Attack of Tax Accountants

Someone who is realistic among the Serbian political big-wigs seems to have realized that the government, which is in a deep political crisis this time, will fall or survive along with the domestic currency exchange rate.  For this reason, last week saw desperate attempts to increase the state's income from real sources (and thus to avoid printing money without coverage) and nervous reactions to all attempts at controlling the real foreign currency exchange rate of the dinar.  What is at issue is the adoption of an entire package of tax regulations in the Serbian Parliament (November 17) and an official stop to all transfer payments from FRY to Republika Srpska because of Dodik's decision to apply the black market exchange rate of the dinar in all its accounting of duties on goods imported from Yugoslavia.

The connection between these two actions, however strained it might appear, is in fact very close.  The governor of the National Bank of Yugoslavia, Dusan Vlatkovic, is making vain claims that a money supply of 10.6 billion dinars can hardly be the cause of the devaluation of the dinar with respect to the German mark (from around 7 to 7.5 dinars for 1 mark), but that the reason behind its fall is the decision by Banjaluka to change its monetary basis for duties from 6 to 7.5 dinars for one convertible mark (Glas Javnosti, November 18).  There are many reasons why the latest fall of the dinar can be linked more to the newest tax package which was announced in the Serbian parliament last week, than to Dodik's "political, psychological signal."  For in our situation, that package is practically supporting expectations of inflation, because the mechanism of surmounting tax obligations here acts swiftly, even when taxpayers are carefully weeded out, with the least possibility of "selling" their obligations through the increased cost of goods and services.

INFLUENTIAL LOBBY: However, Borislav Milacic, the republican minister of finance, who submitted the new package, did not have much choice, given the lack of money in the state, so that he undertook to wage an attack on the "shady economy" and on citizens at large, which will bring him about 2.3 billion dinars more of annual fiscal income, but only under the assumption that "the subjects of the shady economy" do not give up their business or disappear into even greater illegality (which usually happens when taxes and tax obligations get out of hand).  Milacic's fiscal income could also be threatened by the mentioned "politically psychological" answer by Governor Vlatkovic to Dodik's provocation, in the guise of a stop to transfer payments to Republika Srpska.  For, nearly a half of the "shady economy" in Serbia is run by refugees from Bosnia and citizens from Republika Srpska doing "occasional work" in Serbia.  In any case, can anyone seriously claim that 500 million dinars in accounts outside of FRY (in accounts in Republika Srpska) and a 100 million dinars of cash on the other side of the Drina has started any across-the-border business on which all applicable duties have been paid?

Here we come to the truly "shady" political zone of economic relations of official Belgrade on the one hand, and Pale, Bjeljine, Trebinje, and even Banjaluka on the other.  It is likely that Dodik's decision on "dropping the exchange rate" of the dinar in Republika Srpska and Vlatkovic's decision on stopping transfer payments are tied to political maneuvers surrounding the naming of the new president of the government of Republika Srpska.  Dodik's move could be interpreted more as a blow to "the bosses behind every transaction" who are gathered to the east of him, where SDS and the Bosnian Radicals are in control, than as an action which is directed at a deeper coming apart of Serbia and FRY.  On this side, few people can escape the impression that Vlatkovic's decision on stopping transfer payments to Banjaluka has not just accidentally come at a time when a majority was being sought in the parliament of Republika Srpska for a reelection of Milorad Dodik as president.  As soon as that election is completed with Westendorp's aid, the pragmatic Dodik will attempt to renew economic ties with the fairly influential Belgrade lobby which makes good profits of deals with Republika Srpska or at least with Republika Srpska documents (last year's "statistical paradox" is well known in which the majority of FRY exports were accounted for as exports to Republika Srpska).

OBLIGATIONS AND INFLATION: Finally, it is interesting to observe that Borislav Milacic, changing all the weight of tax regulations in order to somehow scrape together new fiscal income, still refused to join the new law on real estate sales to the old, insane idea of this government that such sales can only be made in dinars which must be deposited in banks so that real estate sales taxes can be collected more efficiently.  Except that if later, with some interpretation of the law, a need does not arise for revitalizing this idea from the former "dead born" decree adopted by the Serbian government.

Beyond the considerable extent of tax avoidance, the meager tax power of the Serbian economy was best described indirectly, almost unconsciously, by the Serbian Minister of Finance himself when he stated that the taxable income of companies has so far only yielded between one to two percent of the fiscal income of Serbia.  Admittedly he reduced that rate from 25 to 20 percent, but he also imposed such measures on establishing real taxable income that the smaller tax rate will actually be much harder on the economy.  This means yet another measure for closing down the few successful enterprises, above all those in the private sector.

In the end, the main question which is being asked today is whether the citizenry, whose paid taxes (according to government publications) have been increased by 83 percent (compared to the 40 percent inflation) in the first nine months of this year, will be able to pay everything that the government already managed to spend.