Violeta Jovanovic, Executive Director of NALED – Cashless Transactions Help Suppress Shadow Economy

The New Program for the Suppression of the Shadow Economy focuses on modern digital solutions, electronic procedures and transactions and carefully measured incentives for the economy. Business people believe that the shadow economy is the most present in construction, and the most efficient way to detect illegal business activities is through reports made by citizens or the economy. For all uncertainties, citizens have at their disposal, in addition to the phone line and the online form, ChatBot IVA (Inspector Virtual Assistant) as well, which helps clients, through an online conversation, to have their requests adequately filled out, the executive director of the National Alliance for Local Economic Development (NALED), Violeta Jovanovic, says in her interview for eKapija.

eKapija: The NALED recently carried out a survey of the positions of the economy on the shadow economy, and the results have shown that the shadow economy has been stagnating or dropping in the past five years. Are such results surprising or expected. Which sectors have proven to be the most vulnerable to the shadow economy?

– For nearly a decade, the NALED has been working to suppress the shadow economy in Serbia. The survey of the positions of the economy which was presented in late July is only a prelude to a thorough study on the scope of the shadow economy in Serbia, which we will publish in the autumn. The perception of the economy is optimistic, I believe, due to the realization of numerous propositions from the previous programs and action plans for the suppression of the shadow economy. These documents have fulfilled many expectations and over 70% measures and activities have been implemented fully or partially. Some of the most important reforms that have been implemented are the regulation of seasonal work in agriculture, tax exemptions for beginners in business (the Start Out Legally program), as well as the improvement of the supervision over financial flows, such as digital fiscalization, the implementation of eInvoices and electronic procurement procedures, the reform of lump-sum taxation… Plenty of progress has been made when it comes to reforming inspection services as well. I believe that the prize game Take the Bill and Win, which has been very successful, has influenced the awareness of the citizens and the economy of the shadow economy to a large extent.

Still, there’s plenty of work ahead, especially in the current circumstances, where, due to the crisis, there could again occur a growth of the shadow market, which, according to business people, is currently the most present in construction, followed by craft services, whereas they believe that it is dropping in hospitability and commerce. What should be emphasized is that the most important thing now is, as soon as the new Government of Serbia is formed, for the new Program for the Suppression of the Shadow Economy until 2025 to be adopted.

eKapija: What are the tools with the help of which the Program for the Suppression of the Shadow Economy 2022-2025 could contribute to the improvement of the business conditions?

– The new Program for the Suppression of the Shadow Economy focuses on modern digital solutions, electronic procedures and transactions and carefully measured incentives for the economy. The key things are the further unburdening of the wages, as well as the forming of a register of non-tax and parafiscal charges. Among the 24 proposed measures of the action plan for the implementation of this strategic document are the continuation of the improvement of the transparency of financial transactions, which entails the full implementation of eInvoices and eFiscalization, as well as the establishment of the full functionality of the eInspector system, where the idea is for its implementation to be mandatory and for the remaining republic inspections to be networked into the system. In addition to lowering the fiscal and parafiscal charges for the economy, in the field of taxation, a simplification of several administrative procedures is proposed, such as the calculation of the property tax and tax payment to one account for entrepreneurs. Beginners in business can expect new incentive measures, so that they can start out legally.

eKapija: We often hear that employees are paid a part of the salary through the account, and a part directly. What are the employee’s options in case they want to report their employer, while keeping the job? What are the procedures in such cases, to whom are such cases reported?

– According to the data of the Ministry of Labor, last year, a total of 212 labor inspectors in Serbia carried out around 64,000 inspection supervisions of illegal employment, resulting in 5,261 procedures, which is 12% less than in 2020. The most efficient way to detect illegal business operations is precisely through reports made by citizens or the economy. As I’ve said, the Program for the Suppression of the Shadow Economy envisages the further reform of inspection supervision. The NALED has been working on it for five years together with the Ministry of Public Administration and Local Self-Government with financial and technical support of the European Bank for Reconstruction and Development. Our goal is to accelerate and facilitate the entire reporting system, so that citizens do not have to think about which inspection is in charge of what, because they have a single contact center. For all uncertainties, citizens have at their disposal, in addition to the phone line and the online form, ChatBot IVA (Inspector Virtual Assistant) as well, which helps clients, through an online conversation, to have their requests adequately filled out. That is a single place where business people and citizens can report shadow economy, unregistered subjects and unfair competition, as well as irregularities and complaints about the inspectors’ work. In addition to providing support in filling out online forms, a detailed list of problems has been prepared, as well as answers to the questions and potential solutions… What’s encouraging is the data from our new survey that nearly a half of the citizens (49%) are ready to report their employer due to illegal employment. That is significant progress compared to the period five years ago, when only a third of the workers would have do so.

