Destination Based Indirect Taxation: The Case of Bosnia and Herzegovina

Development of a strategy to foster strong economic growth was seen by the international community as a key aspect to nation building and sustaining the end of the armed conflict in Bosnia and Herzegovina. Tax policy was a key aspect of the strategy, but the very decentralized institutional arrangements and limited cooperation between the governments complicated the design. This paper reviews and assesses the indirect tax structure that has been the focus of the first five years. Among the findings are the importance associated with creating destination-based revenue attribution, the strong tendencies for tax competition, the unwillingness to accept formula-based revenue distribution, and the high administrative and compliance costs that result from structuring a system to achieve all of the necessary goals in a decentralized government context.