The height of the average net salary is often touted as a key indicator of a nation’s economic strength, especially when wages are on the rise. It is commonly used to score political points. However, the gross salary—the total amount paid to employees before deductions—does not often receive the same level of attention.
In Serbia, the burden of taxes and contributions on gross salaries has been gradually decreasing, currently hovering around 60%. This reduction comes despite proposals aiming to further lower the burden, particularly for the lowest wage earners, with the goal of boosting employment for harder-to-employ categories of the population.
Employees tend to focus on their net salary, as that is the amount they receive in their bank accounts every month. However, the gross salary also includes taxes and contributions that are deducted before the final pay. In Serbia, taxes and contributions together account for roughly 60% of the gross salary.
Taxes and contributions breakdown: The gross salary is the total amount paid by the employer before any deductions are made for taxes and contributions. The wage tax rate in Serbia is 10%, while contributions for mandatory health insurance are 10.3% (split evenly between the employer and employee), and pension and disability insurance contributions (PIO) stand at 24% (14% from the employee, 10% from the employer). Additionally, employees contribute 0.75% toward unemployment insurance.
When all taxes and contributions are added up, they amount to about 37.8% of the gross salary, which is deducted before the net salary is determined.
For example, for a net salary of 120,000 dinars, the employer’s total cost reaches 192,500 dinars, with taxes and contributions totaling 72,500 dinars or around 620 euros.
Comparison to other countries: In comparison to other countries in the region, the tax burden varies. In Croatia, the gross salary is taxed at a progressive rate of 20% for amounts up to 4,000 euros and 30% for higher earnings. The majority of the tax burden in Croatia comes from pension contributions (20%) and health insurance (16.5%). For a net salary of 1,000 euros in Zagreb, the total taxes and contributions amount to around 400 euros.
Montenegro has the lowest tax and contribution rates in the region. The tax rate on income between 700 and 1,000 euros is 9%, with an additional 15% tax on earnings over 1,000 euros. The total cost to the employer for a 1,000-euro net salary in Montenegro is 1,200 euros, meaning taxes and contributions total around 200 euros.
Bosnia and Herzegovina also has variable tax systems, depending on the entity. In the Federation of Bosnia and Herzegovina, income tax is set at 10%, while contributions for pension insurance (PIO/MIO) are 23%, health insurance stands at 16.5%, and unemployment benefits total 2%. In the Republic of Srpska, the rates are slightly lower, with pension insurance set at 18.5%, health insurance at 10.5%, and unemployment benefits at 0.6%. Overall, the total wage burden in the Federation of Bosnia and Herzegovina is 41.5%, while in the Republic of Srpska, it stands at 31%.
EU comparison: Looking at Europe as a whole, Eurostat data from 2023 shows that the average contribution rate across the European Union is 29.67% of the gross salary. The lowest contributions are in Cyprus (14.15%), Switzerland (18.57%), and Estonia (18.85%). On the other hand, Belgium (39.94%), Lithuania (37.81%), and Germany (37.43%) have the highest collective contribution rates.
The tax and contribution burden on salaries plays a significant role in shaping economic policies, employment rates, and workers’ purchasing power, making it an important consideration for policymakers across the region.
