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Dinkic: VAT will not cause inflation
Belgrade,
6 January 2005
Serbian Minister of Finance Mladjan Dinkic said in an interview for daily Blic that there will be no inflationary pressure as a result of the introduction of the value added tax (VAT) on January 1, 2005. The government’s official website brings excerpts from the interview.
First effects of VAT?
There will be no inflationary pressure because of the introduction of VAT. The first effects show that prices of 85 percent of products and services went down, five percent remained unchanged, while 10 percent went up. Some prices are higher, some are lower, but the overall effect will be more or less neutral. Consumers will not feel the price growth. I am satisfied with the first results. VAT system needs some three months to start working, and at least six months to remove all problems in application.
Why is VAT rate for newly built flats 18 percent, while for most other countries in the region the rate is 6-8 percent?
Flats are finished products and we think that construction workers have large reserves within their margins. They earn big money and they can renounce one part of their profit. I don’t believe that the complete VAT rate will burden the citizens, particularly because we abolished the 5 percent tax on transferring the property rights for newly built flats. We are ready to make minor changes as early as in June, if it is necessary. The English changed their VAT law three times during the first year. So, it is customary and we are not running away from that.
Who would be first candidates for VAT reliefs?
There are a few, books above all. After the first three months, publishers can estimate whether it pays off better if the book tax stands at 0 percent, or to keep it at the current 8 percent, with the right of deducing the previous tax. It is all the same to us. Cinema tickets are also in that group, but we’ll see about that in a few months’ time. Only what is already practiced in EU countries will be approved here. Unfortunately, computers are taxed at general tax rate in the EU, so will it be here. Still, after four to five months, we will be able to see the situation in the budget precisely and see whether there is space for lower rates. Let us not forget, VAT is the primary budgetary income in all EU countries, and there’s no improvisation. It is good that we made significant budgetary reserves last year, so we entered this year in peace. We saved almost 8 billion dinars and carried it over as reserve for 2005. This reserve resulted from tax collection and amounts to 40 percent of the funds needed to cover the whole budgetary deficit planned for 2005.
What will 2005 be for citizens?
A year of reality is awaiting us. Those who work hard will have a nice life, the state will assist those socially jeopardised and medically ill, whereas the ones who are in good health and working condition but unwilling to work cannot live well. I believe that unemployment rate will reduce in 2005, and that a large number of people who are working in the gray zone will be stimulated to transit into legal business because of the newly introduced tax reliefs. If people say their standards have worsened, it is because they got used to spending what they had not earned, and we changed that in the second half of 2004. As part of that, the National Bank of Serbia abolished cheques, so that we can learn to spend as we earn. In 2004, standards grew 8 to 10 percent, so did the GDP. No one will assure me that only a few families buy imported goods worth over $10 billion.
There will be no inflationary pressure because of the introduction of VAT. The first effects show that prices of 85 percent of products and services went down, five percent remained unchanged, while 10 percent went up. Some prices are higher, some are lower, but the overall effect will be more or less neutral. Consumers will not feel the price growth. I am satisfied with the first results. VAT system needs some three months to start working, and at least six months to remove all problems in application.
Why is VAT rate for newly built flats 18 percent, while for most other countries in the region the rate is 6-8 percent?
Flats are finished products and we think that construction workers have large reserves within their margins. They earn big money and they can renounce one part of their profit. I don’t believe that the complete VAT rate will burden the citizens, particularly because we abolished the 5 percent tax on transferring the property rights for newly built flats. We are ready to make minor changes as early as in June, if it is necessary. The English changed their VAT law three times during the first year. So, it is customary and we are not running away from that.
Who would be first candidates for VAT reliefs?
There are a few, books above all. After the first three months, publishers can estimate whether it pays off better if the book tax stands at 0 percent, or to keep it at the current 8 percent, with the right of deducing the previous tax. It is all the same to us. Cinema tickets are also in that group, but we’ll see about that in a few months’ time. Only what is already practiced in EU countries will be approved here. Unfortunately, computers are taxed at general tax rate in the EU, so will it be here. Still, after four to five months, we will be able to see the situation in the budget precisely and see whether there is space for lower rates. Let us not forget, VAT is the primary budgetary income in all EU countries, and there’s no improvisation. It is good that we made significant budgetary reserves last year, so we entered this year in peace. We saved almost 8 billion dinars and carried it over as reserve for 2005. This reserve resulted from tax collection and amounts to 40 percent of the funds needed to cover the whole budgetary deficit planned for 2005.
What will 2005 be for citizens?
A year of reality is awaiting us. Those who work hard will have a nice life, the state will assist those socially jeopardised and medically ill, whereas the ones who are in good health and working condition but unwilling to work cannot live well. I believe that unemployment rate will reduce in 2005, and that a large number of people who are working in the gray zone will be stimulated to transit into legal business because of the newly introduced tax reliefs. If people say their standards have worsened, it is because they got used to spending what they had not earned, and we changed that in the second half of 2004. As part of that, the National Bank of Serbia abolished cheques, so that we can learn to spend as we earn. In 2004, standards grew 8 to 10 percent, so did the GDP. No one will assure me that only a few families buy imported goods worth over $10 billion.
