Municipal Economic Development in Eastern Serbia

Central government introduced several measures that have reduced local governments‘ (LGs) budgets. LGs are under pressure to deliver quality services to citizens and businesses. LGs‘ accountability to citizens is low, and citizens do not have many opportunities to participate in decision making on investment priorities. Property tax is the largest own source revenue of municipalities, which they are able to allocate on their own, and where accountability link between LGs and citizens is strong. However, it is unpopular to collect property tax, due to a lack of tax culture in Serbia and the fact it is directly paid by citizens (i.e. voters) to the LG. Hence, most of municipalities do not fully use their tax potential.

Citizens and businesses in target municipalities benefit from more participative and accountable local governance and improved public services through enhanced awareness and rule-based management of property taxes as municipal revenue.

The phase 2 will cover 40 Local Governments out of 145 Serbian municipalities with an estimated population of 2.5 million inhabitants. At least 50% of them are considered to live in rural areas, and in average 12% are poor. Up to 400 unemployed people will be hired as tax assessors based on official unemployment lists.

Outcome 1 — Municipalities manage the registration and collection of property taxes more effectively.

Outcome 2 — Municipalities and citizens (taxpayers) engage more closely on issues of collection and use of property taxes resulting in more municipal investments into services and municipal infrastructures.

Outcome 3 — An effective policy dialogue between project stakeholders at the local and central level leads to improved efficiency of property taxation in line with good governance principles.

Expected results:  

1. 40 partner municipalities will update tax registers; enhance capacity for tax property collection and increase own revenue up to CHF 6.5 mio in the course of the Project;
2. As a result of dialogue between citizens and LGs, new tax revenue will be used to fund citizens‘ priorities in line with good governance principles, with 10% increase of Investments in municipal services and infrastructure;
3. The efficiency of the property tax collection process will improve based on project facilitated policy dialogue between central and local level.

Results from previous phases:  

1. Phase 1 almost tripled the tax revenue of nine partner municipalities (an average increase of 197%) exceeding the SDC investment by a multi fold. The Swiss investment of CHF 1.33 mio generated CHF 2.8 mio of new revenue, only in the first two years;
2. Several tens of thousands of citizens entered a relationship of accountability with their LGs. The debates were triggered between citizens and LGs on use of tax revenue. The Project reinforced awareness of all nine LGs on the need to consult citizens concerning municipal investments;
3. The Property Tax Law has been simplified, and initial inputs on performance incentives for LGs have entered draft Municipal Finance Law.

Standing Conference of Towns and Municipalities, Ministry of Finance, Ministry of Public Administration and Local Self Government etc.

The Project will closely cooperate with SECO‘s subnational public finance management Project (RELOF) on property tax issues and SDC‘s successor of European PROGRES program concerning the good governance agenda.

Phase 2 01.05.2017 - 31.12.2021   (Completed)