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HOW EMPLOYERS APPLY THE LAW ON CITIZENS’ INCOME TAX AND REDUCTION OF TAX RATE ON EMPLOYEE EARNINGS FROM 14% TO 12% ?

EMPLOYEES AND UNIONS, CAUTION !




Belgrade, February 14, 2007
The amendments to the Law on Citizens’ Income Tax, based on which the amount of Din. 5.000 is exempt from taxation and tax rate on the taxable amount of earnings reduced from 14% to 12%, came into force on January 1, 2007. A majority of employers has already paid out the earnings in this year, therefore, one could have felt the positive effects of such amendments to the Law.

WHO SHOULD HAVE FELT THEM AND WHO HAS FELT THEM?

Probably, one cannot give an answer to this question having only one meaning, because the modalities of enforcement of this amendment differ from one employer to another. Strictly interpreting the Law, the benefit of tax reduction on earnings should have been reflected in the increase of net earnings. This is because “gross” earnings are meant by the earnings, pursuant to the Labor Law, with tax and contributions from earnings. Therefore, the tax reduction on earnings (this tax is employee’s obligation, paid by employer on employee’s behalf) should bring about an increase of a part of the earnings being paid to an employee “in cash”.

It is difficult to analyze whether this has really occurred or not after the first month? Although, knowing that employer’s practice still prevails in this country, namely, that earnings are fixed and stipulated in net amount, and then calculated in gross earnings, there is a great probability that net earnings have been increased only in exceptional cases, due to tax reduction on earnings. This probably happened only in big companies and the companies being a part of large international corporations, for which it is logical to stipulate gross earnings, whereby an employee takes the consequences and benefits from changes in imposing dues on earnings.

On the other hand, the Government has, probably being aware of the practice of a majority of employers that “net” earnings are meant by the earnings, when proposing amendments to the Law, assumed a stand that reducing the dues on earnings should be re-directed primarily to investments, opening vacancies, improving working conditions. This thesis is viable and acceptable for the Trade Union and even more attractive than the net earnings increase, in a long term, knowing that the biggest problem in Serbia is a high unemployment rate at this time.

There is a risk that this tax reduction and Government’s good intentions to create the conditions for an increase of employment, in most cases will neither lead to net earnings increase nor to an increase of investments and opening new vacancies, but will be converted to employers’ profit.

The Trade Union’s task and role is to disable this, demand from an employer either strict observance of the law or evidence that the funds from tax reduction on earnings will be invested and returned to employees in an indirect way, because they, originally, belong to them!

 
     
 
 
 
 
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