Draft Value Added Tax (VAT) Law on public debate

On the occasion of today’s session, the Government of the Republic of Serbia defined the draft of the Value Added Tax (VAT) Law (see the document) and submitted it to consideration on the basis of a large public debate. This Draft Law does not provide for the introduction of a new form of tax, but represents a substitution for the actual products and services sales tax, and it’s adoption will mark the end of the third and final phase of public finances reforms.

As the Minister of Finance and Economy, Mr. Bozidar Djelic explained during the press conference, the VAT means that “in each phase of the production/sales cycle, a tax will be paid on the part of the value of the product or service, added during that particular phase”. The introduction of the VAT will reduce the possibility of tax evasion, because of the mutual control, or, according to the Minister Djelic’s terms “everyone will control everyone”. The Vat introduction will make the tax collection more efficient, and the repartition of the fiscal burden more equitable, because it will be applicable to everyone in the production/sales cycle.

According to the dispositions of the Draft Law, the tax rate will be 20% – the same as the actual sales tax rate, and it provides for a unique tax rate – meaning that there will be no special tax rates introduced.

Answering to the questions of the press, the Deputy Minister of finance and economy, Ms. Milica Bisic said that, speaking in economics terms, there are no justifiable reason for a products/services price raise accompanying the VAT introduction, because it will be calculated at the same rate as the actual sales tax. Mr. Djelic added that the VAT introduction will result in modifications of minor importance, and emphasized that the VAT will not represent a strike on the citizens’ life standard.

Among all the advantages of the VAT introduction, Ms. Bisic also said that if all the taxpayers do not get prepared on time for the application of the new law, some taxpayers may face a problem, because the VAT requires – in it’s initial application phase, a larger amount of necessary liquidity. She also added that the new law application will result in a better fiscal burden balancing.

Ms. Bisic said that the Draft Law provides for a VAT introduction limit of one million dinars – explaining that this means that the taxpayer can enter the VAT payment system, only if he realized – during the precedent year, a total amount of business operations exceeding one million dinars. She added that the forthcoming public debate will determine whether the other taxpayers would be allowed to participate to this taxing system even if not complying with the mentioned criteria.

The third phase of the public finances reforms, going from September to December of the current year, should complete a general reform of the public finances. Besides the promulgation of the new VAT Law, the third phase of the reforms also include a reform of the local authority public finances – which is closely connected to the VAT introduction, as well as the further strengthening of the institutions in the public finances domain – through a consistent application of these systemic measures.

Minister Djelic emphasized that all the above mentioned is aimed to help Serbia to compensate all the deficiencies experienced in the past 12 years.

The public debate should last until the end of September, and it should involve economics experts, social partners and the consumers. The first round of the debate will take place tomorrow, 1:00 p.m. in the Serbian Chamber of Commerce. The adoption of the Law by the Serbian Parliament is expected in September, the registration of the VAT taxpayers will be carried out from October to December, while the official entry in effect of the Law is planned for the 1st January 2004. – when the Serbian fiscal system should be completely compatible with the EU standards.

The VAT has been introduced in all the European countries, except in Serbia and Bosnia and Herzegovina. VAT was also introduced in Montenegro. (see the presentation)