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Serbia plans VAT rise

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Serbia is set to be the latest country to look to increasing VAT to help balance its budget.

Finance Minister Mladjan Dinkic wants to increase the rate from 18% to 20% as part of a package of measures designed to increase revenue and steer Serbia out of financial turmoil. The rate for basic food products such as bread and milk will remain at 8%.

An official date for the rate increase has not yet been given. Boris Lazic of Eurofast Taxand believes it is most likely to be January 2013. However KPMG’s Biljana Bujic thinks it could come much sooner.

“The reason for the VAT increase is a big budget deficit and the government prepares a budget rebalance that should be effective as of October 1 2012,” said Bujic. “Bearing in mind this we believe that it is highly likely that the general VAT rate will be increased as of October 1 2012.”

Bujic says that because of plans to introduce it at such short notice, companies are concerned whether they would have enough time to adapt their IT systems to the change of tax rate.

Opponents of the increase are warning it will have an adverse impact on inflation. However Lazic says that business associations have nothing against the increase as they are aware that the country’s budget is in desperate need of funds.

“On the other hand, however, they are of the opinion that there should be changes in the way VAT is collected,” Lazic said. “VAT collection should occur in accordance with the view of the businesses once payment is received from the clients.”

Lazic believes there is a strong chance that the rate increase will hit sales and company profits.

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