Serbia’s Fiscal Council skeptical of proposed tax incentives

New tax incentives will not help resolve unemployment or deliver a major blow to the grey economy, according to the Serbia’s Fiscal Council, the Serbian newswire B92 reported May 27.

“It is not realistic that the proposed tax relief alone will lead to a marked shift, channeling the labor force from the gray market into legal streams, or to a considerable drop in joblessness either,” the Fiscal Council noted, as cited by the newswire. “Therefore, it is not realistic to expect an increase in public revenues on these grounds.”

The Fiscal Council, an independent state organ that reports to the Serbian Parliament, also noted that a high unemployment rate in Serbia is of structural nature and requires, therefore, proper structural reforms which would ensure improvement in the labor legislation conditions more conducive to business and greater competitiveness of the domestic economy.

The Fiscal Council also does not agree with the lawmakers that pension contributions should be raised from 24 to 26 percent, while reducing health care contributions for the same amount, from 12.3 to 10.3 percent, at the same time.

“The proposed measures will not change the existing level of the fiscal burden and thus it will not have an impact on economic activity,” the Council noted, as cited by B92.

In mid-May the Serbia’s Minister of Finance Lazar Krstic proposed new legislation which would leave employers temporarily exempt from paying a part of their income tax and other contributions for newly employed in the period between June 2014 and June 2016. At the time, the minister said that the taxation exceptions, announced as part of the government’s package of new laws for the country’s economic recovery, should also be seen as part of the fight against the grey economy. Krstic also added that aside from tax breaks strict inspections of the labor office and the taxation administration office will be conducted.

“We will offer an opportunity to people who are being paid under the table to be registered properly, ” said Krstic, as cited by the Serbian newswire Tanjug. “The second propose of tax relief is to provide incentives for investors. Those that create new jobs will get 70 percent of taxes and other contributions from the state budget for the newly-employed.”