Interviewed by: Evliana BERANI
In an exclusive interview for Info Globi, speak a man who leaded Kosovo Customs for 10 years, Naim Huruglica. Actually he lecture in “Pjeter Budi” college on several subjects and most of his time dedicates on capacity building for the future of Kosova.
In his interview the existing economy of Kosova, Huruglica qualifies as “sick economy”. He says that country has a needs for more public infrastructure but more critical needs are concrete projects to decrease the unemployment and poverty. According to Huruglica, the stabilization association agreement whenever will be signed, will effect the revenue collected from taxes and the same effects are expected from the signed agreement with Turkey on free trade.
What are the results from the dialog with Serbia? Is Huruglica planning to involve in politics? What is good news for him? Is the budget 2014 good or bad news? What kind of policies he would produce if he would be on executive and policymaking position of Kosova? Those are only some of the questions for what in his interview to Info Glob, speaks Huruglica, a person who was in charge of Institution which for 10 years brought to Kosova a revenue approximately to 7 billion euro.
infoGlob: Kosovo’s budget also for 2014 is very much depending from revenue coming from Kosovo Customs. Is this a good or bad news for country?
Huruglica: Truly this is not good news for Kosova but this is a real budget as represents the country’s economy reality. Budget shows that the economy didn’t achieve the development at the level we want and also to bring the increase of revenue from domestic taxes. Still the economy is depending from import, from the goods which companies or citizens of Kosovo continue to import. Through this we collect main tax collection which fill the budget and this is not enough.
infoGlobi: Is the budget real also from the perspective of possibilities to achieve it at the level is planned?
Huruglica: Will be very difficult to achieve that. In the last two-three years we have seen a tendency of imports dropping, which can be as effect of economic crises and the drop of purchase power in Kosovo. This situation partly can be as result of substation too of imported products by domestic products, what we see day by day especially in agriculture. However, the expectation that import or revenue will increase at the projected level, are too ambitious.
infoGlob: Is it normal situation for a country that even 14 years after the war, still depending on the budget which mainly is filled from the customs revenue?
Huruglica: No is not. To have understanding where a country economy stands, you have to check the balance between import and export, to have to check the trade balance. In the cases where the discrepancy between import and export is huge, that gives you to understand that something is wrong. We have very bad trade balance which shows that we cover imports by only 13% of export. This speaks for a sickness of our economy, for a situation where we don’t have a production or we have very small production.
Kosova is a country which depends on imports. This is a reflector of the economy’s health if I can call the economy in this way. This shows that current situation is not good.
infoGlob: Z. Huruglica, for ten years continuously you have been in charge of Kosova Customs. During those ten years if you would have a role in government, what would you do to change the situation the policies implemented so far brought us?
Huruglica: The revenue collection from customs can be reduced through an administrative decision, what would stop customs to collect the V.A.T at the border and the entire V.A.T to be collected inside the country by Tax Administration. To do this of course the government needs to be fully confident that this can function with Tax Administration as Tax administration should be able to manage the V.A.T. collection. Let’s not forget that V.A.T also on import represents the main collected tax and if I am not wrong, the V.A.T. collection represents over 55% of total tax collection.
Continuously we have received requests from the business community to abolish V.A.T. collection at border as they are forced to pay before they sell the goods, what in real terms is not right. V.A.T. should be collected only after the goods are sold but to do this there are needs for more reforms. When I say reforms I mean government needs to ensure that Tax Administration will be in position to do this collection. One other effect would be achieved through horizontal expansion of tax collection bases. The tax administration should beable to collect more tax inside the country by increasing the level of control and by collecting more revenue from services or goods produced domestically.
infoGlob: There are a lot of discussion for tax evasion and for informal economy. How you see Kosovo in contexts of those phenomenon?
Huruglica: What I have understood from the last “Riinvest” report, most of the 600 interviewed companies has complained that there is informality. Informality is present everywhere and not only in Kosovo and the reason for its presence are different. In some places it can be as result of high taxes, somewhere of not good control systems but it can be also as result of general dissatisfaction of businesses with public spending, respectively with the way how the government govern with these taxes.
Kosova has the lowest taxes’ rates in Europe. V.A.T rate is 16% and the corporate and income taxes are 10%. Based on this we can’t say that in our case high taxes are those who push companies to informality. I think that informality in our case is mainly as result of weak supervision system, which should ensure that these companies may be controlled.
Unfortunately maybe because of our past tradition, we still continue to be a country of cash money and many of the transactions are still outside bank system. When we add to this the lack of capacity within Tax Administration, we can say that there are condition that people live and work in informality. So is not enough to have low taxes to reduce informality.
