IMF warns Bosnian Serb separatists against dismantling tax regime

SARAJEVO (Reuters) - The International Monetary Fund (IMF) on Wednesday warned Bosnia's autonomous Serb Republic against dismantling the state tax authority, saying that such a move would cut off a key source of national revenue and damage the economy.

At the request of Bosnian Serb leader Milorad Dodik, who advocates a "peaceful dissolution" of Bosnia, the region's parliament is due on Friday to discuss pulling the Serb Republic out of Bosnia's key institutions, including the Indirect Tax Authority (ITA).

"We believe this course of action would have damaging economic consequences," Andrew Jewell, the IMF resident representative in Bosnia, said in a statement.

Under the U.S.-sponsored Dayton peace accords that ended the devastating 1992-1995 war, Bosnia was split into two autonomous regions - the Serb Republic and the Federation dominated by Croats and Muslim Bosniaks, linked by a weak central government.

In October, Dodik announced that the Serb Republic would withdraw from Bosnia's armed forces, top judiciary body and tax administration, key pillars of state security, rule of law and the fiscal system.

Dodik, who currently serves as the Serb member of Bosnia's tripartite inter-ethnic presidency, has long complained about state institutions, saying they were established based on decisions by international peace envoys and not enshrined in the constitution.

Jewell said that ITA represents one of Bosnia's most successful institutions and that indirect taxes collected by the agency were the single most important source of revenue for the Balkan country's multiple governments.

If the Serb Republic were to withdraw from this "proven framework for collecting and distributing indirect taxes", Bosnia would likely return to an era when widespread tax evasion drove down revenue, Jewell said.

He said that dismantling the ITA would also jeopardise the servicing of Bosnia's foreign debt, which ITA currently ensures via an automatic mechanism insulated from political interference, and likely weaken investor sentiment and raise borrowing costs.

The IMF made the statement as the Steering Board of the Peace Implementation Council (PIC), the body grouping representatives of the countries and international organisations overseeing Bosnia's peace, is meeting to discuss what is widely regarded as the worst crisis since the war ended.

(Reporting by Daria Sito-Sucic; Editing by Nick Macfie)