Selection and peer-review under responsibility of the IPMA. Tax evasion in Bosnia and Hercegovina and business environment

Global economic crisis and its consequences especially on the countries in transition has contributed to the trend of decreasing of economic activities, decreasing of employment and increasing the level of tax burden which is especially expresed in
of 10
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
   Procedia - Social and Behavioral Sciences 119 ( 2014 ) 957 – 966 1877-0428 © 2014 The Authors. Published by Elsevier Ltd. Open access under  CC BY-NC-ND license.  Selection and peer-review under responsibility of the IPMA. doi: 10.1016/j.sbspro.2014.03.107 ScienceDirect  27 th  IPMA World Congress Tax evasion in Bosnia and Hercegovina and business environment Radenka Grgi  1** , Saudin Terzi  2 1 Paneuropian University of Apeiron, Banjaluka 78000, BiH 2  Administration for indirect taxation BiH Abstract Global economic crisis and its consequences especially on the countries in transition has contributed to the trend of decreasing of economic activities, decreasing of employment and increasing the level of tax burden which is especially expresed in conditions of not favorably business environment. Tax evasion has been present in theory for many years, but in our practice until now it has not been significantly consideres and this is one of the research goals to answer what woud happen to total business and economic environment if we decided for radical fight against tax fraud with the goal of increasing public revenues on one side, and relief of economy and increasing of competitiveness both in the domestic and foreign markets, on the other side. Decreasing of tax frauds, before all, would positivly affect on the public sector in long-term perion because it would lead to growth and greater stability of public revenues (grater revenues of VAT as the most important tax form), would create conditions for new investment activity, which affected the growth of companies, and thus the overall growth of the economy. © 2014 The Authors. Published by Elsevier Ltd. Selection and peer-review under responsibility of the IPMA. Keywords : tax evasion; business environment; economic growth 1.INTRODUCTION The phenomenon of tax evasion, in a lesser or greater extent, is an acute problem in all societies of the world, regardless of the tax system and level of economic development of a country and, therefore, tax fraud and evasion should be put in a broader context than is required for economic analysis, this question has also various legal, ethical and other dimensions that affect the business environment. In economic literature, as well as professional *  Corresponding author. Tel.: +0-000-000-0000 ; fax: +0-000-000-0000 .  E-mail address:  Available online at   © 2014 The Authors. Published by Elsevier Ltd. Open access under  CC BY-NC-ND license.  Selection and peer-review under responsibility of the IPMA.  958  Radenka Grgi ć  and Saudin Terzi ć  / Procedia - Social and Behavioral Sciences 119 ( 2014 ) 957 – 966 circles concerned with the study of the phenomenon of "tax evasion" there is no uniform consensus on the very concept of this phenomenon. In the new situation, where the finance, and after that economic global crises has appeared, it is necessary to pay special attention to the business environment with an emphasis on tax evasion. The current global financial and economic crisis is a major challenge for the tax administration in many countries (Brondolo, 2009). In transition countries tax evasion constitutes a major problem that is slowing down, if not prevent reaching the desired level of social, political and economic objectives goal. In an era of general globalization in every aspect of life, every society and / or the country in a transition (Grgic, 2008). The volume of the informal sector in transition countries is much higher than in developed countries, and Bosnia and Herzegovina in this is no exception, because the society is in economic and political transition, and it is expected that the tax evasion will affect only the business environment, especially on the growing private sector. In terms of adjusting the tax systems, a market economy, expanding the tax base, the introduction of new taxes, the abolition of the old ones, and of changes in tax rates is difficult to make reliable conclusions about the amount of tax evasion (Madžarevi  , 2002) The introduction of VAT, government financial authorities imposed to organize themselves so that they can manage and control the application and payment of taxes as provided by law. If uncontrolled tax system imposes economic entities unacceptable tax burden, they begin to hide their activities or cross to the informal activities (Spariosu, 2002). Tax evasion is a complex economic, socio-political, moral problem and the fight against tax frauds and evasion requires appropriate solutions not only with the special regulations treat this matter but also in the business environment. Experience has shown that tax evasion is developing faster than legislation and the issue continues to be the subject of daily political debates, and if the deficit of state budget appears. The facts should not be forgotten how and in which circumstances the business environment has been developing in BiH, and that is privatisation lack of capital, managerial skills, outdated and devastated technology and underdeveloped institutions within the country. When there is legal insecurity and spreaded level of tax evasion is reduced and the interest of foreign investors in the country. Tax evasion