Income Tax for the Kosovo Budget

AIM Pristina, October 27, 2000

We shall perhaps drink a more expensive plum brandy and smoke more expensive cigarettes and will probably think twice before we stop at a gas station. According to a Decree, which has the force of law in Kosovo, from now on customs dues on these three articles will be much higher. True, this is not just the question of collecting funds for the Kosovo budget, but of placing import of certain articles under control. i.e. of ensuring a more rational import and consumption by means of customs policy.

Perhaps Mr. Ali Sadriu, as local Co-Chairman of the Central Fiscal Authority in UNMIK has the right to speak about stricter control of imports since Kosovo is already mostly buying from other countries. Even compared to other countries of the region, the local imports of various commodities are much higher than by some much stronger economies.

"We have managed to collect DM 7 million in one week, while in the first days of the customs service,(i.e. not more than a year) DM 200 thousand was collected in that same period", said Sadriu. According to his information, and in view of the fact that customs duties amount to 15 percent, it turns out that goods in the value of at least DM 50 million are imported each week. This can be explained by the fact that Kosovo is in the reconstruction stage and that it imports not only consumer goods, but also building materials or intermediaries for the restarted industrial production. The question is whether it is necessary for the Kosovo budget to also receive funds from other sources or only from customs duties and sales tax.

It is commonly believed that if each week about seven million German marks are cashed in on all border crossings, then in view of all other resources that come from donors it would not be necessary to burden various forms of economic activity in Kosovo with taxes and dues. On the other hand, however, Sadriu made it indirectly clear that seven million DM could not be counted on each week of the year.

It is true that the consolidated Kosovo budget originally relied on donations, customs and sales tax on imported goods. Until September 23, some DM 157 million flowed into the Kosovo budget from internal sources. According to experts, such trends prove that the Kosovars will meet their share according to the estimates given in the UNMIK's fourth column.

This year's Kosovo budget amounts to DM 437 million, which means that half of this sum is provided from local sources and another half from foreign donations. "This is not a budget, nor there could be any word about fiscal policy. Many internal sources have remained untapped and since no assessments have been made, we cannot speak about a real budget", said Sabri Kadriu, professor at the Faculty of Economy.

According to Tonny Preston Stanley, Co-Chairman of the Central Fiscal Authority and a representative of the international community, out of DM 437 million of this year's budget, 48 percent would be covered from internal sources, in which customs duties account for 96 percent. Nevertheless, Stanley was of the opinion that customs services have scored good results in their work, despite observed shortcomings.

According to Kosovo experts, customs policy is discriminatory. Until now Albania paid the highest price for this, since customs duties for goods coming from this country are 26.5 percent, on Macedonian goods 11.5 percent, while imports from Serbia are exempted from customs. Sabri Kadriu from the Faculty of Economy "is worried by the fact that at the time when the Albanians hoped that all border barriers to exchange with Albania have been finally removed, they are being burdened with new taxes and customs".

However, major corrections are planned in respect to this problem. By the end of this year all border crossings with Kosovo will be covered by customs control. Goods will be subject to same taxes no matter where they are coming from. According to Sadriu, already in October this year Kosovo has revoked all preferences of Macedonia which it enjoyed according to a previously signed Agreement with FRY, and all imports coming from Serbia will be subject to customs duties. On the other hand, Mr.Stanley thinks that Kosovars should not rely only on foreign donations, stating that they should create their own sources for the financing of budget operations. It is projected that the 2001 budget would amount to DM 450 million. Now donors, whose number is falling by the day, are promising only DM 150 million, while Stanley has calculated that twice as much has to be provided from domestic sources.

In other words, customs and sales tax will no longer be the only source of budget resources. The Central Fiscal Authority claims that many more sources would be introduced, i.e. that taxes on all earnings would be introduced in Kosovo.

Income tax and sales tax on real estate would also be introduced. "If we had documentation on the basis of which we could determine ownership, then owners would be liable to pay taxes on real estate", added Stanley. The decision on the payment of taxes on imports of oil and foodstuffs came into force on October 1 and will represent an incentive for domestic producers. Until now, oil and food were not liable to customs. Mr. Sadriu pointed to customs on fruits and vegetables which would be introduced as of next June as one of the novelties in the customs system of Kosovo. "We want to stimulate the production on the plantations of Kosovo so as to avoid importing vegetables from Macedonia while domestic products were being thrown away".

One problem with a political background is the income tax. However, according to UN decrees, their employees will not pay these taxes which would apply only to local staff. "Realistically speaking their number is not negligible. There are about 26 thousand registered firms and many governmental and non-governmental organisation working in Kosovo so that this number will be significant", told us sources in the Kosovo Chamber of Commerce and Industry.

All those who live off the budget claim that the projected Kosovo budget is too low. Doctors, educational staff, members of the Kosovo Protection Force, etc. say that "they have not quit working only because of their high moral standards, since wages are very small and unstimulative". According to the World Bank assessments, the consolidated budget of Kosovo is rather balanced and should not register any imbalances. A minus in the inflow or the increase of certain outlays would surely reflect on other categories. At the same time, however, experts of this Bank say that material status of educational staff and doctors in Albania, Macedonia, Montenegro, Serbia and Bosnia&Herzegovina is much worse than that of their colleagues in Kosovo...

AIM Pristina

Ibrahim REXHEPI