High tax burden to salaries has been highlighted by businesses as the most significant cause of shadow economy and one of the greatest burden to business operations in all surveys performed by NALED since 2014. An appeal for lowering salary taxes and contributions has been included among Grey Book recommendations since 2013, being one of the most long-standing.
In the latest survey performed in January 2019, this problem was indicated by even 79% of the respondents. Another 62% respondents (mostly entrepreneurs) added that income tax and contributions are liabilities whose payment is most commonly avoided, in very "creative" manners – from not registering employees at all, or paying salaries in cash, to hiring workers as owners of lump-sum taxed agencies or paying salaries based on withdrawn dividends being subject to lower taxes.
A comprehensive reform that we strongly need would help us bring back some part of laborforce into the legal flows. For example, lowering the minimum basis for calculating contributions would make part-time jobs more attractive. Furthermore, lowering tax liabilities by a third has contributed to successful initiation of electronic registration of seasonal workers, and in slightlz less than six months we have 15,000 seasonal workers registered by tax authorities and mandatory insurance funds, which is five times higher than during the previous years.
In 2019 the state showed it is willing to engage in dialogue and make concrete moves. The elimination of unemployment contributions borne by employers is a sign of willingness, but far from enough to satisfy the needs of businesses. We need a broad dialogue (as also required by the National Program for Countering Shadow Economy), whether we opt for the progressive taxation system or a drastic reduction of some of the contributions, further reduction of non-taxable basis etc.
With more than 600 billion dinars charged annually for salary taxes and contributions, this are the largest revenue-generating charges for the state and local governments, and the decision needs to be carefully analyzed and be truly favorable for citizens, businesses, countering brain drain and facilitating faster economic growth.