The IMF’s Resident Representative Milan Cuc said yesterday that a differentiated VAT rate, which has been discussed frequently in Republika Srpska these days, is not a particularly efficient tool in protecting low-income citizens.

The experience shows that a redistribution of income on behalf of citizens with lower incomes, which can be achieved that way, is really limited. The better way is to use VAT revenue through socially targeted expenditures.

Furthermore, the current difficult fiscal situation is the reason why BH cannot afford smaller VAT revenue overall, which means that a lower VAT rate on basic food items would need to be compensated with a considerably higher VAT rate on other goods and services, Cuc said.

The IMF’s Resident Representative Milan Cuc said yesterday that a differentiated VAT rate, which has been discussed frequently in Republika Srpska these days, is not a particularly efficient tool in protecting low-income citizens.

The experience shows that a redistribution of income on behalf of citizens with lower incomes, which can be achieved that way, is really limited. The better way is to use VAT revenue through socially targeted expenditures.

Furthermore, the current difficult fiscal situation is the reason why BH cannot afford smaller VAT revenue overall, which means that a lower VAT rate on basic food items would need to be compensated with a considerably higher VAT rate on other goods and services, Cuc said.