Vladimir Novaković: We Need to Change the Labour Taxation System

All NALED surveys show that reducing the tax burden on wages is the first and foremost demand of businesses and that as many as 79% of businesspeople consider that labour costs are the main cause of the shadow economy

Following the traditional NALED September meetings, we took the opportunity to speak with the Chairman of NALED’s Managing Board, Vladimir Novaković about further plans and the business environment in which Serbia’s economy currently operates.
You were appointed Chairman of NALED’s Managing Board over a year ago. What was your biggest success since the appointment and what deserves more work?

— I am more than pleased with everything NALED has achieved in the past year. I came at the moment when the implementation of the new electronic real estate cadastral registration procedure (eŠalter) began, through which almost 335,000 applications have been submitted so far. A simplified procedure for registration of seasonal workers in agriculture has started, and as many as 24,000 seasonal workers have been registered this year through via this portal and a mobile application. Together with the IT and eGovernment Office and companies Mastercard and Visa, we launched a competition for towns and municipalities called “Champions of Cashless Payment”. In the two months since the launch of the competition, as many as 4,000 fees and taxes have been paid with payment cards at local government counters. We are nearing the completion of the flatrate taxation system, which should bring significant administrative alleviation for some 117,000 small business owners. These are all big figures that were generated together with the Government of Serbia so I think we just need to maintain the current pace.

Do you have any information about the effects of tax exemptions for beginners in business and eŠalter in the period since their implementation?

— The implementation of the new electronic procedure for registration of real estate in the cadastre (eŠalter) started in July last year and although we can always do better, we are pleased with the results. As I have mentioned, the data for the first 13 months show that almost 335,000 applications were filed through eŠalter or notaries, and the good thing is that it only took nine months for the number of applications submitted via eŠalter to exceed the number of applications filed via clerk’s office. eŠalter has also significantly shortened the resolution of cases, although there are individual cases that still take an inexcusably long time to be resolved. We are sure that these figures will be even better in the future as it takes time for both users and institutions to get used to the new way of working. As for the tax exemption measure for beginners in business, it was launched in October last year and has been redefined in the meantime. Data from the Tax Administration as of June show that the measure was used by about 800 citizens who opened a small business or a limited liability company. Together with the Government of Serbia and the German Development Cooperation, we plan to launch a promotional campaign with the aim of better acquainting the citizens with it, but in addition to promotion, it is important to extend the scope of the measure to maximize its impact. Tax exemptions in the first year of business can be used by persons who have graduated from college or high school in the previous year, as well as by persons who have been registered as unemployed with the National Employment Service for more than six months.

There are over 117,000 small business owners (taxi drivers, lawyers, software developers, hairdressers, etc.) who pay flatrate tax but who are important taxpayers. However, they have to deal with a series of bureaucratic inconsistencies and obstacles that put them in unpredictable business circumstances. What is happening to the flatrate tax reform?

— We expect the improvement of the flat-rate taxation system to take effect from January 1st, 2020. This will be another major positive change in our country’s business environment. As foreseen, the existing procedure whereby tax administration officials produce up to 300,000 tax assessment documents on paper per year will be replaced with software that automates this process. The idea is that anyone who wants to start their own business in a flatrate tax system or have already done so, can electronically check whether they are eligible to operate in that regime, calculate for themselves their tax obligation for several years in advance and a receive a tax assessment document electronically.

What NALED’s position regarding the recent increase in the minimum monthly wage given that the Serbian public has different views of this?

— Our country needs a change in the payroll tax system and that would be the answer to your question. All NALED surveys show that reducing the tax burden on wages is the first and foremost demand of businesses and that as many as 79% of businesspeople consider that labour costs are the main cause of the shadow economy. When NALED made a comparative analysis of the tax burden on wages, it turned out that we were at the European average when it comes to taxes on the average wage. However, we are the fifth country in Europe in terms of the lowest wage tax burden. When we consider that the current median salary is about 41,000 dinars, it means that 50% of employees in the country have a salary that is equal to or lower than that amount. And therein lies the problem. The request for tax and contribution reduction is one of the 10 priority recommendations in NALED’s Gray Book. The claim has been in the book since 2013 and is one of the most enduring recommendations in our publication. Finding room to reduce the tax burden is even a bigger question. Several models need to be considered and this should be the subject of a comprehensive public-private dialogue, to which the State has committed itself through the National Programme for Suppression of the Shadow Economy. Whether we decide to progressively tax, abolish or drastically reduce some of the contributions or increase the non-taxable portion of our earnings (the so-called census), the decision must be carefully weighed in favour of citizens, businesses and faster economic development.

NALED has defined six key goals for the period up to the year 2021. The priorities are the reduction of the shadow economy, modernization of the tax system, improvement of e-government and e-business, reforming cadastre and planning and construction procedures, facilitating conditions for the development of agriculture and food industry, development of the healthcare sector, as well as boosting international competitiveness and regional cooperation. Which of these goals is the most difficult to implement and why?

— The priorities we have embedded in the strategic plan have been chosen by our members, who recognized the key areas for faster economic development. At the same time, they expressed their commitment to contributing to the implementation by joining our alliances – expert working groups. Alliances are tasked with formulating policies, defining priorities and concrete initiatives for the Government and THE Parliament. Through participation in alliances, members invest their professional capacities, resources and reputation in the pursuit of common goals while respecting the general interests of society. In line with strategic priorities, the Fair Competition Alliance, the E-Government Alliance, the Healthcare Alliance, the Food and Agriculture Alliance and the Property and Urbanism Alliance have been formed so far. Each of the selected priorities has its specificities. For instance, to combat the shadow economy, it is crucial to ensure cooperation and coordination of a large number of institutions, from ministries and inspections to courts, which is often not easy. When it comes to the development of e-government, the biggest challenge is to change the way administration works and overcome resistance. Agriculture is a good example of a traditional sector where a greater degree of digitization is required, while in the healthcare sector it is necessary to achieve a greater level of optimization or better use of existing resources. In terms of regional cooperation, the biggest challenge is to ensure its sustainability. NALED has launched an initiative to establish a Business Friendly Environment (BFE) platform that would connect the Western Balkan countries in areas that are crucial to improving the competitiveness of the region and allow for the exchange or replication of good reforms that we are known for (e-building permits, e-cadastre, e-space, digital fiscalization, seasonal workers, etc.). Such a platform would help fulfil the commitments we have undertaken through the Berlin Process and contribute to the better positioning of the region of Southeast Europe on the global investment map.


What will NALED focus on in 2020? Tell us about your plans.

— NALED is involved in several major reforms in the areas we have identified as priorities and we believe that 2020 could be a very successful year when it comes to improving business conditions. Our priorities are to set up a public-private dialogue laboratory where the economy, civil sector and government institutions would work together to develop public policies and define reforms (PPD Lab), as well as set up electronic services – aArchive, eSpace, eProcurement, eAgiculture. Then there is the labour law reform regarding seasonal and part-time jobs, work via online platforms and freelancing, automation of flat-rate tax, healthcare financing reform, and resolving property issues – conversion, land consolidation, cooperative assets.


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