Single Register of Business Bank Accounts Gives Bosnia a Tool to Fight Corporate Tax Evasion

Thursday, March 28, 2019

The temptation to shave numbers and shift funds between accounts leads some companies down the dark road of tax evasion year after year. But some countries are making good progress in fighting such corruption, including Bosnia and Herzegovina (BiH).

Tax evasion is an attempt by taxpayers – in this case, companies – to reduce their taxes by deceit, subterfuge, or concealment to deliberately misrepresent the true state of their financial affairs. It’s a crime. And because it reduces public revenue, it affects us all.

“Tax evasion undermines domestic resource mobilization and sustainable development, and disadvantages law-abiding citizens and businesses,” according to a joint statement of the 2018 International Anti-Corruption Conference in Copenhagen. The statement was endorsed by 18 nations (including the United States) and several international organizations and businesses.

In 2017, USAID helped the Financial Information Agency (FIA) in the Federation of BiH (FBiH), one of two BiH entities, tighten financial compliance of businesses with a new system that prevents companies from shifting funds around to avoid paying their taxes. It’s called the Single Registry of Business Bank Accounts.

The registry requires that every business nominate a single “main” bank account for conducting all of its main transactions, including tax payments and other public revenue obligations. Businesses must have only one main bank account, and all its other bank accounts are automatically linked in the register.

This means that when the courts or tax authorities issue an enforcement action and freeze a business bank account, all of the accounts belonging to that business are simultaneously frozen. Before the single register was established, businesses could siphon funds to their other bank accounts and avoid the impact of any tax enforcement action against them.

The entity-level FIA and Tax Administration, the state-level Indirect Tax Administration, FBiH courts, and all banks that operate within the entity have direct online access to the register.

It is already proving to be an effective enforcement tool. As of January 2019, around 1,700 companies have had blocking action taken against them by the courts, at the request of the FBiH Tax Administration.

“The early results are already there for all to see,” according to FIA Director Esad Mahmutovic. While it is impossible to attribute the exact amount of increased tax collections arising from the single register, it has clearly had a significant and positive impact.

In 2017, forced tax collections increased significantly to more than 173 million Bosnian marks (KM), according to the FBiH Tax Administration. That’s a 32 percent increase from 2016, the year just before the single register was activated.

Online access to the registry may be expanded to the business community. Currently, when a company is looking to enter into contractual relations with a business located in the FBiH, it makes a paper-based request into the status of its potential business partner’s bank account status (i.e., to see if it is financially compliant, free of enforcement proceedings, etc.). Online access to the register would speed up that process and encourage wider usage. The FBiH Employers Association has also proposed to expand the register to include bankruptcy and pre-bankruptcy proceedings.

Last updated: June 01, 2020

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