1. The Law on Solidarity Fund for the Republic of Srpska s Recovery

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1 The Government has introduced a set of ten laws which provide solutions for dealing with this difficult situation caused by the floods. The Laws define the forms of assistance for the recovery from all kind of damages. 1. The Law on Solidarity Fund for the Republic of Srpska s Recovery The necessity emerged for establishing a Solidarity Fund, which can serve as a good foundation for the recovery of the Republic of Srpska from the floods. This Law establishes the Solidarity Fund whose founder is the Republic of Srpska. The competence of the Fund is to form a Register of Damage, as well as to govern and distribute the funds aimed at the recovery of the Republic of Srpska. The Law specifies the definition of damage, while the Register of Damage provides the list of all damages. Taking into consideration the extent of the damages caused by the floods in May 2014, the city of Doboj and the Municipality of Samac shall be considered areas of special concern that may be subjected to special conditions, methods and forms of recovery. The Steering Board of the Solidarity Fund shall consist of 11 members. The members include six Government members, three mayors or local community leaders, one representative of the employed people in the Republic of Srpska and one representative of international financial institutions, namely, donors. The means of the Fund shall be provided from: 1) Special contribution to solidarity 2) Portion of the tax on the use and possession of assets 3) Domestic and foreign donations 4) Domestic and foreign assistance 5) Loans of the Republic of Srpska 6) Loans of the units of local governments 7) Budgetary funds of the Republic of Srpska and the units of local governments 8) Means acquired through the sales of the property gained by committing a criminal offence. 9) Other means

2 The above listed means will be paid into the Fund, and the Law prescribes that these means shall be used for the repair of the damages caused by the floods in May The damages include the damages to: a) Residential facilities b) Business facilities c) Energy facilities d) Agricultural structures, equipment, machinery, crops and plants e) Livestock f) Transport infrastructure g) Water supply and sanitation facilities h) Water protection and irrigation facilities, and i) Public institution buildings The Law stipulates the allocation of the 5, 000 BAM payment cards for the reconstruction of residential facilities. Upon the request of the Steering Board, the Government is obliged to introduce more bylaws for the implementation of this Law. With a view to reaching full transparency, the official website of the Government shall publish a monthly report on the incomes and expenditure of the Fund. Moreover, the Fund will submit a report on its work to the Government which will forward it to the National Assembly of the Republic of Srpska. Likewise, a Special working body of the National Assembly shall conduct the supervision of the means and their allocation. A Member of Parliament from the biggest opposition party would preside over the Special Committee. Given the fact that we are all aware of the extent of the damages and the necessity for a long-term recovery, this law is envisaged to be in force for seven and a half years, that is, until 31 December The Law on Special Contribution to Solidarity The first form of providing funds for the Solidarity Fund is a special contribution to solidarity, which is stipulated by this law. The Government had detailed and thorough discussions with the social partners about finding appropriate measures for financial burdens. Trade unions and employers, as well as pensioners, as the third category, expressed a high level of solidarity, hence the result of proposing this law.

3 Namely, this special contribution to solidarity is a form of special means, obtained from the personal net income, pension payments and from the means of the payers of the income (employers). This special contribution is not paid when personal income is legally exempted from paying income tax (social taxes, transportation and food expenses up to certain amount, etc). This does not apply to pensions. A special contribution to solidarity will be obtained from 3% of personal net income of the natural persons who earn income from any source, whereby 50% of that amount, i.e 1.5% presents the financial burden on the workers salaries, and 50% or 1.5% is the financial burden on the employer. Pensioners pay special contribution to the Solidarity depending on the amount of their pensions: 1) 1 BAM - pensions up to 331 BAM, 2) 2 BAM - pensions from 331 KM to 500 BAM 3) 3 BAM- pensions from 500 BAM to 700 BAM 4) 4 BAM - pensions from 700 BAM to 1,000 BAM 5) 5 BAM - pensions over 1,000 BAM. In relation to the aforementioned, remuneration for the membership in the steering and supervisory boards, audit committees, councils and commissions is additionally liable to financial burden, and it is the amount of 20% of the personal net income, and it is entirely a burden on the individual who receives this income. Personal net income within the meaning of paragraph 1 of this Article presents the amount of income, after income taxes and mandatory liabilities were paid) (This law shall remain in force one year, that is, until 31 May 2015 (since the retroactive statements and contribution payments are foreseen by 1 June 2014) 3. The Law on Fees for Using Natural Resources for the Purpose of Electricity Generation So far, this Law has had two amendments, and since there is a need for its further amendments, the processor started with the preparation of the additional content of this Law. The difference between the existing and the new content of the Law lies in the fact that the fees for the usage of natural resources with a view to generating electricity should be paid into the Solidarity Fund for the recovery of the Republic of Srpska and into the budget of the units of local

