The proposed amendments to two key fiscal laws in the Federation of Bosnia and Herzegovina (FBiH) – on income tax and contributions, which the Federal Government sent to Parliament for adoption, should result in relieving the economy and creating conditions for new investments and jobs, rising wages and pensions.
An employee meal allowance
Namely, the FBiH government explains that the existing laws on contributions and income tax are outdated, inherited from the former state, dysfunctional and unadapted to today’s economic times, and that Croatia changed them 15 years ago, Serbia 10 years ago, and the Republika Srpska (RS) entity 7 years ago.
”The most important thing about the new Law on Contributions is that the cumulative contribution rate is reduced by 9 percentage points, from 41.5 to 32.5 percent. That was a negative thing for our economy and made us uncompetitive because it took a significant part of workers’ salaries and demands to reduce the rate has existed for at least ten years, so we are finally doing it,” Adnan Muminovic, advisor in the FBiH Prime Minister’s Office, said in an interview.
Another important change is the taxation of currently non-taxable benefits such as allowance for meal, transportation, and end-of-year bonus, as this is the practice of all European countries, but Muminovic points out that the savings due to reducing the cumulative contribution rate will be more than sufficient to compensate workers for any loss and also increase wages.
”That way, everything would be clearer and simpler for foreign investors as well. Workers sometimes see this as a direct blow, but everything they pay on the basis of contributions enters their pension base and they will enjoy a higher pension. Currently, in the FBiH, about 1.1 billion BAM is paid for non-taxable fees a year,” Muminovic stated.
There is no choice
When asked how much the total relief of employers will really affect the growth of wages, he answered that employers will have no other choice.
”If we take into account that people leave their current jobs and go to other jobs, but also abroad, employers will not have much space to do anything else,” Muminovic pointed out.
The child tax credit is abolished
The proposed new Law on Income Tax predicts that more than 90 percent of workers in the FBiH will pay less income tax, and the non-taxable portion of wages will increase from 300 to 800 BAM so that income up to 800 BAM will not be taxed. It is estimated that at least half of the workers in the FBiH will not have such an obligation.
Salaries above 800 BAM will be taxed at a rate of 13 percent. The tax deduction for children is abolished, but the new proposal is more favorable for households that have or plan to have up to five children.