creates a dangerous threat to the business environment, and thereby reduces the reputation of public institutions. In circumstances where market institutions have not yet been finalized, when the rules of the game and the flow of information is not provided, companies often seek out the tax evasion. Desired changes in combatting tax evasion can be effectively achieved not only what will make the appropriate changes in the tax system, but also in the business environment. Clearly, in the initiation and implementation of these changes can be successful only if we investigate what kind nature of the problem works, what all the individuals and groups perceived as tax evasion, for which taxpayers think are the most involved in tax fraud and evasion, which perceived responsibility and how to start and realized effective fight against tax evasion in order to improve the state's business environment. It is hoped that the changes in the business environment contribute to its overcoming. 2.Business environment in Bosnia and Herzegovina Tax evasion may be one of the reasons why reducing the inflow of foreign direct investment in Bosnia and Herzegovina. In fact, before deciding any foreign investor to invest in a particular country, wants to know what the situation is regarding tax evasion, and the level of tax evasion depends directly on the decision of investors whether it is worth investing. If the level of tax evasin is extremely high it is for sure that we can assume that the foreign investor will not invest in a particular country because it is likely that in this market will not be able to have equal market and economic situation.  959  Radenka Grgi ć  and Saudin Terzi ć  / Procedia - Social and Behavioral Sciences 119 ( 2014 ) 957 – 966 Slika 1.  The data tables, Overall Paying Taxes ranking, Tax payments, Time to comply and Total Tax Rate.† According to this report, Bosnia and Herzegovina is ranked 118 on the ease of operation of the attractiveness of the business environment and it does not stop at what we are placed on the rear in comparison with other countries in the region. There is also a corruption perception index, which we usually tie with the public sector, harmonization with the European Union as well as evaluating the dynamics of the transition. So there is a real danger that the economic crisis strongly affects the transition process itself, ie reform activities in the country, including the reform of public administration. Especially if we bear in mind that so far made little progress in every way when it comes to structural reform. Insurance legislation is not enough to actually ensure efficient business environment that will stimulate economic growth. The introduction of VAT in BiH created positive effects, primarily obtained a higher level of tax BiH compatibility with the EU and the region, there has been a higher level of tax neutrality, improved the competitiveness of domestic exporters and reduced trade deficit. State tax policy can influence the development of the business environment. For example, according to data from the ITA, the entire BiH exports conducted through registered VAT taxpayers suggesting that exporters had a great motive to engage in the tax system and register their exports of a given region is underdeveloped, and the breaking of industry concentration in certain regions. Of course, the tax system is tied to a specific country, so there are no identical tax systems. This is because, as each country has its own specific characteristics which determine the general socio-economic space. Some of them are: the constitutional order, centralization or decentralization, size of territory, population and population density, demographic structure, the size of the public sector, economic integration (Jel  i  , 2001).). Measures to be taken to improve the business environment in Bosnia and Herzegovina should go in the direction of ensuring a favorable macroeconomic environment, strengthening law enforcement institutions and the only enforcement of legislation. If you do not provide a favorable business environment in a way that the legislation adapted to the market and not vice versa, can not be expected to reduce tax evasion. 3.The basic characteristics of the indirect tax system in Bosnia and Herzegovina The main source of income of Bosnia and Herzegovina are indirect taxes, since they account for 70% of total revenue. Value added tax is a major source of revenue, and the ITA is the 2011th The collected 19.6% of GDP, of † Paying Taxes 2012, The global picture        960  Radenka Grgi ć  and Saudin Terzi ć  / Procedia - Social and Behavioral Sciences 119 ( 2014 ) 957 – 966 which 12.3% was net of VAT. Input VAT on importation of goods is a major element of revenue. Table 1 shows the analysis of the components that make up the net VAT revenue in the period 2009th to 2011th This table illustrates the high level of debt and tax credit that tax administration must be controlled in order to arrive to a relatively modest net domestic tax revenue. The 2011th year, it included 4,006 million KM collected VAT and 882 million KM refunded VAT, which came to the net national income tax in the amount of 3.124 billion KM. Tabela 1.  Composition of VAT Revenues 2009 to 2011, mill. KMPaid and refunded VAT 2009. 2010. 