TAXES STIFLING THE ECONOMY

Replenishment of the state budget

AIM Banja Luka, January 31, 1997

Practically during the entire war the Army of the Republic of Srpska (VRS) "lived" mostly on donations of enterprises and purpose-specific production which it did not pay for. As a result of thus "sponsored" war the largest Banjaluka firms "Cajavec", "Vitaminka" and "Zitoprodukt" whose entire production was directed to the VRS, ended up with high uncovered claims. Instead of paying back the outstanding amounts to these firms and helping find resources for the revitalization of production, the state imposed additional taxes which they will not be able to meet.

This absurd leaked out when financial inspectors started making rounds of the communes so as to determine whether enterprises honoured their fiscal obligations towards the state. Auditing teams spent days inspecting financial documentation of enterprises usually for the preceding year or two. The results of their auditing caused consternation of enterprise managements. Their auditing reports stated that enterprises did not calculate and pay taxes for products and goods delivered to the Army of the Republic of Srpska as donations. Consequently, enterprises had to pay enormous taxes on goods they have given away as gift to that same Army. These taxes also included a special VRS tax.

The holding company "Cajavec", which was the largest VRS donor during the war, will "foot the bill". Engineer Aleksandar Iliskovic, member of the Management Board of this enterprise, does not hide his indignation and claims that nowhere else in the world are taxes levied on donations. The state owes this enterprise from Banjaluka some 40 million dinars (DM 13 million), and that is how much this company has invested in the RS Army. The state is not going to pay its debt but is, nevertheless, demanding additional taxes for the army. The most tragic in all this is that "Cajavec" also has to pay taxes on the amount owed to it by the state.

"The Management Board has come to the conclusion that we should sue the state for debts. But, our General Manager is a member of the SDS Executive Council, so that idea went up in smoke", says Iliskovic and goes on: "It is symptomatic that everything fell upon the firms from Krajina. In all other parts funds are being raised for the revitalization of production, while here what little production capacities are left are being systematically destroyed. It is easy to deduce that these firms have worked five years for nothing and ended up owing money. In dire straits are firms which planned to use the resources the state owes them to initiate the production", says engineer Iliskovic.

Professor Mladen Ivanic thinks that new taxes are closely linked with the coming into force of the Law on Privatization. "The more harm is done to the firms, the cheaper will it be to buy them up" says Ivanic. He cited the example of the Banjaluka "Dairy" (Mljekara) which from one of the most stable firms during the war, after the Dayton Agreement has declared bankruptcy. "Similar is the situation of "Levita" from Gradiska. One of the major donors during the war, it now has no money to pay taxes and it is uncertain how will this be resolved". In "Levita" we learned that the state debt to this firm amounts to DM 600 thousand, but the state is rejecting any offsetting of debts.

Among the firms greatest tax debtors are "Vitaminka" and "Zitoprodukt" from Banjaluka. We did not manage to talk to General Managers of these firms. Both are ranking high on the Banjaluka SDS lists, so that their attempt to evade us is quite understandable. During electoral campaign it was mentioned that the Republic of Srpska owed "Zitoprodukt" some 1,6 million dinars, while the amount these firm owe to the state amounted to 900 thousand. Despite all this, offsetting of debts is out of the question. The fact that "Zitoprodukt" supplied bread to the VRS free of charge and on countless occasions distributed humanitarian assistance, does not exempt it from paying taxes on what it gave away as present. "Vitaminka" has to pay taxes on the food it gave to the Army, so that once a successful factory, this firm is now on a verge of a collapse. Incidentally or not, "Vitaminka" is among firms planned for privatization and a certain private entrepreneur has already taken over all selling points of this factory and the purchase of production capacities at non-economic prices has already been initiated.

Since a large number of enterprises have found themselves in financial difficulties, the Government of the Republic of Srpska has adopted a new decree on the settlement of liabilities and claims through compensation. The newly appointed Minister Ranko Travar explained the decree with the fact that as a result of allocating supplies for the army and police, a large number of enterprises is not able to meet its tax obligations so that their position will be improved by offering them a possibility to compensate their claims from the state budget by their tax dues. "We hope that according to this Decree the majority of enterprises will be able to realize their rights by next January and thus create conditions for an unhindered and efficient operation and will in future be in a position to regularly pay the turnover tax", says Minister Travar. According to him the remaining claims from the state budget will be compensated to enterprises in the next two years in the amount of 50 percent of the total outstanding claims.

"In this case the state should pay the taxes for enterprises. Since the state has no assets in the budget, as the majority of the population lives from that same budget, these obligations are thus referred back to firms", says professor Ivanic adding that the only way out would be for the state to recognize the right of firms to full compensation. Economists claim that offsetting is only possible when a general manager knows someone "influential" in the Government.

That there are no more funds in the budget was confirmed by the Prime Minister Klickovic in a TV show late last year. He emphasized that there was money only for the priorities, such as socially most vulnerable population categories. According to an economic survey carried out by a group of professors of the Faculty of Economy in June last year, this covers 80 percent of the population of the Republic of Srpska. In that same show the Prime Minister announced that the building of a new Sarajevo and airport in Sokolac will also be financed from the budget. It is hardly likely that there are funds in that same budget for the compensation of taxes.

The Prime Minister Klickovic did not forget to mention foreign investments as a salvation for the hopeless situation of taxpayers. Novak Kondic, Minister of Reconstruction and Development, denied Prime Minister's words saying that prospective investors were only interested in investing in smaller firms, shunning the socialist giants like the plague.

A high government official, wanting to remain anonymous, explained the situation by large-scale shady dealings regarding donations to the Army. According to him, not even 20 percent of goods from the army dispatch notes reached the VRS. He said that the goods ended up in the hands of private businessmen.

Where will such tax policy lead enterprises is not hard to guess. Suspicions that tax stifling is but a perfidious mode of privatization might soon prove justified.

Igor Gajic