Introduction of the VAT Will Not Cause Permanent Inflation

In the condition of the forthcoming introduction and implementation of the Value Added Tax (VAT), the Central Bank of Bosnia and Herzegovina (CBBH) informs BH citizens that there is none monetary-based reason for the permanent inflation in BH.

The CBBH will continue with the implementation of the existing monetary regime – the Currency Board Arrangement, with the full foreign exchange backing of the local currency. Such monetary policy has made possible low inflation level over the previous years despite all economic problems. Therefore, it can be expected that the prices, after the adjustments at the beginning of the year, will be regulated by the rules of supply and demand.

The forthcoming introduction of the VAT represents one of the most significant economic changes in BH and it will make possible harmonization with tax systems around the Europe.

Implementation of the VAT will bring many positive changes to the BH economy and it will contribute to the better regulation of the market, stimulate investments and reduce illegal activities.

“One of the positive characteristics of this tax is that that tax payers will be stimulated to work within the formal sector, instead of creating and stimulating the grey economy. With this, all tax payers will get the equal opportunity, since the rules will be equal for all business entities on the entire territory of BH”, the Governor of the CBBH Kemal Kozarić stressed.

On the other hand, Governor thinks that it is equally important for the State Administration to show how much it is serious, responsible and efficient it is through the consistent VAT implementation.

“Elements which will serve as the test for the State Administration are VAT return for those who are entitled to it, as well as adoption and implementation of social programs. These are the core elements and the success of the tax system reforms will depend on them”, Governor Kozarić concluded.

One of the negative consequences will be probable price increase for some groups of products. Still, Governor stressed that it needs to be remembered that there can be only a short-termed price increase, caused by the increased tax rates for certain products. The public needs to reject any further speculative price increases.

It needs to be stated that until now the level for majority of prices was determined by the market supply and demand. Consumers, with their demand, influence the price level and in conditions of competition, sellers have to adjust, or otherwise, they will loose their incomes. Also in the future, consumers will be able to signal clearly how much they are prepared to pay for something and they will not let themselves into the trap of those who will try to increase prices unjustifiably. In that sense, all BH authorities have to help to regulate the market and to protect the rights of consumers.

Once again, the CBBH reminds citizens that 5 fening and 5 KM coins will be put into circulation on January 5, 2006. Putting the 5 fening coin into circulation will prevent frauds with rounding of prices. The CBBH Governing Board has made the Decision earlier that it will mint five million pieces of 5 KM coins and twenty million pieces of 5 fening coins.

Public Relations Section
Zijada Kovač
Coordinator