Interview with Aleksandar Ubavkov, MASIT MB member and MusalaSoft regional manager

Denar: How do you assess the current ICT sector tax policy in Macedonia in terms of personal income tax, income tax and other taxes? How favorable and stimulating is the situation for the development of ICT as one of the most progressive branches in the Macedonian industry?

In my estimation, there is currently no defined policy or strategy devoted to the ICT sector. The only organization that strategically influences policy and represents the ICT sector’s interests is MASIT, which acts as a chamber through its activities, but also through projects supported by USAID and other donors. I would also like to point out that a dedicated national strategy and policy for this sector is absolutely essential for its success and promotion. This stems from the fact that global tax policy has a much more pronounced effect on the ICT sector than other sectors, with the very fact that the ICT sector is one of the highest earnings per capita. The only thing that is obvious at the moment is that the ICT sector needs attention where joint efforts of government authorities and industry experiences would improve these conditions that are not currently favorable and do not allow growth as a prosperous ICT sector deserves. .

Here are some facts about the ICT sector and why it is absolutely necessary to improve it:

The ICT sector generates a high level of value added. Namely, a successful economy is where the revenues are mostly generated by innovative activities with a higher level of value added.
The ICT sector enables direct injection of foreign capital into the country as most of the services and products are targeted at foreign clients and thus directly impacts GDP growth.
ICT sector is indispensable for development of all other sectors, digitalisation of one country, ie modernization of all processes is unthinkable without well developed ICT sector
The ICT sector is green, polluting and wasting resources like natural resources
The ICT sector generates per capita income – one of the highest in the country, ie with a small number of employees in the sector generating high incomes.
The current state of development of ICT in the country has a great deal of room for improvement, especially if we compare it to examples from countries in the region such as Serbia, Romania and Bulgaria where strategies and policies to stimulate the ICT sector have been successfully implemented.

Denar: MASIT had a clear and loud stance on progressive taxation that particularly affected IT professionals. What are the views now after the tax is activated?

MASIT as a chamber represents the interests of all its members united in the view that all tax changes, including progressive tax, affect the ICT sector the most, with no strong monetary effect. Our positions as a chamber are broader than the tax policy itself and we would like to talk about a business climate where tax policy is part of the business climate. What is certain is that tax changes have not improved the business climate specifically for the ICT industry, and on the contrary created additional challenges for the sector to deal with. I want to make it clear that the sector, without tax reform, has had many challenges, such as the emergence of a “brain drain”, a small labor market, labor regulation, business recognition, and many others that together create this challenging business climate.


A characteristic of emerging economies is that they need stimulation to cope with the challenging business climate, and strategies are often created where more money is left in the economy to be reinvested and open to economic growth. We in the ICT sector invest heavily in the development of the sector and much of the revenue generated is reinvested in order to expand the business and increase competitiveness. The tax reforms that were implemented contributed to additional burden on the ICT companies which in most cases was compensated by the companies themselves. This makes companies more rigid in terms of investment in growth and growth. Specifically, we have a tax change that provides a negligible monetary effect, and at the same time many companies compensate employees for no payroll deduction, leading to an automatic argument that the measures to reduce social inequality are ineffective. for the ICT sector. The only consequence of this is a deteriorating business climate and burdened companies. This directly affects only the decrease in the attractiveness of the state for new investments and growth plans of the existing companies in the ICT sector.

This effect is much more pronounced especially compared to the countries in the region (Bulgaria, Serbia, Romania …) working to promote the business climate for the ICT sector as well as other high value added innovation activities.

Denar: According to the latest data, the ICT industry is the fastest growing industry in Macedonia but also a branch that provides a significant volume of exports. How can economic policy and tax regulation be used to harness this potential and stimulate this trend to continue?

I personally and MASIT as a chamber believe that we have a common interest with the government sector to develop the ICT sector. The ICT sector, unlike other sectors, is largely export oriented and manages to generate very high revenues with a relatively small number of employees. Starting from this postulate, even if investments were made to improve the business climate for the sector, thus enabling rapid growth of the sector, the monetary economic effect would be more pronounced, ie. that would mean raising more funds from the state. MASIT as a chamber in collaboration with its partner organizations, primarily the USAID Partnership for Better Business Regulation Project, is working to build MASIT’s positions towards building an accelerated ICT sector strategy. We count on continuous dialogue with government bodies where we can achieve this goal together. MASIT’s positions are clear that work should be done to improve the business climate:

Optimizing the tax system to enable growth

Personal income tax

Recognition of expenses related to employee expenses

Optimization of social contributions calculated on salary

Stimulate additional investments in voluntary private health insurance companies

Donations in education as a public activity

Modernizing labor law to support innovative activities such as ICT

Strategy to combat the “brain drain”

Opportunity for companies to invest in educational institutions in order to improve them.

