Update to the contribution to the progress report on the process of accession of the republic of macedonia to the european union

3.16TAXATION

Legislation

On 2 July 2008, the Parliament of the Republic of Macedonia adopted the Law amending the Law on Public Revenue Office (Official Gazette of RM no. 81/2008). Amendments are made in the provisions related to the competencies and organizational structure of the PRO, as well as the provisions for distinguishing particular category of persons (employees) with a status of tax officials (most of the employees), which will have special tasks and competencies. The amendments of the Law are in direction of realization of the process of modernization of the PRO.

Organizational, the PRO remains body within the Ministry of Finance.
Law amending the Law on tax procedure was adopted (Official Gazette of RM no 88/2008). With the amendments, full harmonization of the Law with the Law on general administrative procedure and the Law on misdemeanours, as well as the Law on Public Revenue Office was achieved.
Law amending the Law on excises was adopted (Official Gazette of RM no 88/2008). With the amendments:

• 
  penalty provisions were harmonized with the Law on misdemeanours
  
• 
  in order to simplify the export procedures and promote the export of tobacco products, special export stamps, estimated for tobacco products for export, were revoked
  
• 
  hybrid passenger vehicles (combination of petrol and electricity) shall be exempted from excise
  
  
  

Law amending the Law on VAT was adopted (Official Gazette of RM no. 103/2008), reducing the VAT rate (from 18% to 5 %) for services provided in connection with maintenance of public cleanness, as well as refuse collection (which is in line with the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax).
Law on Ratification of the Agreement between the Government of the Republic of Macedonia and the Government of the Republic of Lithuania for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital was adopted (Official Gazette of RM no. 103/2008)
Law on Ratification of Agreement between the Government of Republic of Macedonia and the Government of the State of Qatar for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income was adopted (Official Gazette of RM no. 103/2008)
Administrative capacity

All employees in the PRO attended training for implementation of the Code of Conduct.

The PRO organised and hosted a bilateral meeting with the Hungarian Administration for Tax and Financial control in Ohrid, Republic of Macedonia. The PRO presented the results achieved so far, as well as the ongoing activities and projects.
Operational instruction for preparation of plans, performance measurement, reports, analyses and keeping statistics in the PRO was adopted, regulating the functional way of planning and reporting the results.
A project plan for development of the following projects was prepared:

• 
  Managerial reports,
  
• 
  planning process,
  
• 
  Keeping statistics for support of the functions
  

Initial activities for implementation of the Project for industrial partnership have started.

New methods and techniques for VAT control were established (procedures and techniques applied while controlling the VAT, designated in interconnected working sheets). At the moment, this method is in a process of practical testing.
A preparation and organization of the existing and creation of new contents (user-friendly) for the new, re-designed web site of the PRO (www.ujp.gov.mk) is ongoing. Improvement of the e-taxes application according to the new graphical standards of PRO is ongoing as well.
A questionnaire about the Contact centre was submitted to the members of IOTA (Intra-European Organization of Tax Administrations) concerning the exchange of experience obtained by the foreign tax administrations.
Regarding the integration of the social contributions and personal income tax collection (which will be collected by the PRO starting from 01.01.2009), trainings for the members of the working group for training of the employers, as well as for the personnel in the competent authorities is ongoing.
The PRO has established a Committee for generating revenues in the General Directorate, the LTO (Large Taxpayer office), as well as 6 committees in the regional directorates. The PRO adopted an Action Plan for accelerated collection of revenues, which is implemented by these committees.

Collected tax revenues

In June 2008, the collected total tax revenues were in amount of 5 458 068 354 denars, which is higher by:

• 
  10% in relation to the plan (4 970 000 000) and
  
• 
  15% in relation to the realized amount in June 2007 (4 756 059 789)
  

In July 2008, the collected total tax revenues were in amount of 6 266 650 808 denars, which is:

• 
  lower by 6 % in relation to the plan (6 661 000 000 denars), and
  
• 
  higher by 7 % in relation to the realized amount in July 2007 (5 840 614 902 denars)
  

In August 2008, the collected total tax revenues were in amount of 4 915 000 000 denars, which is:

• 
  lower by 10 % in relation to the plan (5 460 000 000 denars), and
  
• 
  lower by 5% in relation to the realised amount in August 2007 (5 195 000 000 denars)
  

In the period January-August 2008, the collected total tax revenues was in amount of 44 637 574 407 denars, which is:

• 
  lower by 2.06% in relation to the plan (45 577 000 000 denars), and
  
• 
  higher by 14.12% in relation to the realised amount in the same period 2007 (39 113 181 878 denars)
  

3.17ECONOMIC AND MONETARY UNION

MONETARY UNION

Monetary Policy

In June 2008, NBRM increased the interest rate on Lombard credit to a level of 8,5% (Official Gazette 79/08).

