Tax Incentives for New Employed Workers in the Republic of Serbia: Types, Conditions And Effects of Application

Abstract

The Republic of Serbia has gone through (and is still undergoing) a period of transition, privatization and
ownership transformation, which resulted in, among other things, a high unemployment rate (the population of all
ages). In order to reduce the cost of workers, employers are inclined to employ unregistered workers who do not pay
taxes and contributions, and hence they do not have health, pension and disability insurance. From the earnings of
these workers, the state does not have inflows, and these workers are not protected by labor legislation. The workers
thus employed are an informal sector that characterizes vulnerable social groups and work in low-skilled jobs. One of
the problems that arises for this is the unsustainability of the pension system, whose survival is already hampered by
the increasing pressure on the pension fund (early retirement due to excess labor after acquisitions, an increasingly less
active working population, financing the payment of pensions by public indebtedness of the state, which creates
additional pressure on the already high public debt).
The use of tax incentives for newly employed workers is just one way to reduce unemployment and direct employment
of workers into formal flows. Since 2006, there have been three types of relief for newly employed workers, with
different conditions and method of application, and various effects on the level of (non)employment. Having
chronologicaly presented the benefits of the tax reliefs for newly employed workers from the point of view of their
forms and conditions of application in the first part of the paper, the authors in the second part of the paper analyze the
effects of application tax reliefs. On the basis of official statistical data and the fiscal strategy of the Republic of
Serbia, and by the application of induction, deduction, analysis and synthesis methods, the authors point out that tax
reliefs do not only affect the level of unemployment and attract foreign direct investments in the Republic of Serbia,
but also produce a financial pressure on the budget and have negative impact on the pension fund.