In addition, with the support of the Embassy of the United Kingdom, MASIT will also be working on a project to build digital skills for youth, as well as retraining programs (which MASIT has previously implemented with the support of USAID). We as a chamber believe that we have the necessary capacity and experience to work together with government authorities to create a new climate for the ICT sector that will support rapid and constant growth.

Denar: Which of the foreign countries has tax and economic policy in the ICT sector with proven positive practices that Macedonia needs to adopt and what do they mean?

Here I would give more positive and negative examples that can be taken into account when optimizing the business environment for ICT sector growth. Also, due to the nature of my work, I am very familiar with ICT development policies both in the neighboring countries and in distant countries that have been the subject of investment analysis for me at different times. The most recent example would be Poland, where tax exemptions were introduced from 1.8.2019, specifically from personal income tax to combat the “brain drain”. Tax exemption for young people up to the age of 26, ie tax exempt. More information is available at the following link.

Romania’s model is also very successful, which has given excellent results for the development of the ICT sector. For a period of 10 years, Romania has given up its personal income tax for the ICT sector. This model is something that we as a chamber quite often mention.

Bulgaria, on the other hand, adheres to the concept of flat tax – 10%, additionally having a limit or an upper limit for social contributions. This threshold is increased year by year in order not to destabilize high value added industries. In order to stimulate entrepreneurship, the dividend tax is 5%.

Serbia, on the other hand, has a lump-sum tax mechanism where IT specialists are treated as craftsmen and taxed based on the location of their business and the median income in that municipality. This measure was made just like in Bulgaria with the aim of encouraging entrepreneurship.


One not-so-good example of a slightly remote location that I had the opportunity to visit is the Bangladeshi model. Bangladesh is a country of around 170M people generating ICT income of approximately $ 120M. Anyone doing investment analysis would notice the fact that this is a very low figure as a level of ICT government revenue per country of 170M which is next to India where ICT is a highly developed sector. After some analysis and conversations with the ICT Chamber in Bangladesh I found out what this is all about. One of the previous governments in Bangladesh has passed a law on ICT export services tax, in other words 10% outsourcing tax. This generates a terrifying effect that causes a massive switch to business offices of companies in locations with a better business climate and doing business elsewhere. As a result, the whole export of ICT services from Bangladesh now goes through companies outside Bangladesh. The real number of ICT revenues would be around $ 1 billion. In other words, the state loses 900M in GDP at the expense of poorly designed tax change. The 120M shown in the statistics as a share of ICT in GDP are only for the internal economy within the state. In order to combat this, the state is changing external taxation with subsidies to the same extent. instead of 10% export tax introduces 10% export subsidies for ICT. The new changes do not allow companies to return to Bangladesh despite new subsidy mechanisms.

I am convinced that there are a number of examples worldwide, but the conclusion is that the ICT sector is very delicate and needs some dedicated attention in order to promote and grow it.

Denar: What conditions do ICT professionals in Macedonia receive in terms of financial and non-financial benefits in relation to conditions in EU countries?

In my career I have had the opportunity to work in several countries outside the EU where specifically from the EU – Bulgaria and Germany. The biggest benefit I would point out is that when you are home in your own country, you can afford a decent life. Namely, the purchasing power of a developer in Macedonia and Bulgaria (locally) is much higher than the purchasing power of a developer in Germany. As the business sector evolves, developers can work on European-wide payroll projects and live at home where they grew up. With the development of the sector in recent years have the opportunity to work on innovative projects for world brands from home. The work that ICT engineers do today is almost the same as working overseas.


In addition, for me personally the most important, but I believe for many others – is that we can contribute to the development of a sector where we can build and be proud of it with shared strengths and experiences. I know it may sound immodest but I think an ICT employee in the country can still afford a decent living by European standards.

Denar: Relevant institutions have identified a gap between the digital skills of Macedonian staff and the market needs. In what direction should higher education be changed and are institutions in the informal education sector useful in this regard?

This is a very delicate question, and there is no simple answer to such questions. With the rapid growth of the sector and the emergence of “brain drain”, where this phenomenon is most noticeable in the segment of professionals with the most experience, companies face a shortage of staff with both knowledge and experience at the expense of those leaving the country and account of the very growth of the business segment.

Unfortunately, when someone with 10 years of experience leaves, they cannot be replaced by someone who has just graduated from college or has relatively little experience. This need opens up a new relevant business model where there is a need to incubate IT staff to accelerate their career development. Has a positive experience with excellent results for this model which is not applicable to the enterprise segment because this segment needs domain knowledge.

In terms of higher education there is certainly room for improvement but I would like to emphasize that the quality of staff is improving. Here I think the key point is to provide adequate conditions for the number of students enrolled, at this point I think there are more students than capacity in terms of infrastructure and teaching staff, especially at state universities. It can be improved by enabling the industry to donate to educational institutions through a model similar to that of sports associations or athletes.

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