eKapija: What is the essence of the program “National initiative for Cashless Payment – A Better Way?” How can a reduction in the use of cash influence the reduction of the shadow economy? Where are we in that sense compared to the region, and where are we compared to the developed countries of the EU?

– The aim of the project is to provide support to a higher financial inclusion of citizens and the economy, that is, their inclusion in the financial flows, the reduction of the shadow economy and a quicker economic development of Serbia through the inciting of an increased use of cashless payments. The slogan “A Better Way” points to the advantage of cashless payments compared to cash when it comes to efficiency, reliability and practicality. The important thing is that a cashless transaction is always registered, even if the bill is not issued, which is not the case with cashless payments, which helps the transparency of financial flows and the suppression of the shadow economy. We want to support the development of all kinds of cashless payments, from instant payments, cards, through mobile wallets and other new-generation payments, so as to offer to the citizens a wider freedom of choice as to how to make the payment. It is a joint project of the German Organization for International Cooperation (GIZ) and the companies Mastercard and VISA, which is carried out under the develoPPP program of the German Federal Ministry for Economic Cooperation and Development (BMZ) in cooperation with the NALED and the Ministry of Finance of the Republic of Serbia. Here in our market, we have only 115,000 POS terminals, which is around 14,700 to a million citizens. In North Macedonia, the ratio is slightly higher and amounts to 17,000 terminals, whereas in Croatia, 27,000 POS terminals are operational to a million citizens. We are even further behind the EU, because we have as much as 2.2 times fewer points-of sale which allow for cashless payments.

It is evident that we have to work to strengthen the infrastructure and that is why the backbone of the project is the POS program meant for small traders and institutions which have so far not accepted card or instant payments, and among the priorities are also the improvement of the regulatory framework in this field, the strengthening of the awareness of the citizens and the economy of the importance of the development of a cashless society. Within the POS program, we plan to have 25,000 points-of-sale equipped throughout Serbia. The users of the program can be entrepreneurs, micro and small enterprises, but also public administration institutions, which have not been accepting cashless payments in the past year. We thereby support them in improving their business and the satisfaction of their customers. In the first year, they will be able to use the POS terminal or the software solution with the lowest trade fee. We invite them to follow us and apply to our public invitation when it is published.

eKapija: Is it optimistic to expect the implementation of cashless payments to result in the reduction of state charges for entrepreneurs in the sense of contributions and taxes in the long term? How can the economy be motivated to switch to cashless payments?

– By implementing cashless payments, business people generally increase the opportunities to develop their business, through the introduction of online sales, increase in the number of purchasers, especially those who use cash less and have more purchasing power, run the business books and follow the transactions more efficiently, but also prevent potential disputes with the suppliers and the customers. Furthermore, online sales, gives them the possibility to open new markets and thereby offer their products and services to a considerably larger number of clients. On the other hand, by accepting cashless payments, business people considerably reduce the costs of handling cash (counting, keeping, payment to the bank), while at the same time increasing the security of their business, because they reduce the risk of theft. According to our survey, one obstacle is the lack of interest of the purchasers in cashless payments, and they also cite the high costs as the main reasons for such a situation. On the other hand, 86% of those who accept cards, instant and online payments say that it has had a positive impact on their business.

eKapija: On May 1, the new system of fiscalization started. What are the impressions, how have the entrepreneurs handled the new cash registers, procedures?

