The topic of tax amnesty in Bosnia and Herzegovina periodically returns to the public, most often in periods when budget deficits grow or when tax authorities want to encourage the payment of outstanding obligations, concludes IA Law Firm. Although so far in BiH no systemic tax amnesty has been introduced such as those in some neighboring countries, discussions on its justification and possible effects have not been absent.

What does tax amnesty mean?

Tax amnesty implies forgiveness by law of part of the tax debt, interest, or penalties, under the condition that the taxpayer pays the principal debt within a certain period. In theory, the goal is to relieve companies and individuals who are unable to settle obligations, revive their business activity, and at the same time enable the state an inflow of “fresh” money into the budget.

Experiences from the region

Serbia in 2012 carried out a partial tax amnesty through the reprogramming of tax debt, enabling the write-off of interest and obligations under the condition that the principal was paid in installments. In the short term, the budget had an inflow, but in the long term, the amnesty provoked criticism because it sent a signal that non-payment of taxes “pays off.”

Croatia in the 2000s had several “special measures” of debt reprogramming, where interest and part of obligations were written off. Analyses showed that the measures helped temporarily, but that they did not contribute to long-term tax discipline.

Slovenia and Montenegro experimented with amnesties of limited scope, but quickly gave up, precisely due to objections that this undermines the principle of equality of taxpayers.

BiH perspective – where are we now?

In Bosnia and Herzegovina, at the state level, no unified tax amnesty has been introduced, but there have been initiatives for partial write-offs of interest or debt reprogramming in entities and municipalities. For example, certain local communities offered the write-off of default interest on communal obligations if the principal was paid. However, at the level of VAT, contributions, and corporate income tax – amnesty has never been seriously considered. The reason also lies in the complex constitutional structure: tax competencies are divided between the state (VAT, excises), entities (corporate income tax, personal income tax), and cantons/municipalities (local fees).

Why is the issue sensitive?

The introduction of tax amnesty raises serious legal and economic questions.

Legally speaking, amnesty can be in collision with the principle of equality of taxpayers – those who paid taxes regularly would feel disadvantaged.

Economically speaking, although amnesty can bring short-term inflow to the budget, in the long term it can undermine tax discipline. If repeated, it sends a message that the state will always give in.

The investment aspect – foreign investors, who carefully monitor tax stability and legal certainty, often see such measures as a sign of weakness of the system and legal inconsistency.

Is amnesty a good idea for BiH?

Arguments “for” say that tax amnesty could revive the work of many companies that are currently blocked due to debts, and which in the future would again pay taxes and contributions. This would reduce illiquidity and encourage the economy. Arguments “against,” however, are equally strong: those who did not respect the law are rewarded, while disciplined taxpayers are punished.

Recommendation

If tax amnesty is to be considered at all, it would have to be extremely limited and conditioned. That means:

• apply it only once and with clear criteria (e.g. for sectors affected by crisis),

• necessarily link it with mechanisms of stricter tax control after the deadline,

• avoid general amnesties that would cover all taxpayers.

IA Law Firm Bosnia concludes that Bosnia and Herzegovina currently does not have a formal tax amnesty, and practice from the region shows that they, although attractive at first sight, do not strengthen legal certainty nor fiscal stability in the long run. For foreign investors, a much more important signal than a possible amnesty would be a stable and predictable tax system, while for domestic companies the key remains in the permanent reduction of parafiscal charges and the creation of clear, equal rules of the game. More about the services of IA Law Firm Bosnia in the field of tax law can be found at: Tax law | IA Lawfirm