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Bosnia and Herzegovina: When the Coffee Turns Bitter

If there is such a thing as an inflationary win-win combination, then Bosnia and Herzegovina’s excise policy is certainly an example.

Thanks to inflation, the collection of indirect taxes in Bosnia and Herzegovina – representing one of the main sources of revenue for the budgets of the state and entities (half of the budgets of BiH and Republika Srpska, and a third of the budget of the Federation of BiH), has been growing year on year, last year reaching a record 10.6 billion BAM, a fifth of which related to revenue from the special taxation of tobacco, petroleum derivatives and other high-tariff goods. At the same time, the prices of excise goods have also been the main generator of galloping inflation for years, forming a perfect circle in which taxpayers’ money increasingly fills state coffers and is spent almost exclusively on (for BiH, astronomical) salaries and other privileges of officials and civil servants at different levels of government.

Testifying to what a successful tactic this has proven to be is the fact that, according to official statistics, total revenue collected from excise duties increased by 23.9 million BAM in 2023 compared to the previous year, with annual growth rates of 3.4 (tobacco) to 3.9 per cent (petroleum derivatives). Given that the excise duty on petroleum products averages 35 BAM pfennigs per litre, while tobacco products are subject to a proportional excise duty of 42 per cent of the retail price of cigarettes and a fixed excise duty of 1.65 BAM per pack, it is easy for even complete economics laymen to grasp why the authorities haven’t even tried to curb inflation, as that would be like shooting themselves in the foot. On the flip side, it is very easy to diagnose the impact of high excise duties on the already meagre living standard of the majority of the country’s population, who are forced to give up “luxuries” as a result of “wild” prices. This is even impacting the centuries-old tradition of drinking coffee, with coffee consumption down so much that the collection of excise duties on it have fallen to the lowest level since 2010.

There is nonetheless a cure for every disease, and in 2023 the highest annual rate of growth of collections, by 5.6%, was achieved in excise duties on beer, while revenues from excise duties on alcohol as a whole leapt by as much as 28.6% compared to the pre-pandemic year of 2019.

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