2011. Gross paid VAT 3.562 3.707 4.006 Net domestic paid VAT 1.519 1.488 1.493 Charged VAT - Imports 2.043 2.219 2.513 VAT refund to exporters and others 663 643 770 Refund of VAT to international organizations 71 75 112 Net tax revenue 2.828 2.989 3.124 Source: ITA Value added tax in force in Bosnia and Herzegovina is allphase net income in the supply of goods and services: 1.Allphase, because it is charged at each stage of the supply of goods and services subject to taxation (ie, at each taxable supply of goods and services made by a subject who is registered as a VAT taxpayer, as well as each import of goods);, because the VAT, despite the fact that at each stage of transport is calculated on the full selling price, through the mechanism of deduction of the input tax, reduced taxes on only the net value added at each stage of reproduction and turnover, leading ultimately to the fact that the total tax retail value of goods and services paid by the final consumer.. Although the VAT (and sales tax) and indirect general consumption tax, VAT (as opposed to sales tax) is calculated and payable on supplies of goods and services at all stages of production and supply of goods and services, as well as import goods. It is this VAT in Bosnia and Herzegovina since 01.01.2006. The system replaced the single-phase tax on goods and services. VAT was introduced in Bosnia and Herzegovina: • consumable forms, • the credit method of collecting, • based on the principle of destination, with a single, unified tax rate (17%) (Kovacevic et al, 2005). In BiH was adopted, the so-called. consumable form of VAT, where for every entrepreneur-VAT payers, indirectly (through the mechanism of the input tax) exempt from taxation all incoming goods and services (raw materials, supplies, services, equipment, etc.). Consumables type VAT is neutral with respect to investment, because the tax deduction is recognized regardless of whether the consumption made at a given moment the tax liability arises or later (Hrusti  , 2004). The obligation for payment of VAT is determined periodically (specifically: a month), so-called. credit method, so that every tax payer of the total VAT which he calculated at their outputs (sold goods and / or services, and other forms of transport and consumption subject to income tax) during this period, subtracts the total input VAT on their inputs (raw materials, supplies , services and other supplies they had charged for input VAT) in the same tax period. Tax liability for each tax period is calculated as the difference between the output tax and the input tax. If the total input tax in a tax period is greater than the total output tax in the same period, the taxpayer is entitled to a refund of the difference, that is being transferred to the next tax period.  961  Radenka Grgi ć  and Saudin Terzi ć  / Procedia - Social and Behavioral Sciences 119 ( 2014 ) 957 – 966 Picture 2  The calculation of the value added tax with a tax rate of 17% 3.1.Factors affecting the tax evasion Decision of the company or an individual to enter into the realm of tax evasion is certainly conditioned by a number of factors. Previous research has shown that there are correlations between the extent of tax evasion in a country and business environment and conditions in that country.Various factors whose influence is tied to fraud and all aspects of observing each other are overlapping. Factors affecting the fulfillment of tax obligations or failure to differ from one country to another, and also depend on the individual behavior of one person to another (Kirchler, 2007). As economic factors are cited financial problems, high tax burdens, the probability of establishing (hope that tax evasion will not be detected), the severity of sanctions (hope that sanctions will not be severe), the expected profit (high profits due to high risk), etc. The psychological factors that can be counted, distrust of the state and its economic measures, disagreement with the aims and means of economic policy and attitude to risk. As the most important factors of opportunity are given work experience and education important in finding a job and successfully carry out the framework legislation (Jovic et al, 2008). Financial problems and high tax burdens may adversely affect the business activities of the taxpayer. Height loads public revenues to a certain level has very little influence on evasion, and when the load exceeds a certain limit, evasion increases progressively. The question is where the upper limit over which evasion becomes significant. This limit is relative and depends on many factors (Šakovi  , 2002). The higher tax abstractions are, the greater the likelihood that the taxpayers opt for scams because they expect it will not eventually be discovered, or think that if they discovered that the sanctions will not be high, and that any consequences that are imposed by the court the court ruling will be compensated through profit caused the execution of customs and tax fraud. With what degree of consent, the individual looks at contemporary phenomena fraud? Engaging individuals in the fight against fraud is conditioned, among other things, by how satisfied or dissatisfied with the essential aspects of value relationship to the phenomena of deception and overall social relations. Tax morale can explain the high degree of fulfillment of tax obligations (Torgler, 2002). Factors affecting the tax fraud are those that can be recorded as the expertise of staff and administration of the Tax as shortcomings of the control system. The most important disadvantages: 1.First Organization of Tax Service;
Similar documents
View more...
Related Search
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks

We need your sign to support Project to invent "SMART AND CONTROLLABLE REFLECTIVE BALLOONS" to cover the Sun and Save Our Earth.

More details...

Sign Now!

We are very appreciated for your Prompt Action!