4 governments on whose territory the hydroelectric facilities are built. The means obtained from these fees will be allocated in the proportion 50:50. Due to different allocation of these means, fees for using hydroelectric facilities have been increased from 0,005 BAM to 0,010 BAM, as well as fees for the use of non-renewable natural resources from 0,003 BAM to 0,006 BAM. 4. The Law on the Amendments to the Law on the Taxes on the Use and Possession of Assets The amendments to the Law establish an increase of the taxes on motor vehicles and taxes on the possession of firearms and ammunition. The funds obtained from this increase shall be an income of the Fund for the Republic of Srpska s Recovery. By this Law, the amount of the taxes on motor vehicles is increased in the range of 25% to 50%, while the tax on motorcycles decreases ranging from 17% to 40% compared to the previous tax amounts. Moreover, the tax on the possession of firearms and ammunition for personal safety has been increased by 50% compared to the previous tax amounts. Means obtained from the tax on motor vehicles are divided between the budgets of the Republic Srpska and the Solidarity Fund for the Republic of Srpska s Recovery in the proportion 70:30, respectively, and the tax on firearms and ammunition in the proportion 75:25, respectively. 5. The Proposal of the Law Amending the Law on Special Taxes of the Republic of Srpska The taxpayers affected by the floods shall be exempted from paying a special tax for In case the entrepreneur paid the special tax, the amount paid will be taken as subscription. 6. The Proposal of the Law amending the Law on special procedures for tax debt settlement The adoption of this law has the similar purpose as the previous ones, which is to mitigate the consequences of the floods and to facilitate the position of the

5 taxpayers who are not able to settle regularly their liabilities due to being affected by the floods. This means that a taxpayer can settle debt in 60 equal monthly installments, with a grace period of one year, excluding the interest rate on the deferred debt, and the due tax debt is the one due for payment by 30 June Therefore, rescheduling has been introduced for the taxpayers who suffered direct material damage during the floods. They are provided with the possibility to reschedule their taxes due for payment by 30 June 2014 with one-year interest-free grace period and without the need for submitting the collateral. Furthermore, the deadline for all taxpayers to write off the interest rate shall be prolonged in case the entire tax debt is settled by 31 December 2014 (prolongation for six months) 7. The Proposal of the Law on the Amendments to the Law on Property Tax Serving the same purpose, the proposed law allows the units of local government to stipulate tax exemption on property for a specified period for all those taxpayers who suffered material damages caused by the floods in May Amendments include some terminological adjustments of technical character. (These adjustments did not have to go on an expedited basis, but the opportunity was used to harmonize the terms with the basic Law). 8. The Proposal of the Law Amending the Law on the Budget System of the Republic of Srpska The purpose of introducing this law is the need of its compliance with the amendments of several laws from the financial domain which are related to the distribution of the proceeds between the budget of the Republic of Srpska, the budget of the cities and municipalities and the Solidarity Fund for the Republic of Srpska s Recovery.