The way how a taxpayer should be encouraged to fulfill its obligation is how the local or central government convince him if these governments are returning back these taxes through public investment. Maybe these often reports and news for public money abused or not proper managed, have influence on the people because people are not persuaded why they should pay taxes.
However this is only on side of coin because we are speaking for moral in taxpaying, that someone feel good because he pays taxes, see benefits…whereas I would be more focused on further enhancement of capacities on fighting tax evasion, on the needs for better cooperation and coordination between Customs, TAK, Police, Prosecutor office and all other relevant institutions, coordination which is necessary to achieve results.
The term “rule of law” is very often used in Kosova but one of the problems we faced was lack of justice functioning. We had a lot of cases when we stopped people or companies trying to avoid taxes and it happened that these cases have been waiting for years to be solved in the justice system. This results with effect that people and companies are not fear from the punishments. Rarely happened that people are punished because they have avoided to pay taxes.
infoGlob: It was mentioned health of economy and financial health of the country. What would be the best “doctor”, what would be the formula to overcome this situation?
Huruglica: Every government which come, come with an economic program. Expectation are that governments should be focused on that what is called “comparative advantages” which our country possesses compare to other countries.
For example if there is opinion that Kosova has advantages in agriculture, young labor force or mines, maybe the focus and orientation should be bigger in these fields. To invest in infrastructure I am not saying is bad because on long-term helps economic development but actually Kosova needs more concrete projects to decrease the poverty and unemployment. There is a need for more concrete projects for small and medium enterprises especially focused on comparative advantages such agriculture, minerals, energy.
infoGlob: Mr. Huruglica, I believe you agree that a serious problem remain inability of harmonization between “producing” qualified people with real needs of labor market, what according to my view is result of wrong education policies. What is your view regarding labor market in Kosovo?
Huruglica: That was in known historically and I am speaking for 40 years back, Kosova never achieved to be in a good industrial development position. We had some metals’ processing but they have been exported as half processed and not finalized. The worse came in 1989 when the autonomy was taken and after that the existing industry at that time was destroyed. So the worst happened was that we faced a so called full deindustrialization. After the war entire society is focused on services and trade but not on industry and manufacture. Unfortunately the level of education is low too. There is lack of government policies to stimulate students to study those which are known as exact sciences, what would encourage people to focus on production. We see the young people oriented to study economics and Law but not so much on other issues. The education should be adaptable to market’s demand and not opposite.
infoGlob: There are not only education policies wrong, we have other policies which miss the vision and caused that Kosovo is not progressing in its development. The barriers, inadequate climate for businesses, the application of too many licenses, bureaucratic procedures…. These are some of the remarks which continuously experts have presented.
Huruglica: I think that regarding bureaucratic procedures there was significant progress. The last publication of World Bank “Doing business”, confirms that in relation of documents there was a progress.
I think that main problem is rule of law. Usually the foreign investors with whom I had chance to meet, have complained that it takes them a lot of time to get their rights if they have any property or financial dispute. I am speaking for the functionality of courts and prosecutions. This make people to not feel safe to come in Kosova.
A part of this Kosova missed the cadastral data, the evidence which was taken by Serbia in 1999. This has created unsafety to foreign investors regarding where a how to invest. This is also related with efficiency, speed and quality of that what is called RULE OF LAW. The delayed justice is not justice.
infoGlob: Did you have chance to analyze the budget 2014?
Huruglica: Not to the details but as far as I have seen there is not too much difference from the previous one. If I am not wrong the difference is for only 4, 5million euro more spending. The Government continue to direct the biggest part of investment funds on road building. Now they plan to start the building of highway in direction to Macedonia. This budget is a sign that country is facing the crises, which in reality has attacked the EU countries in 2008/2009. There are signs of decrease of the demand, the decrease of investments in general and we don’t see any indication of increase of foreign investments. Those may effect that what we now see happening that budget will not be able to increase but will remain at the level of previous years.
infoGlob: You mentioned European Union. When European integration process is mentioned, majority of the people believe that the criteria for membership are only political criteria. Those look like forget the fact that around 70% of criteria in fact are economic criteria. How far is Kosova from EU regarding the fulfilment of these criteria?
Huruglica: I think is far away. We face two realities in Kosovo. If we speak regarding the laws and sublegal acts, that is the easiest thing to do because at the end of the day you may copy a good EU law and if there is a political will, you send it to Assemble and adapt it. The problem is the implementation in practice as each law or new regulation which is part of EU integration has its financial and human cost. We should carefully analyze if we have capacity to implement the commitments we take through adapted legislation. If we take an example such environment and the conditions we need to fulfill in this issue, you don’t need to be too smart to understand that we are far away from EU integration. In Prishtina where we live we see big pollution every day and not just this but there are a lot of other issues which are related with the preparation of the country towards EU integration.infoGlob: Which are most difficult economic criteria which country needs to fulfill?
