Macedonia Levies War Tax

The new tax became effective on July 1 and should provide an additional source of money to cover increased spending on safeguarding the Macedonia's threatened security and territorial integrity. It will remain effective for six months and yield DM80 million to cover the budget deficit. The move has been strongly criticized by the public.

AIM Skopje, July 3, 2001

Following a cabinet proposal the Macedonian Parliament approved the introduction of a war tax aimed at reducing the budget deficit caused by military operations. The tax became effective on July 1, and is planned to last six months and yield DM80 million. The tax applies to all domestic and foreign legal entities, freelancers, and non-government organizations. Budget users, state funds, the Red Cross, NATO, KFOR and foreign diplomatic missions are exempt. The war tax will also not affect salaries, pensions and other personal income, such as savings, checking and other bank accounts.

The 0.5 percent war tax will be payable on all cash and non-cash transactions. The same is the case with all transfers via bank accounts, or deposits in money transfers, banks and other financial institutions. The tax will also be paid for compensation deals, transfers of securities, cessions and assignations, on interest, on the opening of credit letters, issuing of bank guarantees, approval of loans, issuing of insurance policies and in the securities trade. As opposed to companies which will have to pay war tax at every corner, citizens will be taxed when buying hard currency, shares, and insurance policies and when interest is paid to them.

Finance Minister Nikola Gruevski told Parliament before the war tax bill was passed that the government was forced to resort to taxation to secure additional funding to cover special defense spending, and that this is normal in many countries that face similar challenges. Gruevski underlined that currently 18-20 countries have a similar tax, and appealed to the public's patriotism. The move was agreed with the International Monetary Fund and is supposed to reduce the budget deficit from 8 percent to 6.5 percent, which, in his view, was very important.

But few Macedonians agree with the chief treasurer. Negative responses and criticism are much more common.

The war tax was criticized by economic experts, business people and MPs. The basic common objection is that the government is squandering the national wealth and is wasting state funds non-transparently, making party officials rich, and that it did not hesitate to take money out of people's pockets and put additional strain on the already faltering economy. Independent economic experts are convinced that the grave condition the Macedonian economy has been in for quite some time was not taken into account even for a minute. The allegations of squandering are supported by numerous financial scandals in which political power-mongers were involved. One of these stories says that shortly before the tax was levied, Minister Gruevski bought an armored Chrysler sports utility vehicle, which cost DM300,000. The people are also disturbed by dozens of new Volkswagen Polos that are as of recently parked in front of other government ministries, and the fact that party officials, mostly of the VMRO-DPMNE and the DPA, are continuing with their onslaught on the most profitable companies and banks.

All critics of the war tax agree that it is absurd to squeeze those who have nothing, and they are the majority, for an additional DM80 million. And it is a big question whether the new tax will not be twice or several times bigger than planned. This is because the law says the same cash can be taxed twice or more times, depending on the channels it goes through, meaning that both the person who is paying and the person who is receiving will be taxed. In other words, the tax is cumulative. This is what particularly upsets merchants and other business people. The most threatened are those who have a big turnover and low profit, of which they would have to give one quarter to the state.

The Macedonian Chamber of Commerce has calculated that the new tax will yield a sum equaling 50 percent of what the economy lost in six months and 85 percent of what all companies earned last year in six months. The previous fiscal year ended with DM500 million in losses, up 38 percent over 1999. They stress that inflation may increase because producers will have to include the tax in their prices. They warn that the grey economy will again gain momentum. Many will try to avoid banking transactions, and will resort to paying and charging in cash. Business people, who are never consulted on any matter, bitterly say that the tax is not a means but an end, and an attempt to unscrupulously extract money earned by hard labor.

A number of independent economic experts warn that the deteriorating security situation is being abused and that companies are sinking ever deeper under the pressure of debts. Exports are decreasing, as well as industrial output and hard currency deposited in banks by companies. The damage of the four past months has been estimated at DM400-800 million, depending on what is included, that is, whether only direct damages of military operations are taken into account, or indirect ones as well. The Macedonian economy was already performing poorly when the crisis started, they say. A separate problem is what some experts believe will happen. The tax, they say, will not only be valid until the end of the year. The reason for that is simple: they claim there never was a single country that annulled such a tax once it was introduced.

Branka Nanevska

(AIM)