The shadow economy in Bosnia and Herzegovina has been seriously threatening the legal market for years, and the illegal trade in tobacco and tobacco products has had major consequences for budgets and the economy. Estimates show that hundreds of millions of euros are lost annually due to the “black market”, while the competent institutions and industry are trying together to suppress smuggling and protect public revenues.
Packs without excise stamps. Tobacco sold “on the black”. Goods that cross borders without the system. The shadow economy in Bosnia and Herzegovina has not been functioning on the margins for years, but in parallel with the legal market, and the trade in tobacco and tobacco products is the best illustration of this. Estimates show that countries in the region lose hundreds of millions of euros annually due to the illegal trade in tobacco. The highest price is not only paid by budgets, but also by businessmen, the labor market, citizens…
“According to our estimates, Bosnia and Herzegovina was losing over 500 million euros annually. That is really a lot of money,” says Darko Gašpar, BAT’s manager for combating illegal trade and fiscal policy.
“These funds are indeed used to finance many things that are important for our citizens. We know that pensions are practically financed because they have been transferred to the budget, various social benefits, the police, education, etc. So, from the mass of revenues, which also includes excise duties on tobacco and tobacco products, many things are financed through the budget at all levels of government in Bosnia and Herzegovina,” notes Ratko Kovačević, spokesperson for the Indirect Taxation Administration of Bosnia and Herzegovina.
And it is precisely the government institutions that say that smuggling is not just a matter of illegal sales but a direct attack on public revenues, but they emphasize the importance of harmonizing taxes in agreement with industry representatives.
“When you have this balanced approach, you have a situation where there is no damage to the state, on the one hand, i.e. you have public revenues at the level of expectations. On the other hand, you have an economy that can function and, at the same time, you have a disincentive for this sector called the ‘grey sector’ or ‘gray economy’,” emphasizes the Minister of Finance and Treasury of Bosnia and Herzegovina, Srđan Amidžić.
While the state is trying to close the space for the shadow economy, legal producers and distributors claim that without joint action there is no serious result because the illegal market not only destroys competition but also the entire economic picture of the country.
“You cannot take such steps without serious cooperation between the competent institutions and that is where this synergy occurred in Bosnia and Herzegovina, which is very important. And at one point in 2019 or 2020, it was recognized that there was a huge drop in revenue and that the black market, the illegal market for tobacco and tobacco products, had taken over half of the total market and that this money, needed by all citizens, was flowing into illegal flows,” says Zinaida Babović, “Japan Tobacco International”.
The consequences of doing business in the grey zone, experts warn, are not only visible in budget deficits. The grey zone also creates a distorted picture of the labor market because some money and jobs remain completely outside the system.
“This is a global problem that is unsolvable for at least the next ten years, the only question is how we can mitigate it,” warns labor market expert Dominik Raškaj.
And Bosnia and Herzegovina, at least in combating illegal trade in excise products, can serve as a good example.
“Bosnia and Herzegovina now and Bosnia and Herzegovina 10 years ago are two different stories. How did this shift happen? It happened because the Indirect Taxation Administration stopped the increase in excise duties, which automatically stopped the increase in product prices, so at one point we had a market in Bosnia and Herzegovina, which at one point was 12 billion cigarettes per year, which fell to 3.5 billion. The recovery in the last five years has been great, revenues are growing brilliantly and I think it is a synergy of industry and legislation, in the true sense of the word,” says Darko Gašpar, Manager for Combating Illegal Trade and Fiscal Policy at BAT.
This is also contributed by the active participation of citizens who, through the campaign of the Indirect Taxation Administration of BiH “Stop Smuggling”, can report the illegal sale of tobacco and tobacco products this year until the end of June.
“The only cigarettes that are legally sold in Bosnia and Herzegovina are cigarettes with an excise stamp that says the Indirect Taxation Administration and that have hologram protection, and if citizens notice that someone is offering them cigarettes that do not have an excise stamp or have an excise stamp from another country, it is illegal on the Bosnia and Herzegovina market,” notes Ratko Kovačević, spokesperson for the Indirect Taxation Administration of Bosnia and Herzegovina.
In a region that is still trying to catch up with European standards – the fight against the shadow economy is becoming much more than a fiscal issue. Every illegal pack means less money for budgets, healthcare and public services. And every closed smuggling route is the most important step in protecting the legal market.