6 The allocation of the tax on self employment and personal income is foreseen to be in the proportion 50:50, between the budget of the Republic of Srpska and the areas of special concern of the Republic of Srpska (the City of Doboj, the Municipality of Samac), whereas for other situations, the ratio of 75:25 shall apply. The allocation of the tax on the motor vehicles shall be in the proportion 70:30 between the budget of the Republic of Srpska and the Solidarity Fund for the Republic of Srpska s Recovery, and the allocation of the tax on the possession of firearms and ammunition in the proportion 75:25, between the budget of the Republic of Srpska and the Solidarity Fund for the Republic of Srpska s Recovery. The Law stipulates the allocation of the fees for the use of natural resources for the production of electricity between the budget of the municipalities and cities and the Solidarity Fund the Republic of Srpska s Recovery. This fee is doubled and all incomes on the basis of this increase shall be paid into the Solidarity Fund the Republic of Srpska s Recovery. 9. The Proposal of the Law Amending the Law on Indebtedness, Debt and Guarantees of the Republic of Srpska The purpose of introducing this law lies in the need for additional indebtedness of the Republic of Srpska and the units of local governments in order to mitigate the consequences of the flooding in May This law prescribes that when calculating total and public debt of the Republic of Srpska, the debt arising from loans for financing the recovery according to the Register of Damage should be taken into account, too. The Ministry of Finance may give its approval to the units of local governments for indebtedness in case where the amount of legal indebtedness is exceeded, provided that the indebtedness is directed towards the recovery from the floods according to the aforementioned Register of Damage. 10. The Proposal of the Law Amending the Law on Preventing the Conflict of Interest in the Authorities of the Republic of Srpska.

7 The Law specifies that the conflict of interest and incompatibility of office for elected officials, executive officeholders and advisors does not apply to foundations or funds established for the recovery from the damages caused by natural or other disaster. More specifically, this law eliminates the obstacle for establishing the Solidarity Fund for the Republic of Srpska s Recovery. ACTIVITES AIMED AT MITIGATING THE CONSEQUENCES OF THE FLOODS IN MAY 2014 The Law on the Solidarity Fund the Republic of Srpska s Recovery and the Law on Special Contribution to Solidarity - The Register of Damage has been established containing the list of individual damages to residential facilities, business buildings, energy facilities, agricultural buildings, equipment, machinery, crops and orchards, livestock, transport infrastructure, water protection and irrigation facilities public institution buildings, as well as an overview of the approved funds. The Register establishes and governs the Fund. - The Fund is governed by the Steering Board consisting of 11 members (5 members from the Government, with the Prime Minister being the Chairperson of the Steering Board, three mayors or local community leaders and one representative of the persons employed in the Republic of Srpska maybe one from the media, one representative of the employers and one international donor. The sources of the Fund incomes are the following: 1) special contribution to solidarity, which is paid on monthly basis by the employees from their personal income and employers, and by pensioners. (the financial burden on the personal net income(salaries, fees for the service contracts, temporary and part-time jobs, etc.) is 1.5% of personal net income, and the financial burden of employers is also 1, 5% of personal net income). Therefore, the amount of 3% of personal net income is evenly distributed among the employees and employers. Remuneration for being a member of boards, supervisory and audit committees and commissions will be paid in the amount of 20% of the net income. Pensioners pay special contribution to the Solidarity depending on the amount of their pensions:

8 1) 1 BAM - pensions up to 331 BAM, 2) 2 BAM - pensions from 331 KM to 500 BAM 3) 3 BAM- pensions from 500 BAM to 700 BAM 4) 4 BAM - pensions from 700 BAM to 1,000 BAM 5) 5 BAM - pensions over 1,000 BAM This contribution is to be paid in the period from 01 July 2014 until 31 May The overall effect of the implementation of the Law on special contribution for solidarity is as follows: -around 32, 5 million BAM on the burden of natural persons -around 32, 5 million BAM on the burden of employers -around 4, 4 million BAM from the pensions Total: 69, 4 million BAM (per annum) 2) tax on the use, possession of assets, (Tax on cars and vans increases in the amount of 25-50% of the amount in the current year to be paid for registration, and the tax on possession of firearms and ammunition increases in the amount of 50%. The revenues from the increase of taxes shall present the incomes of the Fund. 3) Fees for the use of natural resources for the electricity generation (the fees are doubled, and the revenues shall be paid into the Fund) 4) Domestic and foreign donations 5) Domestic and foreign assistance 6) Loans of the Republic of Srpska 7) Loans of the units of local government 8) The budgetary means of the Republic of Srpska and the units of local governments 9) Means acquired through the sales of the property gained by committing a criminal offence. Other means

