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Belgrade, 11/02/2020

Property Tax Increase for SMEs

In the past weeks, small- and medium-sized enterprises in many cities throughout Serbia are receiving tax decisions with greatly increased amounts of property tax.

Increase percent starts from 80% to incredible 1050%, depending on the decisions of municipal governments and their tax administrations, and has caused severe reactions among the businessmen.

The serverety of the situation is added by the fact that these high increases of property tax are made only for SMEs, but not for large companies. In this way the SME sector was once again found itself under pressure by merciless tax policy of the Ministry of Finance and local tax administrations, similarly to what already happened in 2013, when the tax reliefs for investments in fixed assets were removed, significantly slowing down the growth of SME sector, and cutting down investments in new machines, equipment and employment.

Basis for the high increase in property tax municipal governments and their tax administrations found in latest amendments of Law on Property Tax which were adopted by the Serbian National Assembly in December 2019. Article 7 of the Amendments on Law on Property Tax stipulates that SMEs can no longer calculate the value of their property in their financial statements based on fair value principle, which is still the case for large enterprises. That created a possibility for municipal governments and their tax administrations to create tax decisions for SMEs based on their own assessment of value and often with maximum rate. These double standards concerning the property tax are not only economically unrealistic and unfair, they are also unconstitutional, as they put SMEs in inferior market position.

Even though throughout Europe companies from SME sector pay tax on property they use for business activity based on the market value, Serbia stepped away from these rules and brought tax decisions where the amounts vary from several thousands to 50-80 thousands EUR per year. This will cause a number of companies to sell their property, make savings by reducing salaries or cutting down on employees in order to secure the funds for such a high amount of tax, and part of burden will also be brought on general population through new increase in cost of domestic goods and services. This tax tretmant of SME sector, which is the top of priority sector of development policies in the EU, presents a serious blow to the domestic economy and an additional burden to the competitiveness of micro, small- and medium-sized companies and makes keeping young and educated people in Serbia more difficult.

Business Support Network therefore appeals to the Minister of Finance and the Government of the Republic of Serbia to change controversial Article 7 of the Amendments to the Law on Property Tax and allow micro, small- and medium-sized enterprises to pay property tax based on the fair market value.