Date: 25/10/2018

Consistent Implementation of Regulations Vital for More Domestic Investment

In an interview for Edition 100, published by the Business Info Group, Jelena Pavlović, AmCham President, underlined that the key problems that AmCham members point out are the unpredictability of tax regulations, the grey economy and the ineffective judiciary, and that these are really serious challenges and that their solving involves dedication and partnership work of the state and the businesses.

Jelena Pavlović: AmCham conducts an annual survey on the Business Climate and Investor Confidence, which gives us an idea of the perceptions of our membership of the business environment in Serbia. Last year's survey showed that overall satisfaction with the business climate is moderate.

Two-thirds of AmCham members gave a stable three-out-of-five points for business climate estimates, which is an improvement over the previous year. I would add that our country as an investment destination is generally rated better than Montenegro, Macedonia and Bosnia and Herzegovina, but worse than the neighboring countries that are members of the EU.

What are the most common problems that businesses point out as the biggest?

JP: The key problems that AmCham members point to are the unpredictability of tax regulations, the grey economy and an ineffective judiciary. These are serious challenges and their resolution involves commitment and partnership of the state and the economy. There are more and more objections to inconsistency in the application of regulations, which is directly related to the inefficiency of the institutions in charge of implementation. We have a huge task whose backbone is systematic institution building.

Do you see progress in reducing the grey economy?

JP: Despite the satisfactory implementation of the Law on Inspection Supervision, the level of the grey economy remained practically unchanged in relation to 2012. According to data of the Foundation for the Advancement of Economics, it is estimated that the grey economy continues to cause a worrying 30 percent of GDP, which indicates that Serbia loses eight million euros a day due to illegal trading. This financial loss also means lower quality of health, education and judiciary for all our citizens. According to an index survey conducted by The Economist Intelligence Unit, Serbia ranks 57th out of 84 countries in four categories: legal framework, institutions, tax and customs policies. It is encouraging that the state is aware of these problems and is working to combat the grey economy, where progress has been noted in the actions of the Customs Administration, Market Inspection and the Tax Administration. In order to reduce this phenomenon to an acceptable level, there is still a lot of well-organized and coordinated work ahead of us all, because the actors, channels and practices of the grey economy are highly adaptable. For example, special attention should be paid to suppressing illegal online trading, a new channel that is increasingly represented. AmCham is actively working with the Republic Public Prosecutor's Office, the Ministry of the Interior and other inspectorates on combating the grey economy and protecting intellectual property rights on the Internet.

What are the areas most affected by the grey economy; which tax liabilities are most often avoided?

JP: There are almost no areas that have not been affected, but the most often illegally traded are FMC goods, clothing, tobacco products, alcohol, medicines, technical goods, where avoidance of VAT, excise duties, customs and other taxes is noted. The harmful consequences of the grey economy affect everyone. In addition to reducing the income of the state and the economy and thus preventing faster economic growth, it is accompanied by crime, smuggling, forgery of goods, money laundering and corruption, which are serious threats to the society as a whole.

What effect does the widespread grey economy have on the legal part of the economy?

JP: Economic activities taking place in the grey zone represent unfair competition for legal business entities, forcing them to reduce investment and employment, and ultimately closing down the business. Also, those engaged working in grey zone are completely unprotected, without health, pension and disability insurance. Consumers are seriously endangered as there is no quality control and product safety in the grey market, and often the origin of these products cannot be determined.

Predictability in business is one of the most frequently mentioned demands of companies operating in Serbia. What is the most unpredictable for doing business in Serbia?

JP: From a business point of view, business and investment decision-making involves assessing both business and non-business risks, of which legal certainty, which includes the predictability of the legal system, is the most important one. Predictability is achieved through timely and fundamental public debates in the process of adopting new regulations or amending existing ones. Through dialogue with businesses, that comes up with optimal and quality regulations, which is important later for their successful implementation.

To what extent does it affect the economy when the laws passed are not applied or at least do not apply to everyone equally?

JP: Considering that AmCham is in the private sector, you will not be surprised by our principled position on regulation, which is reduced to: the lowest state interference in the economy, the equal conditions of business for everyone and the rule of law. There is no doubt that effective and consistent implementation of regulations, equally for everyone, is a precondition for legal certainty and free competition. That is why predictability of adopting regulations is important, too. Even more important and a more demanding job for the State is to ensure consistent implementation of the regulations it brings. For both these tasks, professional and strong institutions are needed, in all the three branches of government.

How does this reflect on private, primarily domestic, investments?

JP: The best answer to this question can be found in the fact that, despite last year's record inflow of foreign direct investment of about 2.4 billion euros, domestic private investment reached a modest nine percent of gross domestic product. This is a concrete indicator that the business environment was not sufficiently stimulating and that domestic businessmen did not believe that the investment would be returned in a reasonable time. This year’s results are to be available very soon and we will have an opportunity to comment on whether there has been a measurable improvement.

What are AmCham's suggestions for improving the business climate?

JP: Nine AmCham committees actively cooperate with State bodies, ministries and agencies either independently and in cooperation with other business associations, offering very concrete proposals for improving the business climate through improvement of regulations, their implementation and strengthening of institutional capacities.

Interview translated and cover photo downloaded from: