Apr 23, 2015

Enforced and Co-operative Tax Compliance – Case from Bosnia and Herzegovina

Nedžad Haračić and Samira Tanović from Tax Administration of the Federation of Bosnia and Herzegovina that participated at the CEF workshop on Tackling Tax Evasion and Avoidance shared a case from their practice that shows the connection between factors that influence enforced and co-operative tax compliance.

The workshop was delieverd under the Supporting Capacity Development of Tax Administrations in South East Europe (SEE) project.

During the workshop „Tackling Tax Evasion and Avoidance“, organized by CEF from March 31st to April 2nd, Mr. Robbert Veldhuizen and prof. Luigi Mittone presented the subject of enforced and co-operative compliance and factors that influence the compliance. The case we had in Bosnia and Herzegovina very well confirms introduced theses from the lectures and points out to the connection between different factors that influence enforced and co-operative tax compliance.

A few years ago, Tax Administration of the Federation of BIH was informed that in the area of Sarajevo certain number of embassies and diplomatic missions rents the residential and office properties from local citizens. At the same time, operative data showed that these citizens do not submit tax reports nor pay taxes required by Law based on income gained from renting of properties.

Based on these operative data, an action plan was made with the following steps:

  • Identification of the number of embassies and diplomatic missions, that work in rented residential and office properties
  • Identification of the period since these properties were rented
  • Identification of the owners of these properties
  • Desk-check of all the citizens who rent their properties to embassies
  • Identification of the amount of income acquired by renting of properties
  • Interviews – taking the statements from all citizens who did not submit tax reports nor paid the tax obligations and giving them opportunity to submit the reports and pay the obligations after the interview, with no further legal actions
  • For the citizens that did not accept this opportunity, take further actions for submitting tax reports and issuing orders for tax payment, by initiating court orders and sanctions


Based on the action plan, data was gathered about all real estate properties used by the embassies. The information was requested from the police that guards the properties. The ownership data of these properties was checked at responsible municipal and court authorities. Based on the analysis, the list of citizens for desk-check was made. It came out that about 80% of citizens does not submit reports nor pay the tax duties on the basis of renting real estate properties. Citizens from the list were invited to give their statements. Interview was based on the so called „low enforcement“ method that implies that the taxpayer who submits reports and pays the taxes shortly after the interview will not bear the consequences (offence proceedings and penalties, criminal proceedings etc.). Additionally to that, it was provided that for all citizens who decide to immediately report and pay taxes, Tax Administration of the Federation of BIH will be at maximum level of service. Besides that, the data gathered with the interviews would help at taxation of those taxpayers who would not fulfill their obligations after the interview.

Result was that almost all of the invited citizens gave information on the amount of income, and reported and paid taxes. Also, already after the first group of citizens was interviewed, some citizens who were not yet interviewed reported and paid the taxes. In the first year of implementation of the activities, citizens paid over 1.000.000 KM (ca. 550.000 EUR) in taxes. One criminal report was submitted to the prosecutor’s office against the citizens, who refused to report and pay the taxes. In the next year, all these taxpayers submitted reports and paid their obligations with no need for any further activities of the Tax Administration. Desk-check on regularity of tax reports is being performed every year.

Multiple factors influenced the group of irregular taxpayers (taxpayers who were forced to report and pay taxes) to become regular taxpayers (taxpayers who report and pay taxes voluntarily). Above all, we had a good starting information, as well as well planned, coordinated and executed actions of the tax administration. Fear of repressive measures also had a great influence (offence and criminal proceedings and penalties), as well as fear of losing the income, considering that there was a realistic possibility that embassies and diplomatic missions terminate their contracts in case the owners of the rented properties would not respect the law and would not fulfill their tax obligations.