Slobodan Aćimović: Encouraging the competitiveness of public transport in Serbia

Serbia is now a completely different country in terms of traffic and logistics, and it uses the advantages of being like “a house in the middle of the road” much more, as the great Jovan Cvijić used to say.

Professor Slobodan Aćimović, PhD, University of Belgrade’s Faculty of Economics

The common transport policy is one of the key pillars of the European Union’s economic policy, as a referential example of a regulated market, state measures and, finally, the values towards which Serbia strives. One such relevant EU policy has been implemented within the framework of “Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity”. The directive aligns the amount of state taxes on energy products in regard to the competitiveness of EU economies and products and regulates the possibility of a special incentive for public transport through an additional reduction of excise duty only for companies whose core business activity is transport.

Through its fiscal policy, the state of Serbia has the autonomous right to define the amount of excise duty for certain motor fuels, but also to enable a certain rebate of excise duty for fuel used for commercial purposes. What Serbia is not but should be doing is incentivizing only public transport, through an additional reduction in the excise duties on Euro diesel, more precisely, an increase in the refraction of the paid excise duty only for public transport (and not for all transport purposes). This possibility for Serbia exists in the Directive’s preamble, which states “the Member States may differentiate between commercial (public transport) and non-commercial use of gas oil”.

What Serbia is not but should be doing is incentivizing only public transport, through an additional reduction in the excise duties on Euro diesel

The previous position stated in the Directive is fully in line with one of the main postulates of the common EU transport policy – favouring public transport (performed by specialized transport companies) in all aspects and types of transport in relation to own transport of passengers and goods. In economic theory and especially in European practice, the main advantages of public transport are well-known and proven, both in the transportation of passengers and in the transportation of goods and in regard to individual (private) transport:

  • Public transport is always more economical and it is of a larger volume, therefore there is a faster decrease in fixed and total costs in transport that are inherent in this activity, which is the basis for reducing the selling price of transport;
  • Public transport differs in everything from own transport, in terms of organization, cost structure, the public service obligation it fulfils, etc.;
  • When production and commerce companies, as well as companies from any other economic branches, use public transport that creates an opportunity for these companies to spend the funds they would otherwise use for transport capacities on developing their own business;
  • As a rule, public transport implies working in a regulated (“white”) fiscal zone, thus reducing the possibility of operations in the “shadow”, especially with stronger inspection services and wider fiscalization of its activity. Curbing the irregular (“shadow”) segment in the transport business can have a big impact on the country’s shadow economy.
  • Only investments in public transport capacities can solve severe congestion on main transport corridors and motorways, especially in large cities;

All the intentions of the EU’s common infrastructural transport policy, from increased investments in new road transport (in the less developed countries in Europe), through significant investments in the revitalization of the existing network and the construction of new high-speed railways, go in the direction of favouring public transport, which is more massive, more profitable, more specialized, and in a word, the bloodstream of every economy and society.

It is commendable that the Serbian authorities have noticed this in the past ten years, with so many traffic infrastructure projects completed and many are nearing completion and/or just starting. However, one thing is clear – Serbia is now a completely different country in terms of traffic and logistics and uses the advantages of being like “a house in the middle of the road” much more, as the great Jovan Cvijić used to say. Substantially increased transit traffic on the main road corridors validates this claim.

Scientific and various other empirical research has repeatedly demonstrated that the development of multimodal transport infrastructure is extremely important for the advancement, development and competitiveness of the economy and implies a better quality of life for citizens. New and revitalized roads and railways and other transport infrastructure are the basis for boosting the volume of traffic flows, but also attracting new (especially foreign direct) investments.

An additional reduction of the excise duty on diesel only for public transporters should always be in force

In terms of European experiences relating to favouring public transport and the intention to reduce the share of transport for own needs in the total volume of traffic in each EU country, then the direction of the need to increase the competitiveness of public transport in various segments should be clear too, that is, to discourage individual (private) transport in the Republic Serbia.

One of the measures related to this can be implemented in the segment of additional excise duty refraction for fuel for public transporters. Business experience shows that companies opt for their own fleet only when they want to maintain a high level of customer service or if they have large volumes of transport for their own needs (e.g. certain large retail chains). Every different situation stimulates the engagement of public transport companies. We can conclude from all of this that a very important aspect of preferring public transport can be done via the reduction of the inputs that go into its production, more precisely, the additional reduction of excise duties on Euro diesel for public transport. At the same time, all companies that do their own transport would be stimulated to consider whether such a transport mode is still profitable for them or whether it is better to hire public transport companies.

Although we live in a time of constantly growing fuel prices (due to international instability) and state control of the final fuel prices, primarily through the reduction of excise duties, we believe that such a situation will end sooner or later, but that one measure – that is an additional reduction of the excise duty on diesel only for public transporters – should always be in force.

Overall, favouring public transport through the additional refraction of paid excise duty is a good measure that can bring the following benefits for Serbia:

  • Favouring the public transport model as a priority transport policy, because this model of carrying out transport activities, according to the economic logic of things, is more efficient and thus more acceptable for the economy that uses it. This would reduce the share of individual (private) transport, which by nature is less competitive, consumes more energy, creates more traffic jams, noise, etc. This is not only business efficient and rational (at the level of a specific company or individual), but it can also have strong macro-ecological effects, bearing in mind that according to research, public transport is a significantly smaller consumer of energy per unit of transport (1ntkm or 1npkm) in relation to transportation for personal needs (in all types of traffic, especially road traffic);
  • Faster alignment of our excise policy on Euro diesel with the relevant EU policy, that is, the specific EU Directive, while using the possibility of clearly differentiating commercial (public) from non-commercial (individual) transport. In this way, we would be able to redefine the domestic fuel excise duty policy much better and be better prepared for negotiations with the EU;
  • Increasing legality in the transport sector improves business competitiveness, which is especially important for road transport. It can also generate additional revenue for the state budget.

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