AmCham Macedonia Fall 2017 (Issue 55) | Page 26

Analysis Fall 2017 / Issue 55 Analysis Fall 2017 / Issue 55 AmCham Comments on Public Finance Reform Priorities This fall, the Macedonian Ministry of Finance recently released its Public Finance Management Reform Pro- gramme 2018-2021 (PFMRP) and invited stakeholders from government, the international community, business and aca- demia to discuss its contents in an open forum, facilitated by the cabinet of Finance Minister Tevdovski. AmCham Director, Michelle Osmanli, attended the session and submitted written comments, highlighting the fol- lowing issues members have identified over the years, which relate directly or indirectly to this sphere: We echoed calls to signifi- cantly increase the trans- parency of the payment practices of budget users toward its private sec- tor contractors, as well as their timeliness. Late payment by budget users toward companies here contributes significantly to liquidity problems in the country. Starting in 2016, the Law on Financial Dis- cipline applies fully to all budget users, however the MoF never provided evidence that institu- tional payment practices have improved (e.g., a trend analysis). Given the State’s obligation to monitor itself in this pro- cess (up to and including fines issued to the Minis- ter of Finance his/herself), transparency of public payment practices is a key missing element that needs to be addressed. 26 AmCham Macedonia Magazine Michelle Osmanli, Executive Director, AmCham Macedonia We recommended that reform efforts include measures aimed at preventing blatant and long-term abuse of private contractors who have delivered public works in good faith. One key legal loophole to be addressed is that the cur- rent Enforcement Law does not prescribe a methodology by which judges determine the minimum level of “operat- ing funds” necessary for municipalities to continue normal operations (Article 218). In practice, this means that private contractors who have delivered public works and proven their right in court to be compensated for their work, some- times cannot realize this right. In essence, this exception allows municipalities to operate above the law, avoid set- tling past debts and continue normal operations, including issuing new tenders. Thus, we are calling for the definition of a standardized methodology in the Enforcement Law by which municipalities’ reserved “operational funds” are to be calculated in enforcement proceedings. We called for insufficient budget allocation at the institutional level to be systematically discouraged, since it can lead to abusive practices. For example, Public Revenue Office annual reports from at least 2007 mention “25% of revenues from discovered and paid taxes and interest” as a source of financing of the operations of the institution itself. We believe this constitutes a formal incentive for inspectors to find ways to increase collections, rather than simply ensuring the law is consistently applied as it was intended. Inspectors must never be incentivized in any way to increase “collections” from companies in order to fill institutional budget needs. Insufficient budget allocation should also be discouraged since it prevents institutions from performing the functions they are required to by law. Budget users that are key to improving the local business environment, such as the State Market Inspectorate and the State Office of Industrial Prop- erty, have operated on funds for a number of years that are sufficient only to cover basic operating expenses (e.g., salaries, electricity). When taken on a sustained basis, this budgeting approach aims only to preserve State jobs and maintain the appearance of a functioning organization. We recommended reforms aimed at improving the predict- ability of tax and customs duty collection. Greater consis- tency would benefit both government and companies. This could be achieved by adopting the latest EU directives and OECD/UN guidelines and principles related to direct and indirect taxation (e.g., transfer pricing, anti-avoidance mea- sures, permanent establishments, taxation of the digital economy). All such reforms would need to be accompanied by substantial improvements in the cap