FACT SHEET: Fiscal Sector Reform Activity in Bosnia and Herzegovina

Project Snapshot
Total Funding:  $4.9 million
Start Date:  December 2014
End Date:  September 2019
Implementing Partner:  FINIT Consulting (a local private company)

The Challenge

Bosnia and Herzegovina (BiH) must meet European standards and criteria to become a candidate for EU accession and become an attractive destination for private foreign and domestic investment. To do so, however, it must improve fiscal policies and management of public expenditures. The BiH public sector is large and inefficient, with multiple overlapping authorities of multiple levels of government. This poses considerable fiscal risk for investors and BiH citizens alike. Because of an absence of national coordination of economic and fiscal goals in BiH, the activities of the two entities and Brcko District are increasingly independent. This is the wrong direction for BiH, which should be creating a single economic space that will encourage potential investors.

Our Program 

USAID’s Fiscal Sector Reform Activity in BiH works with the Ministry of Finance and Tax administrations in both entities of BiH,  and other government institutions to improve fiscal discipline, management and coordination at all levels of governance. The project will increase tax compliance, simplify the business regulatory environment, and strengthen the fiscal discipline. It will improve the capacity of the Fiscal Council at the state level and the two analytical units of the Ministries of Finance in the entities. These improvements will make BiH more attractive to foreign and domestic investors.  

Implementation and Expected Results 

The activities of this project will mitigate tax evasion and improve the business environment. Implemented by a local company of fiscal policy experts, the project will assist the FBiH Ministry of Finance and Tax Administration to increase tax collections from non-complying companies in the FBiH, especially in the gaming industry and the companies that transfer money through multiple bank accounts to avoid enforced debt collection. To improve the business environment, the project will continue the reform initiated under USAID’s previous project to simplify FBiH payroll processes for private sector companies, reducing the multiple number of payroll payment orders to just one, resulting in drastic reductions in cost and time of doing business in the Federation of BiH. In both entities, the project will improve budget-related information technology systems to improve public finances.  

The project will tackle so-called nuisance taxes at all levels of the entity governments. These para-fiscal taxes are unsystematically imposed on all businesses without any clearly defined criteria. Numerous fees and taxes on cars, income, etc. are earmarked for financing community infrastructure, but the true destination and use of the proceeds is off-budget and untrackable. This project will establish Para-fiscal Tax Registers in both entites to thoroughly review and streamline these fees and surcharges, and make their use explicit in the budget. Eliminating certain nuisance fees and taxes will reduce possibilities for corruption and will  improve the country’s business environment.