Backward Fiscal Cash Refund: A New UNDP BiH Approach to Poverty Reduction
This paper explores the requirements for the start-up of UNDP tax incentive mechanisms in the form of Backward Fiscal Cash refunds, which offer an interesting alternative to traditional business support grants and 'subsidized credit' by:
- Formalizing micro and small enterprises,
- Diminishing liquidity risks,
- Creating new jobs,
- Increasing local tax revenue collection.
In a UNDP Backward Fiscal Cash Refund:
- A reimbursement of tax paid in the previous fiscal exercise is made by means of a bank transfer.
- The calculation method of this incentive is allocated to a certain portion of taxes incurred as defined by UNDP and the local tax administration.
Since the Autumn 2004, UNDP/SRRP in Srebrenica, Bosnia and Herzegovina has field-tested a Backward Fiscal Cash Refund Mechanism to stimulate growth of local enterprises and sustain the local employment base.
- Srebrenica's economy has been significantly deterred by the armed conflict and genocide, and is characterized by regional disequilibrium unemployment, and the approach appeared to work effectively.
- In 2005, this mechanism will again be trialed, this time in supporting the forest products cluster.
At the request of the Secretary General, Kofi Annan, UNDP/SRRP has been put in place to initiate regional recovery activities encompassing multi-sector interventions. As a complementary activity, this tax incentive mechanism serves to bundle local governance and microfinance with business development services' (BDS') best practices.
- This BDS innovation was timely with the UN International Year of Microcredit 2005 in providing a new alternative to market distortions created by grants and 'groans'.
- Fiscal incentives are neutral, more accessible and predictable, involve lower administration costs, and avoid rent-seeking by reinforcing fiscal compliance.