9 The above listed means will be paid into the Fund, and will be used for the recovery from the damages caused by the flooding in May The damages include the damages to: a)residential facilities a) Business facilities b) Energy facilities c) Agricultural structures, equipment, machinery, crops and plants d) Livestock e) Transport infrastructure f) Water supply and sanitation facilities g) Water protection and irrigation facilities, and h) Public institution buildings The conditions, methods, procedures and the scope of using the means for the recovery according to the above-mentioned division shall be regulated by the Regulations of the Government of the Republic of Srpska everything shall be precisely determined by bylaws. The Law on Solidarity Fund for the Republic of Srpska s Recovery will be effective until 31 December The Law on Special Procedures for Tax Debt Settlement This law introduces rescheduling for the taxpayers who suffered direct material damage during the floods. They are provided with the possibility to reschedule their taxes due for payment by 30 June 2014 with one-year interestfree grace period and without the need for submitting the collateral. Furthermore, the deadline for all taxpayers to write off the interest rate shall be prolonged in case the entire tax debt is settled by 31 December 2014 (prolongation for six months) 3. The Law on the Taxes on the Use and Possession of Assets By this Law, the amount of the taxes on motor vehicles is increased in the range of 25% to 50% while the tax on motorcycles decreases ranging from 17% to 40% compared to the previous tax amounts. Moreover, the tax on possessing firearms and ammunition for personal safety has been increased by 50% compared to the previous tax amounts

10 The total increase of the tax on motor vehicles is 4, 1 million BAM, while the increase of the tax on the possession of firearms and ammunition is around 200,000 BAM. The total amount of these increases shall be the revenue of the Solidarity Fund for the Republic of Srpska s Recovery. 4. The Law on Property Tax The decisions of the units of local governments allow for exempting all those taxpayers who suffered material damages caused by the floods in May 2014 from paying tax on the property for a specified period. This amendment applies to the floods that occurred in the Republic of Srpska in May 2014, as well as for all similar situations in the future. The responsibility to exempt taxpayers from paying taxes on property is given to the units of local governments since the tax is their revenue. 5. The Law Amending the Law on Special Taxes of the Republic of Srpska Taxpayers affected by the floods in May 2014 shall be exempted from paying special tax of the Republic of Srpska (this applies both for legal entities and entrepreneurs) According to this law, the Republic of Srpska disclaims the budgetary funds in the amount of 2, 2 million BAM for the benefit of the business entities and entrepreneurs affected by the floods. 6. The Law Amending the Law on Indebtedness, Debt and Guarantees of the Republic of Srpska This law allows for a higher level of indebtedness (over 18% of domestic revenue) of the local communities for the recovery from the damages caused by the floods in the Republic of Srpska in May The Law Amending the Law on the Budget System of the Republic of Srpska The allocation of the tax on self employment and personal income is foreseen to be in the proportion 50:50, between the budget of the Republic of Srpska and the areas of special concern of the Republic of Srpska (the City of Doboj, the Municipality of Samac), whereas for other situations, the ratio of 75:25 shall apply.

11 The allocation of the tax on the motor vehicles shall be in the proportion 70:30 between the budget of the Republic of Srpska and the Solidarity Fund for the Republic of Srpska s Recover, and the allocation of the tax on the possession of firearms and ammunition in the proportion 75:25, between the budget of the Republic of Srpska and the Solidarity Fund for the Republic of Srpska s Recovery. The Law stipulates the allocation of the fees for the use of natural resources for the production of electricity between the budget of the municipalities and cities and the Solidarity Fund. By this amendment, on the basis of the income tax, the City of Doboj shall receive financial support in the amount of 2,9 million BAM, and the Municipality of Samac shall receive 460, 000 BAM. The financial burdens of the above-mentioned amendments for the benefit of the Solidarity the Republic of Srpska s Recovery shall be paid on the annual basis. 1) Revenues from the special contribution to solidarity around 32, 5 million BAM on the burden of natural persons -around 32, 5 million BAM on the burden of employers -around 4, 4 million BAM from the pensions 1. Revenues from the tax on the use and possession of assets 4, 1 million BAM 2. Revenues from the fees for using natural resources for the electricity generation around 20 million BAM Donations and aid (and loans) excluded, the annual income of the Solidarity Fund is expected to be 93, 5 million BAM. Aside from that, 3. By amending the law on the budget system, the Republic of Srpska disclaims the income tax for the benefit of: -the City of Doboj 2,9 million BAM - the Municipality of Samac 460,000 BAM 4. Amending the Law on special taxes of the Republic of Srpska, the Republic of Srpska disclaims 2,2 million BAM in favor of the business entities affected by the floods.

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