At a session held on 20 March 2020, the Government of the Republic of Serbia (“RS”) adopted a Decree on tax measures to mitigate economic consequences of the COVID-19 disease caused by the SARS-CoV-2 virus during the state of emergency (“Decree”) which was a co-signed by the President of the RS. The Decree includes tax relief measures and the decision to reduce the default interest rate in order to ease the tightened economic conditions and increase taxpayers’ liquidity during this time of extraordinary economic challenges. The Decree entered into force immediately, i.e. on 20 March 2020, as part of a continuing process of implementing measures to support financial stability and liquidity. During the state of emergency, the Decree provides two main measures: reduction of the default interest rate and tax relief for some taxpayers.
Reduction of the default interest rate
The Decree foresees a reduction in the default interest rate on underpaid or overpaid tax and sets it to be equal to the National Bank of Serbia (“NBS”) annual reference rate. For all taxpayers (legal persons, entrepreneurs, farmers and natural persons) during the state of emergency, the additional interest on overpaid or underpaid taxes and incidental charges will be calculated using the interest rate which will be equal to the current annual reference rate of the NBS. As we reported in our last article the COVID-19 pandemic & response of central banks, the NBS cut its policy rate by 50 bp to 1.75% at an extraordinary meeting held on 11 March 2020, where the NBS Executive Board voted to cut the key policy rate. This means that the default interest rate is now reduced from 11.75% to 1.75% per annum. By trimming the key policy rate in the conditions of low inflationary pressures, the NBS is providing additional support for credit and economic growth, thereby increasing liquidity of taxpayers.
Tax relief for specific taxpayers
By announcing the Decree, the Government provided tax relief for legal persons, entrepreneurs, farmers, and natural persons who are participating in deferred tax payment schemes. During the state of emergency, for the taxpayers who were granted deferred payment of debt in accordance with the Law on tax procedure and tax administration (“LTPTA”), the measures stipulated by the Article 74 7-9. of LTPTA will not be undertaken to start from the installment due in March 2020. This means that tax authorities will not annul agreements on the delay of payment of tax debt, i.e. terminate resolution on the delay of payment of the tax debt or initiate forced collection procedures. Basically, these taxpayers will not be obliged to settle their tax debts, starting from the installment due in March 2020. Furthermore, during this period, no default interest will be calculated on tax debts that have been deferred, either by the delayed execution of the final tax act or by the delayed payment of due tax.
However, the Decree does not define whether a taxpayer who submits a tax application and does not pay tax may be charged for tax non-payment misdemeanor.
Additional instruments for the taxpayers
In addition to these adopted measures, it should be noted that taxpayers can use two ordinary instruments provided for by tax laws to reduce their tax burden in the period of impaired business activity. These instruments are as follows:
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