Under proposed legislation, companies with annual revenues of more than five million euros will pay 33 per cent extra in taxes in the next two years, with the money helping to fund social welfare spending.
The Montenegrin Ministry of Finance on Tuesday announced temporary taxes on profits for companies with annual revenue of more than five million euros, saying that the crisis measure will fund government social welfare programmes and help balance the state budget.
Under the draft Law on Solidarity Contribution, companies will pay 33 per cent extra taxes for the next two years.
“The introduction of the solidarity contribution increases the state’s ability to create new packages of measures to help citizens in need. By introducing the new tax, we will achieve fairness in sharing the burden of the global economic crisis,” the ministry said. “The state budget needs additional funds to help citizens and the economy,” it added.
The COVID-19 pandemic and Russia’s war in Ukraine has had a large impact on Montenegro, as the country’s economy is largely dependent on tourism which accounts for roughly 21 per cent of its GDP.
Last June, the government temporarily reduced the value-added tax on basic goods from 21 per cent to seven per cent in order to prevent food price hikes and limit the energy crisis’s negative impact on the economy. But in December, the Montenegrin Statistical Office said that inflation had reached record highs of 17 per cent.
In order to mitigate the impact of the energy crisis, the government also temporarily reduced taxes on petrol by 50 per cent last June, but on February 23 this year, it decided to terminate this decision, explaining that it cost the state budget more than 50 million euros.
Meanwhile, the government has increased pensions, social welfare and salaries in the state administration, which has put an additional burden on the state budget.
In order to fill the holes in the budget, the ministry said on February 22 that it will take a 100 million euro loan from the World Bank. In December, the government also took a total of 60 million euros in loans from Hungary’s OTP Bank and Montenegro’s Universal Capital Bank.
The International Monetary Fund in December urged the government to preserve the sustainability of public finances by avoiding further unfunded spending or tax cuts.
In its report last year on the country’s progress towards EU membership, the European Commission criticised the government’s social welfare measures, warning that they are putting budget stability at risk. “Even though the government managed to reduce the debt ratio, debt-related vulnerabilities remain high due to worsening of global financing conditions,” the report said.
Montenegro’s debt stands at 83.3 per cent of economic output because of a $944 loan from China’s Exim Bank for the construction of the first section of a highway from its coast to Serbia, which was opened in July 2022.
Source: Balkan Insight