SME sector crucial for the development of the Serbian economy

In the last few years, Serbia is improving its position in the World Bank’s Doing Business list and has been trying to improve the business environment and attract foreign investors. But, at the same time, it is necessary to support domestic businesses and small and medium-sized enterprises that are a key sector for growth and development of the Serbian economy.

SMEs account for 99.8% of the total number of business entities, generate around 2/3 of employment and turnover, 54.1% of GVA, and have a 43.2% share in the export in non-financial sector. 80% of the total workforce works in SMEs and the entrepreneurial sector. From the perspective of entrepreneurs and small businesses, it seems that the state is more concerned about big companies and that the European Union Small Business Act (SBA), which is "think small first", does not apply in practice enough.

Through its activities, ENECA has supported 2 200 small and family businesses and entrepreneurs to launch and expand their operations and as one of the stakeholders, it participates in the creation of a productive and favorable entrepreneurial ecosystem. While working daily with the SME sector and entrepreneurs, we have noticed that the biggest problems for starting and running a business include: high taxes and contributions, a large number of para-fiscal charges, complicated administrative procedures that require a lot of time, as well as a lack of funding sources and inadequate entrepreneurial education.

The law on contributions for social insurance prescribes high rates for salary contributions (for mandatory pension and disability insurance - 26%, for mandatory health insurance - 10.3%, for insurance in case of unemployment - 1.5% ). The basis for the calculation is the amount of gross earnings, and these obligations account for around 63% of the net income. Such charges are too high for employers, and in practice they result in an increase of the shadow economy, which degrades the competitiveness of responsible employers who register workers and pay the full amount of charges.

The measure that enables young entrepreneurs and persons who are registered as unemployed in the National Employed Service for more than 6 months, to be exempt from salary taxes and contributions for up to nine workers in the first year of business, which was accepted by the Ministry of Finance based on the proposal of NALED, will significantly contribute to the improvement of the business environment and enable the establishment of a larger number of SME in the next period. If we want to set up a solid foundation for the Serbian economy, it is necessary to enable the establishment and successful operation of 100,000 new economic entities in the next ten years.

 

 

 

Regarding the criteria for determining the amount of taxes and contributions payable by the lump-sum taxpayers, their tax rate is calculated based on the average gross salary in the local government they work on. However, further criteria for reducing / increasing the base are then applied to the base amount, and there is a huge problem because each branch office of the Tax Administration of Serbia interprets and applies these criteria differently. For example, the determined 10% increase of tax rate for every new employee is quite a paradox, since an  entrepreneur has additional costs for each new worker (paying salary, taxes and contributions).

A large number of para-fiscal charges (around 250), both on the state and local level, represent a major burden to businesses, especially in the first year. Entrepreneurs have to spend money and time to deal with a large number of complicated administrative procedures. Measures to reduce the number of para-fiscal charges and their alignment among all local governments would certainly contribute towards increasing the productivity and profitability of SMEs in Serbia.

At the moment, there is a problem because Serbia does not allow the establishment and operation of microfinance institutions that would finance startup businesses in all industries, especially in the area of production, which would be significant in creating added value that is later redistributed through services and generates their development as well. It is only after two years of work and two annual financial reports that new businesses can even apply for a commercial loan. The Development Fund of Serbia funds are not sufficient and easily accessible to beginners due to high loan securitization funds (mortgages on business and private facilities).

There is also a lack of professional and business training. It is necessary to teach entrepreneurs on how to produce their products and provide services in the most efficient manner, but more importantly, prepare them to sell their products and services, enter new markets and export their products to foreign countries. Therefore, they need to gain knowledge in the fields of marketing, sales, e-business, digital marketing and modern communication.

One of the problems for beginners and small businesses is the difficulty in billing claims (60 - 150 days) and the uncertainty of collection due to slow court procedures.

It is necessary to work on networking entrepreneurs, which contributes towards business development and improving their export potential for CEFTA, EU and other markets, because it is very difficult for small businesses to develop independently in a domestic market with poor purchasing power of citizens and it is only when they work together that they can reach more developed markets with strong competition.

Along with all these measures, we need to continuously work on the promotion of entrepreneurship through local, regional and national media and positive entrepreneurial practices in Serbia, and also through the transfer of knowledge and experience of successful entrepreneurs from every local government. Large successful systems, domestic and foreign companies operating in Serbia can significantly help small businesses through mentoring and transfer of experience and know-how to accelerate their growth and development and including them in their supply chains. One of the key stakeholders are universities and other scientific and educational institutions that should enable innovations to be applied in business, both through the creation of new products and services, as well as through standardization, optimization and systematization of business processes, which will lead to accelerated GDP growth in Serbia and reduce the lagging behind EU economies.

 

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