Improving ITA through Cooperation and New Technology
Sarajevo, 27 April 2012 - The Indirect Taxation Authority (ITA) is one of the most important state-level institutions in Bosnia and Herzegovina. Revenues collected from indirect taxes, which include VAT, excise taxes, tariffs and tolls, finance over 70% of the budget of the institutions, bodies and agencies of Bosnia and Herzegovina’s multiple levels of government. This statistic speaks to the importance of ITA as an institution, but also to the critical role and responsibilities of its Director, who oversees the institution’s 2450 employees. This seemingly large number of individuals covers each of the country’s border crossings and customs offices, as well as ITA’s Tax Sector, which supervises more than 50,000 taxpayers within the VAT system. Thus in reality, the ITA actually seems understaffed. Given ITA’s significance as an institution, EUPM Mission Magazine authors took the opportunity to speak with ITA’s Director, Dr. sc. Miro Džakula.
We first asked Dr. Džakula about his regular tasks, responsibilities and priorities: Between 2005 and 2011 a number of opportunities were squandered and time was wasted that should have been used to improve the quality of ITA as an institution. Thus it is logical that I – in cooperation with my colleagues – am focused on working quickly and efficiently towards achieving our operational and strategic initiatives. One of these is developing a new system of administration and systemizing tasks, which will in turn increase the level of responsibility each and every employee of ITA currently holds. I would like to emphasize that ITA is one of the key institutions that ensures Bosnia and Herzegovina's financial stability. As such, we expect support for our work from all levels of government.
VAT in Bosnia and Herzegovina
The VAT system was introduced in Bosnia and Herzegovina on 1 January, 2006 and to this day represents one of the most successful reform efforts in this country. Director Džakula believes that VAT has served to stimulate foreign investment in Bosnia and Herzegovina, as it introduced a baseline for business undertakings and united the country's economic space. At 17%, Bosnia and Herzegovina's VAT represents one of Europe's lowest rates and ensures investors by providing the possibility to recover VAT on their investments. This, in combination with Bosnia and Herzegovina's economic potential and natural beauty, makes the country a prime destination for foreign investment. Unfortunately, foreign investment in Bosnia and Herzegovina should have been significantly higher over the past few years according to ITA’s Director: During the coming period, ITA will do everything within our power to contribute to increased foreign investment. However, I must note that the single most important factor that prevents foreign investment is political instability in the region.
Bosnia and Herzegovina's relatively new VAT system replaced the former “turnover” tax system, which proved to be highly insufficient due to the fact that tax liabilities were paid last. VAT, on the other hand, allows for liabilities to be paid immediately after goods have been imported to Bosnia and Herzegovina. Next, through internal trade, each taxpayer pays an established tax on the value added for the further supply of goods and services. As a result, the transition to VAT has resulted in a more efficient tax system, which provides opportunities for significant growth in revenue.
In 2011, the ITA reported the highest recorded collections of gross and net income since the institution’s establishment. Gross income amounted to 5.879 billion BAM, which represents a 6.3% increase from 2010, while net income totaled 4.996 billion BAM, a 4% increase as compared to 2010. It is both notable and interesting that despite a period of economic crisis and falling GDP in Bosnia and Herzegovina, revenue from indirect taxes actually rose. Looking to the present though, it is certain that an overall decrease in economic activity and the ongoing recession will affect the total amount of revenue to be collected during this year.
Achieving Excellence through Cooperation
Recently, ITA has begun working towards harmonizing relevant Bosnian and Herzegovinian legislation in the field of indirect taxes, so as to bring the country’s laws into agreement with those of the members of the EU. Through funding provided by the Instrument for Pre-Accession Assistance (IPA), ITA will be able to implement a project in cooperation with colleagues from Austria and Slovenia. Project support is provided to three sectors: (1) customs, (2) taxation and (3) information technology.
Within the first sector, ITA will be assisted in harmonizing specific customs procedures, customs tariffs and values and the continued simplification of methods used. Here, it is planned to devote further attention to the customs laboratory and customs control.
In terms of taxation, ITA is pleased to have received support for improving the institution’s risk analysis capacity, as well as establishing a VAT-Info Line and related call centers. Other positive developments on the horizon include an electronic filing system for tax returns soon to be introduced.
IT sector support to ITA envisages the development of advanced IT strategies, as well as the modernization of the ALICE system, which is of critical importance in implementing the VAT law. The project is currently underway and calls for the implementation of 68 different activities, some of which began as early as December 2010. Sixty experts from Austria and Slovenia provide project support.
Director Džakula acknowledges that inter-institutional cooperation can always be improved and is committed to seeing this goal through during his four-year Council of Ministers mandate. He has personally pledged to bring cooperation to a higher level: I can already point out excellent cooperation with the State Investigation and Protection Agency (SIPA) and the border police, with whom we have carried out numerous successful actions. Furthermore, various inspections conducted at the entity level are an integral part of the duties of any customs office, and I feel we are improving on a daily basis. One type of cooperation that I would like to emphasize the particular importance of is that with neighboring countries. Since assuming my post as the Director of ITA, we have signed agreements that foresee enhanced cooperation in the exchange of informational data with the tax and customs administrations of Croatia, Serbia, Montenegro and Slovenia. These positive combined efforts will help a great deal in detecting fictitious foreign trade.
In addition to improved cooperation with domestic and international institutions, establishing a high-quality IT support system is one of ITA’s priorities in the coming months. It is only through the introduction of EU standards that ITA can provide an outstanding level of service to all of Bosnia and Herzegovina’s taxpayers. The adoption of best practices employed by EU member states is key.
The previously mentioned support provided by the IPA, which is worth 2.5 million EURO, will greatly assist in the modernization of the customs information system. As ITA implements this project, we can look forward to the introduction of new customs sector technologies that are fully electronic and applied in all EU member states, as well as the 31 EFTA countries. The main outcome of the application of such technology is the acceleration and facilitation of transit procedures and a marked decrease in smuggling and illegal trade.
On the Path Towards the EU
While ITA is focusing more closely on EU standards every day, the EU itself is moving physically closer. With Croatia’s impending accession, Bosnia and Herzegovina can expect many new obligations as the external border of the EU. ITA bears significant responsibilities and Director Džakula informed EUPM Mission Magazine authors that the construction of border crossing in the southern Bosnian and Herzegovinian town of Bijača has begun. It will be possible to transport goods requiring special inspection across this new checkpoint. There are also plans to expand the northern border crossing at Gradiška, which will be carried out by ITA during 2012: We have held a number of important meetings with the customs and tax authorities in Croatia, during which many aspects related to joint cooperation were agreed upon. While I expect that ITA will respond adequately to the tasks we are given, we are cognizant of the challenges implied by Croatia's EU accession, which will not prove easy.