Huruglica: That what I said earlier, rule of law, rule of law.
Rule of law is also economic criteria because you can’t have a market economy and competition if there is no rule of law. There is a requirement for laws’ implementation in general and the creation of free market, where competition is really healthy.
We are still not able to catch the speed we need for jobs’ creation, to develop processing industry and manufactory. We are still focused on services, dependent on import and not able to produce and to replace this big import with products which we should produce also for export.
infoGlob: This is true. What plans you have for the future? Many see you as Minister, there are voices which mention you in relation to much higher position in the future in Kosova. Have you though to get inside politics?
Huruglica: I didn’t hear for this personally and for time being I am not thinking for politics. It is early yet. Apart of lecturing I am planning to work on consultancy in the field where my experience can help.
infoGlob: What represents for you a good news?
Hurgulica: For me a good news would be if Kosova would be able that empty trucks leaving Kosova, to fill with domestic products destined for export. I am saying that in reality I wish that Kosova to be a country which imports but also exports a lot. For me a good news will be if I see economic development happening, a real movement on this direction, seeing people when they go out from their work. This is what I miss! I don’t see a big production factories.
I would like that young people which gets their education have a better hope for their future here. I don’t like the situation where country is not in position to create a good environment and where the young people see the only perspective by leaving the country.
infoGlob: Is 2014 going to bring changes in Kosova?
Huruglica: I don’t believe so. There is a need for more years to come to substantial changes. We Albanians are very optimistic people that things will be better and I hope so but I really don’t believe that 2014 will bring a lot of changes.
infoGlob: There are opinions that revenue in coming two years will be lower due to eventual stabilization association agreement and also due to agreement that Kosova has signed with Turkey. Why less revenue?
Huruglica: Because the first agreement which will be negotiated with EU is the free trade agreement. Since 2000, Kosova was able to export to EU any product free of customs duties, a part of meat and wine.
Negotiation now and after that the signing of agreement, means that EU will be also able to export in Kosova free of customs taxes. In average from EU we import goods at the value of 1 billion euro within a year. If the trade with be liberal, there will be effect on revenue as customs taxes will be 0.
Regarding the Turkey, this country is amongst the five biggest countries from where we import. Even according to the FTA with Turkey the trade liberalization will not happen immediately in the first year but year after the year, however there will be effect on budget as there will be less revenue collected. In Turkey we export very small amount of goods but we import around 220 million euro goods within a year.
Both agreements will effect the revenue collection as the revenue are going to drop.
infoGlob: If we speak using the figures, what are the expected effects?
Huruglica: I can’t say for sure what will be the effect in the first year. No one knows when the SAA will be signed, even some people are saying that this can happen in June 2014.
infoGlob: What we import mostly?
Huruglica: We import almost everything but the first product by value is fuel and after that cigarettes, food industry, etc.
infoGlob: What about exports?
Huruglica: For quite long time the scrap metal was most exported product but the structure of export now have change a little bit for good as we have started to export half processed metals, agriculture products, etc.
infoGlob: How many countries export their goods and services in Kosova? Are amongst them countries which didn’t recognize Kosova as a country?
Huruglucia: There are around 20 countries from where we import mostly. The first five are: Germany, Serbia, Turkey, Italy and China. Serbia and China are countries which didn’t recognize Kosova.
infoGlob: Customs was involved in dialog between Kosova and Serbia. How you evaluate the results of this dialog?
Huruglica: It is true that in dialog between Kosova and Serbia, Customs was part too. Since last year customs officials are fully engaged in two border crossing points in the north of Kosova, Jarinje and Bernjak. In reality they have been there also before but now they are located in joint border crossing points build by Serbian and Kosova side and their presence is 24/7. EULEX is now in so called “helping seat” as the leading role is now within Kosovo staff.
As result of dialog, imports are coming through approved roads and illegal roads are closed. As far as I know the tax collection has started recently at the border and this is good development. Now the revenue will be collected for each import including the import of the goods by citizens living in the north part of Kosova. This will bring positive developments as by closing this process, the control is expanded over all border and this will prevent people to enter illegally and to not pay taxes.
infoGlob: Is this dialog closed as process or there are still open issues?
Huruglica: In relation to trade issues, the process is almost closed. The same is regarding customs. Now remain the process of building the new BCPs with the new modern infrastructure as the existing one still miss modern infrastructure. EU has offered funds for building 6 new BCPs. The border crossing points will look much better and after this we expect that citizens and goods will not have to wait to pass the border.
infoGlob: Thank you Mr. Huruglica.