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Earmarked Revenues and a Hike in Local Charges

In 2010, AmCham member companies experienced a significant proliferation of earmarked revenues at the central level, as well as introduction or increases of various compensations. There is a serious lack of transparency in the method of calculating local charges, plus vast disparities between municipalities in the level of such charges. At the April meeting with the Prime Minister, our representatives expressed concerns of AmCham and the Foreign Investors Council (FIC) about these practices that are rendering the fiscal system in Serbia opaque and thus are in stark contrast with IMF and EU positions on the issue. AmCham reported collecting data on these compensations (specific charges), but put the focus on the Law on Waters that introduced a new compensation (an earmarked tax) to incentivize building irrigation systems by charging all companies in Serbia 0.025% of total revenues. The Prime Minister supported the AmCham and FIC initiative, and shortly afterwards this provision was removed from the Law. However, the Government passed a Law on Forests that envisaged the introduction of a similar charge in the same amount, for protection and use of forests. In addition, an AmCham survey showed that charges by local administrations rose sharply in 2009 and 2010, along with cutting transfers from the central level. Increases in firm name charges, compensation for construction land and charges for motor vehicles are the most prominent examples.

For these reasons, AmCham supported a new NALED project, "Kalkulator," which will increase the predictability of local costs to investors as well as provide for transparent comparisons of business costs among municipalities. Participating in the inaugural presentation of the project in November, AmCham representatives emphasized that the increase in local charges and introduction of other para-fiscal charges makes the cost of state administration for business less predictable and transparent. Although such practices result in negligibly higher fiscal revenues for the state overall, they carry disproportionately higher risk to the reputation of local administrations that could discourage potential investors.