Public finance reform
Title: Public finance reform in Serbia
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Republic of Serbia
Lead executing agency: Ministry of Finance of the Republic of Serbia
Overall term: 2015 to 2017
Serbia is currently undertaking political and economic reforms designed to increase the stability of the state and promote the EU approximation process in a market economy-based system. Given the precarious budgetary situation, strengthening the capacity for self-financing is a key element of the reform agenda. At the same time, the Government has recognised the importance of good governance as a step towards becoming a modern and effective state. Efforts are therefore being made to reform Serbia’s public finance system in order to meet the requirements of a modern state in terms of transparency, efficiency, citizen orientation and accountability in line with EU standards.
The public finance system is more transparent, efficient and customer and citizen-oriented.
Based on an approach promoting good financial governance, the project pursues a comprehensive strategy which aims to simultaneously strengthen the state systems for income and expenditure. It supports the principles of good governance in the public finance system, namely transparency, the rule of law, efficiency and citizen orientation. It sets out to improve the way in which public income is used to foster development and reduce poverty. This benefits the Serbian people and enhances the legitimacy of state actions.
The project supports the Serbian reform agenda. The agenda aims not only to consolidate state finances, but also to firmly establish the principles of good governance in the public finance system. In the process, Germany is helping Serbia to move closer to the EU by providing support with respect to chapters 16 (Taxation), 32 (Financial control) and 33 (Financial and budgetary provisions) of the body of European rights and obligations known as the Community acquis.
At the same time, the project is also part of the Serbian Ministry of Finance’s reform programme. It applies a good financial governance approach to enable the Ministry to steer the implementation of the planned reforms. Particular emphasis is placed on improving the performance capacity of the Ministry’s tax administration and budget department, introducing an integrated internal financial control system that complies with EU standards and strengthening the role of the Court of Auditors as the central authority for external financial control in the society-wide accountability process.
The project primarily provides advisory services, which are delivered in a variety of forms, including training courses, workshops and studies.
The Ministry of Finance received support in developing and implementing the programme for the reform of public finance management (2016-2020), which was adopted at the end of 2015.
In anticipation of Serbia’s EU accession negotiations, the Ministry of Finance underwent preparation for the successful negotiation of chapters 16 (Taxation), 32 (Financial control) and 33 (Financial and budgetary provisions) of the Community acquis.
With a view to improving the way in which the use of budget funds is controlled, the project assisted the Ministry of Finance in setting up an integrated financial control system. Budget inspection is at the core of this system. Information regarding misuse of funds that has been brought to light and investigated in the course of the budget inspection process is published on the Ministry’s website on a regular basis.
A comprehensive programme for overhauling the Serbian tax administration (2015-2019) was developed with the project’s support and adopted by the Government.
In order to improve the performance capacity of the tax administration, 400 officials have received training on transfer pricing and international taxation, as well as on the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB).
More than 100 tax inspectors and investigators took part in train-the-trainer courses to learn about international practice in the field of tax inspection and investigation techniques for exposing tax offences.
The project advised and supported the tax administration in establishing a tax academy modelled on the dual training system as a means to further professionalise the work of tax officials and boost the practical relevance of their training.
The tax administration now uses innovative tools to communicate with taxpayers and keep them informed. The administration makes intensive use of its Facebook page, YouTube channel and the TV broadcasts produced with the project’s support in order to reinforce its campaign combating the shadow economy.
The tax administration is more customer-oriented and citizen-centred. The fifth independent representative tax survey was conducted at the end of 2016 among small and medium-sized enterprises. The results show that the proportion of taxpayers who rate the services provided by the tax administration as satisfactory has risen, standing at 54 per cent compared to 42 per cent in the previous year.
In collaboration with the Court of Auditors, the project devised a concept for a comprehensive human resources management strategy which is geared towards continuous training, individual performance monitoring and professional career development.