Kosovo MPs will vote on significant tax reforms on Thursday, expected to lessen the burden on the poorest members of society as well as boosting businesses and investors.

The Kosovo government is pushing for significant tax reform, aimed at stimulating investment, as well as lowering VAT on basic consumer goods, aimed at the helping the poor.

MPs in the assembly are due to vote on the changes on Thursday.

Muhamet Mustafa, a member of the ruling Democratic League of Kosovo, LDK, and an economist, told BIRN that current high tax rates on imports deter investors and businesses.

“If an investor buys products worth 1 million euro, they have to pay 160,000 euro in VAT, and if those products are not free from custom charges, they then have to pay an additional 100,000 euro,” he noted.

“This is as an absurd fiscal policy considering that Kosovo needs investment and jobs, but it has taken a long time to change,” Mustafa added.

If MPs back the reforms, those importing equipment and other production components will no longer have to pay 16 per cent tax on the value of the goods at the border. Instead, VAT will be collected inside the country, from sales.

The reform is also expected to benefit the average consumer whose buying power will increase if VAT is cut on basic goods such as bread, milk, oil, water and medicine.

“This will help families operating on smaller budgets because VAT will be halved on those products that make up around 60 to 70 per cent of the average consumer 'basket,'” Mustafa continued.

This will make life easier for the poor, who spend more of their income on food. About 30 per cent of the population of Kosovo are deemed to be living in poverty and about 10 per cent in extreme poverty.

The changes will shift the tax burden slightly to middle class earners because products not included in the basic consumer "basket" will see a rise of 2 per cent in tax on average.

The threshold for businesses paying VAT is meanwhile expected to fall from 50,000 euro to 30,000, which will include an additional 1,800 businesses in the VAT net and so hopefully reduce the size of the informal cash-only economy.