GLPS held a Press Conference on the impact of the fiscal reform of Mustafa Government

July 14, 2015

​On 11th of July 2015, Group for Legal and Political Studies (GLPS) held a Press Conference to release a Policy Analysis entitled: ‘Assessment of the VAT Changes: Potential Impact on Consumers and Businesses’.  Similar to most of the Balkan countries, Kosovo has been, and still is, undergoing socio-economic and political transformation. Characterized by the lowest GDP per capita in Europe, Kosovo’s main challenge remains the lack of economic development. In addition its challenges are illustrated by a very large informal economy. However, given that Kosovo has no monetary policy, fiscal policy is the only economic instrument used by policymakers to influence Government revenues in order to have an impact in the economy. Kosovo applies the value added tax (VAT) which presents an indirect tax on the consumption of goods and services in the economy. VAT is charged at a fixed rate of 16%. The Government intends to introduce a differentiated VAT system wherein decreasing the VAT registration threshold for businesses. The new VAT system will introduce ‘…a reduced rate of 8% for all basic consumption products (including bread, rice, oil, milk) and public utilities (including electricity services, central heating, and waste collection) which presents a 50% decrease from the initial standard rate of 16%. The Draft Law provides an increase in the standard rate from 16 to 18% for all other categories not included in the list of the reduced rate. In the meantime the rate of 0% is applied to exports with the aim of stimulating export-oriented companies.’ Albana Rexha, the author of the Analysis reiterated that ‘… the Ministry of Finance should have delivered a thorough analysis for the real impact of these changes and the risks from implementing them. It is possible that these analysis might bring different recommendations that would result with new policy on expanding of the VAT base rather than the escalation of VAT’. In addition, according to the Policy Analysis these fiscal reforms will not necessarily have a positive impact for Kosovo citizens, on contrary there is a higher risk that they will have a negative impact by increasing the cost of living for citizens.  The report concludes arguing that there ‘…are no clear outputs for the announced fiscal reforms outlined by the Ministry of Finance by any economic analysis or statistics on how such changes would impact the overall economy – low income households and businesses. This gives us the impression that these changes are part of a populist agenda rather than thoughtful changes for the benefit of the population at large’. This is the first time after the independence of the Republic of Kosovo that the Law is being changed completely.To access the policy report, please click here.

 Date: Saturday, 11 July 2015

 Place: Conference Centre Orion

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