Thursday, December 11, 2008

The Flat Tax Spreads to the Federation of Bosnia and Herzegovina (FBiH) within Bosnia and Herzegovina (BiH)

By Alvin Rabushka

The Dayton Agreement of 1995 ended the war between Serbs, Muslims, and Croats in what was the former Yugoslav territory of Bosnia and Herzegovina (BiH). Two separate entities were initially established within BiH: the Federation of Bosnia and Herzegovina (FBih), also known as the Bosniak-Croat entity, and Republika Srpska (RS). A third entity was subsequently established, the Brčko District (BD), which is a small community of about 80,000 inhabitants, of whom 40% are Bosniaks (Muslims), 49% Bosnian Serbs, and 11% Bosnian Croats. (According to the Dayton Peace Accords, an arbitration process could only determine the disputed portion of the Inter-Entity Boundary Line.) Brčko continues to be a disputed, multi-ethnic town, subject to its own laws and those of FbiH.

Separate tax systems were established in each of the three entities. The BD assembly passed a new law on income tax in the middle of 2003, to take effect at the beginning of 2004. The law eliminated double taxation of interest and dividends, exempted capital gains, and imposed a uniform 10% flat tax on salaries, incomes, and profit of corporations. Each employee receives a personal allowance of BAM 240 and an additional BAM 120 for each dependent per month. ($1 = BAM 1.47 as of December 11, 2008. BAM stands for Convertible Marka.)

The FBiH encompasses 11 Cantons, including Sarajevo. In the second week of 2008, the FBiH House of Representatives adopted a new income tax to take effect on January 1, 2009. The House abandoned the initial idea of a two-rate system of 10% and 15% in favor of a flat rate of 10%. The new law replaces a cantonal based income tax that ranged between 5-30% depending on cantonal regulations and different types of income. A personal allowance exempts the first BAM 3,600 a year from income tax. Additional fractional allowances are permitted for a dependent spouse, dependent children, other dependent immediate family members, and for disability of immediate family members. Dividends, prizes, pensions, and child allowances are exempt.

The income tax in Serb-dominated RS imposes two rates: 10% between taxable income BAM 2,460-25,008 and 15% on taxable income above that.

1 comment:

bathmate said...

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