– The implementation of the new system was not an easy job. The Law on Fiscalization had been adopted two years before, the bylaws had been adopted in 2021 and everything was ready for shifting to the new system. However, it had to wait until this year precisely because entrepreneurs needed to be informed. So it was certainly not easy, but I believe that the economy is yet to see the benefits of this system. The survey that we have carried out has shown that a half of the business people positively rated the new e-fiscalization, whereas nearly every fourth one had a negative attitude toward it. Two fifths believe that, in the first year of implementation, the new eFiscalization system will lead to additional costs, whereas 4% believe that the costs will reduce compared to the old system. When it comes to the perception of the costs of the new system in the long term, expectations of additional costs are slightly lower (26%), whereas a slightly larger number of the subjects believe that, in the long term, eFiscalization will lead to a reduction in costs.

What should be pointed out that the new system has enabled a more efficient fight against the shadow economy, the reduction of costs in the long term, which business people are yet to feel, and unnecessary administration procedures have been removed as well. A similar form of fiscalization is used in many European countries, even in our neighborhood. For example, in Croatia, it was implemented nearly ten years ago. There, before they implemented this system, the interventions of the Tax Administration in the field determined irregularities in 10% cases, and once the more modern system was implemented, the percentage increased to 60%.

eKapija: How satisfied are you with the implementation of the project eGovernment Local Index, how have municipalities handled it? Has a municipality stood out as the most successful one, and is there a municipality which is the worst one in the implementation of the eGovernment concept? What is the situation in the Belgrade municipalities like in that respect? Are citizens informed enough about the possibilities provided by the eGovernment?

– At the moment, we have preliminary results, and the plan is to publish the final ones in the autumn, when the ranking list of the local self-governments will be known as well. This survey was done and carried out for the first time with the support of the European Union. The results have shown that local self-governments need even stronger help in developing electronic services and personal data protection, improving HR capacities and infrastructure for electronic operations. So far, towns and municipalities have managed to digitize 20% of the procedures in their jurisdiction, and when a small number of especially successful ones is removed from the calculation, the percentage drops to only 5%. Only 10% local self-governments have more than 90% digitized procedures. The security of the data in their bases is also questionable, since a half of them have no licenses for all programs, whereas 14% don’t have a license for any program they use. Through trainings and Best Practice Guides, we will help those municipalities which have recorded weaker results.

eKapija: StarTech, as the best idea in the field of promotion of entrepreneurship, will compete this November against 39 other economies in Prague. Is there a preparation for that event, is the project being upgraded, perfected and what do you expect from the upcoming contest?

– That is a huge success for us and we are very proud that StarTech will represent Serbia at the Prague final together with “I, Entrepreneur”. We will defend the colors of our country in the great competition of projects from EU members states, states of the Western Balkans, as well as Iceland, Turkey, Armenia, Moldova, Ukraine and the United Kingdom.

This victory was not a surprise to us, because StarTech made a great entrance to the scene of Serbia as the biggest program of support to innovations and the startup ecosystem financed by one company. We implement this program with Philip Morris International (PMI), in cooperation with the Government of Serbia and the Nis-based organization Eneca. A total of five million dollars was invested. Of that, over three million was invested in non-repayable funds and other direct forms of support to startup teams and small and medium enterprises. We believe that, following our success, other companies will follow this example of synergy of the state, science and the economy. That this is necessary was also show by our Grey Book of Innovations, which we published this year within StarTech.

Srdjana Maricic

NALED Beograd

Vlada Republike Srbije

Ministarstvo za rad, zapošljavanje, boračka i socijalna pitanja Republike Srbije

Ministarstvo finansija Republike Srbije

GIZ Beograd

Predstavništvo Mastercard Europe Beograd

Philip Morris operations a.d. Niš

ENECA

VISA CEMEA HOLDINGS LIMITED-Ogranak u Beogradu

National Alliance for Local Economic Development

VISA

StarTech

German Federal Ministry for Economic Cooperation and Development

BMZ

Violeta Jovanovic

Program for the Suppression of the Shadow Economy. Inspector Virtual Assistant

IVA

Take the Bill and Win prize game

digital fiscalization

register of non tax charges

register of parafiscal charges

eInvoice

eFiscalization

eInspector

transparency of financial transactions

A Better Way

Law on Fiscalization

Grey Book of Innovations