The digitization of Serbia’s tax system is accelerating administrative processes, reducing resource consumption and boosting business efficiency and transparency. However, this significant shift comes with various challenges, which need to be addressed to fully transform both the economy and tax administration. To better understand the implications of this transformation, we spoke with Dr. Hristina Mikić, a finance and creative economy professor at the Metropolitan University in Belgrade.
Key advantages of digitizing the tax system in Serbia
The evolution of the tax system must align with changes in the economy and digitization is central to this adaptation. The primary benefits of the digital transformation in Serbia’s tax system include faster tax processes and cost savings. Prior to digitization, basic tax procedures took an average of 16 working hours. Now, these processes can be completed in less than an hour. Beyond that, digitization benefits not only businesses but also the tax administration. It allows for better monitoring of taxpayers, enhancing tax compliance, identifying risky behaviors and automating processes like VAT refunds. Digital tools enable predictive and prescriptive analytics, which help foresee potential issues and propose preventive measures for businesses.
Moreover, tax policy, which was previously detached from the needs of businesses, can now be adjusted more efficiently using digital insights. With digitization, tax services can be personalized to cater to specific taxpayer groups, creating a “tax system of the future” that is both more efficient and user-friendly. However, this is just the first step. For full digital transformation, Serbia’s tax system needs to incorporate artificial intelligence, which could help improve tax culture and encourage taxpayers to adopt positive behaviors.
The role of the electronic invoice system in VAT management
A significant advancement in the tax system is the introduction of the Electronic Invoice System (EIS) for value-added tax (VAT) registration. This system streamlines VAT recording and calculation, reducing the risk of errors. With real-time data, businesses can make quicker decisions and improve cash flow management. The system also simplifies communication between businesses and tax authorities, further enhancing productivity and saving time.
By linking e-invoices with internal accounting systems, businesses can automate invoicing, collection, and the tracking of liabilities in real time. The structured format of e-invoices ensures smoother automation, enabling better control and reducing tax evasion.
Challenges in implementing the e-invoice system
Despite the benefits, implementing e-invoices comes with its own set of challenges. Small and medium-sized enterprises (SMEs) often lack the technical infrastructure or resources to keep up with digital changes, which can slow adoption. Resistance to change and insufficient digital literacy can also hamper progress. Additionally, the cost of transitioning from traditional systems to digital invoicing may be prohibitive for smaller businesses. Large corporations, on the other hand, can more easily integrate e-invoices with their enterprise resource planning (ERP) systems, unlocking additional advantages like predictive business analytics.
On the government’s side, maintaining security and confidentiality in the e-invoice system is critical. Handling sensitive business data creates vulnerabilities and any cyberattacks or breaches could lead to significant financial losses for both businesses and the state. Furthermore, the capacity of the e-invoice system to handle large volumes of data without downtime is essential. System outages can undermine trust in the digital infrastructure and disrupt business operations.
The most pressing challenge lies in ensuring the e-invoice system’s transformative potential. To achieve this, Serbia must integrate the e-invoice system with other advanced digital tools like AI, machine learning, and blockchain. This would help digitize not only tax administration but also material and financial accounting, further reducing operational costs.
How e-invoice systems improve tax efficiency and reduce administrative burdens
The e-invoice system automates and streamlines data processing between businesses and tax authorities, significantly reducing human error and speeding up administrative tasks. Businesses also benefit from reduced costs related to archiving invoices. In paper form, archiving can account for up to 7% of a company’s total revenue. The e-invoice system eliminates the need for physical storage, making document handling faster and cheaper.
In the European Union, e-invoicing has reduced the cost of receiving an invoice from €30 to just €1 per invoice. Additionally, the e-invoice system’s connection with digital payments increases transaction transparency and improves income monitoring. This has led to a reduction in the tax burden on Serbia’s economy, from 3% to approximately 2% of GDP. Furthermore, it helps prevent fraud and protects public sector interests.
Impact on bookkeepers and accountants
The digitization of tax processes significantly impacts accountants and bookkeepers by reducing manual labor. E-invoices eliminate the need for data entry, as information is automatically integrated into accounting systems. This not only speeds up the process but also minimizes errors. Accountants can now access real-time data, facilitating the preparation of financial reports and more efficient cash flow management. Businesses with high transaction volumes see the greatest benefits from this automation.
Macroeconomic benefits of e-invoicing
At the macroeconomic level, e-invoices boost competitiveness by reducing transaction costs and increasing operational efficiency. The availability of real-time data allows policymakers to gain deeper insights into fiscal flows, which can inform more effective economic strategies. In countries that have implemented e-invoicing, such as the U.S., electronic invoicing has reduced invoicing costs by 5%, saving approximately $450 million annually. Additionally, businesses have been able to reduce invoice collection times from an average of 17 days to just 3.
Studies show that companies that receive around 20,000 invoices annually could save up to €70,000 through the implementation of e-invoices, with manual processing costs ranging from €7 to €50 per invoice. This highlights the substantial savings and efficiency improvements made possible by the e-invoice system.
Conclusion
The digitalization of Serbia’s tax system, particularly through the e-invoice system, is making administrative processes faster, more efficient, and cost-effective. While challenges remain, particularly in terms of adoption by SMEs and cybersecurity, the long-term benefits for businesses and the economy are significant. By expanding digital tools and incorporating advanced technologies like AI and machine learning, Serbia can fully realize the transformative potential of its tax system, ultimately fostering greater economic growth and transparency.
