal administrative tax burdens. Eligible firms can address the Tax Administration, which determines a fixed amount of taxes and contributions to be paid, regardless of how well the business is doing.

Eligible firms are usually self-employed entrepreneurs working independently. There are seven categories of flat taxpayers, starting with shoe cleaners, craftspeople such as goldsmiths and hairdressers, to medical doctors, architects and lawyers.

Estimates say there are between 220,000 and 250,000 flat taxpayers in Serbia, and that the revenue from their taxes adds up to more than half a billion euros.

An application for the flat tax is filed until 30 November of the current for the following year, and the Tax Administration is to issue a decision within 30 days.

However, flat taxpayers in Serbia last received their tax bills for 2014 and have been waiting for new ones ever since, without knowing exactly how much money they will have to set aside for the purpose for this year, and the last.

Meanwhile, they have to keep paying the tax based on the old tax decision, while the entrepreneurs who registered their independent operation in 2015 and 2016 have no tax invoice to base their advance payments on.

There is no official explanation as to why tax bills are so late. Various reasons were stated off the record, including the 2014 strike of lawyers who called for the reduction of the flat tax that was to be hiked drastically, the enormous work surrounding the calculation of taxes, as well as the forming of the new government after the election this past April and expecting amendments to the tax regulation.

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In the meantime, the Tax Administration has begun preparing decisions based on the current regulation, learned at the Tax Administration and the Ministry of Finance in October.

Uncertainty burdens entrepreneurs

Business Support Network director Dragoljub Rajić said that the practice in the EU, and in the region, in countries such as Slovenia, Hungary, Bosnia and Herzegovina and Macedonia, was different, i.e. that a taxpayer was not obligated to pay the tax without a bill, whereas in Serbia they are obligated to continue paying according to the old invoices.

Taxpayers are forced to arbitrarily determine the amounts they will pay and when the decisions come in late, the problem is the amounts that have piled up in the meantime, which is very difficult to pay all at once, Rajić told EURACTIV.

“For someone who works alone or has a small firm with two or three employees, that is a huge burden, because it’s difficult to accumulate money,” he said.

After a decision has been arrived at, Rajić recalled, the entire sum must be paid within a certain deadline, while an entrepreneur may request a sort of rescheduling, but the procedure takes several months and its outcome is uncertain, so in the end the entrepreneur must also pay the interest that has piled up over the course of those several months.

Rajić added that it was the authorities’ obligation to ensure cost predictability for entrepreneurs, which they neglected also to their own detriment, because the state budget suffered, too.

The state ‘should suffer the consequences’

Serbian Association of Employers President Nebojša Atanacković told EURACTIV that the Association insisted on changes that would be predictable for employers, adding that the state should suffer the consequences, just like the taxpayer.

“There needs to come a time when the state and the taxpayers will be equal, when the state will pay for its mistakes the same as the taxpayer,” he said and recalled that if a taxpayer paid a smaller amount of tax they were facing penalties and interests, whereas the state was not obligated to pay the interests if a taxpayer paid more.

“On one hand, we have the Year of Entrepreneurship, while on the other hand look at how we receive these new entrepreneurs – they are not being issued tax decisions, hence they cannot get necessary things such as loans and various applications,” said Atanacković.

The Serbian government proclaimed 2016 the Year of Entrepreneurship and foresaw a set of various programs of assistance to the entrepreneurs starting a business, or to those who have already somewhat developed it.

Difficulty in exercising rights

Rajić highlighted, as a major problem, the fact that tax bills also serves to regulate the payment of health care, pensions, and unemployment contributions.

That results in entrepreneurs having trouble verifying their health cards, because they cannot get a certificate confirming they have paid the tax, and spending a lot of time trying to verify their health cards, as many as two days according to some estimates, said Rajić.

“Even if you pay an amount higher than assumed, you cannot always get verification, because there is no decision to show whether you have paid more or are in debt,” he said.

He added that Serbia held the European record in the time someone spent fulfilling bureaucratic obligations because the owner of a small company spent up to “45% of their active working hours dealing with bureaucracy.”

Outdated organisation

Atanacković and Rajić said that as far as the delay in issuing decisions was concerned, the problem lay in the outdated organization of the Tax Administration, which lacked quality information systems and had to be modernized.

Rajić said that in opinion polls, businesspeople said that the Tax Administration is the worst organized administration in the country and added that the system was generally closed to communication with the economy.

He further said that delays in the issuing of flat tax decisions had been happening for 10 years now, and “have escalated over the last three, four years”.

“The system has difficulty functioning from the inside, because the number of businesspeople is bigger and the situation is more delicate than in the 1980s,” while the Tax Administration is still operating in the same way, said Rajić.

According to him, there were fewer procedures in the first half of the 2000s, while now the procedures and laws have multiplied.

Another problem is that operations eligible for the flat tax change frequently, every other year, added Rajić.

Preparing decisions

Representatives of the Tax Administration and Ministry of Finance told EURACTIV that “activities toward determining the amount of the flat tax, issuing decisions and determining the amount of social insurance contributions have started, and the decisions will first be issued to the entrepreneurs who registered their companies this year and the last”.

Tax Administration officials say that in early October, the institution was “provided with information support” for determining the flat tax for 2015 and 2016.

The Tax Administration’s reply to EURACTIV reads that until a new regulation is enacted, tax decisions and contributions will be determined in accordance with the current flat tax regulation.

The current regulation on detailed terms, criteria, and elements for the flat tax was enacted in December 2014.

The Ministry of Finance did not answer EURACTIV’s question as to when the regulation would be amended and what sort of changes were planned, nor did it provide data on the annual revenue from the tax.

According to the current regulation, the calculation of this tax takes into account the type of operation, average salary in Serbia, the city or town in which a shop or firm is located, number of employees, the age of the entrepreneur, market conditions, and area that work is undertaken.

For 2016, the right to the flat tax may be accorded to an entrepreneur whose total turnover in 2015 was less than 6,000,000 dinars, or around €48,700.

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