In June 2008, in line with its efforts for dampening the excessive credit growth, as one of the measures for reducing inflation pressures, NBRM passed decision for compulsory deposit (“Official Gazette” 73/08). According to the decision (operational from July 2008), banks and saving houses are obliged to allocate compulsory deposit with the NBRM if the extended household credits exceed the limits stipulated in the Decision. The growth rates for each month are calculated on a cumulative basis compared to the outstanding amount of the household credits on 31st of May 2008. The monthly growth rates were set such that the annual growth rate of household credits in 2008 is intended to reach 39,8%. NBRM pays interest on the allocated compulsory deposit which is below market rates and equals 1% on annual basis.
Financial accounting

In the June-August 2008 period, NBRM continued with the activities for creating an integrated accounting system. After successful completion of stage 3 - preparation of high level specification, at the moment NBRM is working with the external consultants on development of detailed specifications (stage 4 of the project).

Economic policy

As of July 2008, public debt amounted to EUR 1,813,7 billion, being 29% of GDP and compared to the end of previous year, the debt-to-GDP ratio dropped by 5,7 percentage points

General government debt which, on July 2008, was 21,3% of GDP, is below the limit set in the Maastricht criteria, according to which government public debt should not exceed 60% of GDP. Objective of the Government is to keep this trend in the future. To this end, the medium-term public debt management strategy sets the objective to keep the general government debt below the target of 35% of GDP. Limits are also set for public debt, which should not exceed 40% of GDP.
The ratio between external and domestic debt shows gradual increase of domestic debt and as of 31 of July 2008, it amounted to 43,3% while external debt consisted 56,7 % of total public debt. Share of domestic debt should gradually increase in the future, in line with the budget needs, the market conditions, the capacity and possibilities of the financial system in the Republic of Macedonia. Thus, sound development of the domestic securities market will be provided, which will be the main support to the state regarding the borrowing policy. At the same time, dependence of the financing side of the budget on the foreign borrowing and the fluctuations on the international capital and money market will be reduced.
High share of external debt in the total public debt, as well as the fact that 46,5% of the domestic debt is denominated in euros, results in dominant share of foreign-currency denominated debt (76,9%) in the currency structure of total public debt, while the share of debt in domestic currency is 23,1% and refers mainly to securities the Government and the National Bank regularly issue.
The Strategy for public debt management for the period 2008 to 2010 is approved by the Parliament of the Republic of Macedonia and is published in the Official Gazette No. 95/08 on July, 30 2008. The basic principles taken into consideration when creating the public debt management strategy i.e. proposing and implementing the public debt management strategy are the following: Setting optimum structure of debt portfolio and harmonisation with the macroeconomic policy of the country, harmonisation of the costs of public debt with the Budget costs each year, both individually and on medium term, limiting and eliminating the effects of the financial risk from the public debt both on medium and on long term;
The Strategy for public debt management has set the level of public debt and the sovereign guarantees, the maximum level of new borrowings, the limit for the newly issued guarantees and the portfolio structure (interest and currency structure).

The primary objectives of the Strategy are:

3. 
   achieving the share of euro-denominated debt in the total external debt of 67%-70% spread (with a maximum allowed deviation of +/- 3 percentage points);
   
4. 
   gradual increase of the share of the Denar in the total public debt and its movement in the spread of 9%-18% (with a maximum allowed deviation of +/- 2 percentage points);
   

In order to provide sources for financing the needs of the state, with the lowest costs possible on medium- and long-term, simultaneously maintaining sustainable risk level, several medium-term objectives are set pursuant to the Law on Public Debt, as well as objectives pertaining only to the next year. Medium-term objectives: the level of general government debt not to exceed 35% of GDP in the coming three years; the level of public debt not to exceed 40% of GDP in the coming three years; the amount of guaranteed public debt not to exceed 6% of GDP in 2008, 5.6% in 2009 and 5% in 2010.

Objectives pertaining only to 2008 are: maximum amount of new borrowings in 2008 will not exceed the amount of EUR 530 million; in the course of 2008, the Republic of Macedonia can issue sovereign guarantees up to the amount of EUR 150 million at the most.

In 2008 the Ministry of Finance prepared a Law on amendments to the Public Debt Law in order to adjust and upgrade the legal framework in this area. The Law on amendments to the Public Debt Law is approved by the Parliament of the Republic of Macedonia and published in the Official Gazette No. 88/2008 on July 16, 2008.

The amendments of Public debt Law will eliminate certain problems in reporting the public debt, will improve the procedures for issuance of government securities and will straighten the legal framework for borrowing of the municipalities, public enterprises and companies fully or predominantly owned by the state or the municipalities, the municipalities within the City of Skopje and the City of Skopje..

Regarding the organisational structure for the Public Debt Management Department is fully staffed and it comprises following Units:

1. 
   Unit for Borrowing and Investments (Front Office);
   
2. 
   Unit for Records, Monitoring and Servicing Public Debt Liabilities (Back Office); and
   
3. 
   Unit for Public Debt Management Policies and Risk Analyses (Middle Office).
   

The software application for public debt is in a phase of implementation in 2008, in which integrated database on overall state debt will be created.