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Darko Radunović, Montenegrin Finance Minister

Tax Policy in the Service of Development

We are committed to building an attractive business environment, and especially creating a competitive and stable tax system that’s based on simple and clear legal solutions and procedures, and an efficient administration

The development of Montenegro’s economy is based on the development of service activities, primarily in the fields of tourism and hospitality, thus developing infrastructure on solid financial foundations has been recognised as one of the key priorities for improving the Montenegrin economy and citizens’ quality of life.

During the period from 2006 to 2018, Montenegro concluded 48 projects with international financial institutions worth a total amount of 1,557.69 million euros, with 944.27 million of that total withdrawn. The cited funds were mostly invested in improving road and rail infrastructure, utilities infrastructure and water supply, social housing, the reconstruction of preschool institutions, energy and agricultural development.

“It is very important to emphasise that the Government of Montenegro concludes loan arrangements for the needs of implementing infrastructure projects with international financial institutions like the EBRD, IBRD, KfW, EIB, CEB, IFAD and others. These are arrangements that are characterised by considerably more favourable repayment terms, in terms of interest rates, grace periods and repayment deadlines, compared to conventional loans granted by commercial banks,” says Darko Radunović, Minister of Finance in the Government of Montenegro.

Likewise, in addition to the aforementioned projects, the highway project should also be mentioned as one of the most important infrastructure projects. The realisation of this project will greatly improve the tourist offer and transits of goods and services, as well as creating the preconditions for the stronger development in the north of Montenegro.

In line with projections of public debt movements in the coming period, public debt will have a downward movement and is expected to be below 60% of GDP in 2021. This will ensure the fulfilling of the Maastricht criteria, which stipulates that the amount of public should not exceed 60% of GDP.

How do these results reflect on the position and credibility of Montenegro on the international financial scene?

– Cooperation with international financial institutions to date shows that lenders see a reliable and credible partner in Montenegro. Supporting this claim is the fact that all projects realised to date have been implemented in accordance with the defined objectives of those projects and that all credit obligations have been settled in accordance with the repayment plan. And that’s why Montenegro has no outstanding obligations towards current creditors.

Supporting the good rating and credibility of Montenegro is also the fact that in April 2019 credit ratings agency Standard and Poors confirmed a credit rating of “B+/B” with a stable outlook, while ratings agency Moody’s confirmed a credit rating of “B1” with a positive outlook.

The Government adopted the Programme of Incentives for Innovative Start-ups in Montenegro with the Action Plan for the 2019-2021 period to establish attractive framework conditions for Montenegro’s innovative ecosystem, with a focus on innovative start-ups

Given the growth of external instability, how would you rate the resilience of the Montenegrin economy and the possible effects that the changes in international financial markets could have on external borrowing?

– When it comes to external factors that cannot be influenced, it is very important to analyse the situation on the market and use the most favourable juncture for ensuring the financing of budgetary needs. Montenegro implements this practise and strives, in accordance with market conditions, to realise transactions under the most favourable conditions, in order to render the sustainability of public debt as stable as possible, both in terms of its volume and in terms of repayment dynamics.

Considering the results of fiscal consolidation to date, what are your forecasts regarding further tax burdening of the economy? Considering the pace of economic growth and the influx of tax revenues, is there room to reduce taxes and cut contributions on earnings?

– The tax policy that is implemented by the Government of Montenegro, and that will be implemented in the coming mid-term period, is established on the creation of a competitive and stable tax system that’s based on simple and clear legal solutions and procedures, competitive tax rates and an efficient and professional administration.

When it comes to the profit tax rate in Montenegro, it is set at a low level for a reason, having in mind the previously stated commitment to tax policy.

That which is described as a high tax burden for the economy in comparative analysis with the countries of the region and the EU is the tax burden on labour costs. In line with this, the Government proposed an increase in the minimum wage by 15%, along with a simultaneous reduction in the rate of health insurance contributions charged to by employers by two percentage points. In addition to this, the “crisis tax” is to be scrapped as of 1st January 2020, in accordance with the Law on Income Tax, or the rate of personal income tax, returning to the proportional rate of nine per cent for all earnings.

What measures from the domain of the ministry do you propose regarding improvements to the business environment?

– With the goal of reducing fiscal burdens and creating favourable conditions for doing business, in the previous period we prepared proposals for the Law on Administrative Fees and the Law on Local Communal Taxes. Both laws came into effect on 30th March this year. Their expected results are reflected in the reduction of operating costs (especially for micro, small and medium-sized enterprises) via the applying of reduced fees and a smaller number of payments, and the introduction of the possibility of electronic payments of administrative fees is envisaged by the end of the year. The aforementioned will have a positive impact not only on the economy, but will also indirectly impact positively on citizens as well.

Moreover, in the period ahead we will be dedicated to activities that will contribute to a better quality defining of decisions regarding administrative and communal taxes at the local level, which arise from these laws.

Darko Radunović, Montenegrin Finance MinisterThe issue of registering enterprises, with a special focus on creating conditions for registering companies electronically, was discussed in detail at the sessions of the Competitiveness Council. In this section, in cooperation with the competent state authorities, work is actively being carried out to simplify the process of establishing a business in terms of reducing the time and steps required for registering an enterprise. In parallel with this, work is being carried out with the aim of improving the database of CRPS and networking with other relevant databases in this field, and finally providing for the full electronic registration of companies.

Furthermore, in the process of creating policy, we are committed to strengthening the dialogue with the economy, via which the business community has the opportunity to point out, to both state and local administrations, the problems that business entities face when exercising their rights and performing business activities. In this regard, in June 2017, the Competitiveness Council was formed, the members of which include ministers, representatives of the academic community, business associations, the administration and representatives of the community of municipalities.

We would also point out the existence of certain private initiatives and the example of company M-tel, which formed the first HUB for Start-up companies, bringing together a significant number of people

How much are e-services available to citizens and the economy when it comes to settling tax obligations?

– The Tax Administration established a service for submitting annual tax returns on personal income tax (GPPFL) electronically for taxpayers who perform independent activities – entrepreneurs in terms of real income and private persons who are VAT payers, thus rounding up an entire set of services for the electronic declaring of tax liabilities. A special priority in the work of the Tax Administration is represented by reductions in the administrative burden, with the aim of encouraging the payment of taxes, while special efforts have been exerted for many years in order to enable taxpayers to report their tax obligations in the simplest and quickest possible way. The number of taxpayers who use the electronic services of the Tax Administration is growing continually, and this illustrates the importance of services established over the past five years.

The tax on profits is electronically registered by as many as 98 per cent of taxpayers, while 75 per cent of IOPPD forms and 70 per cent of VAT registrations are submitted electronically.

How satisfied are you with tax discipline in the country? What measures do you envisage for the continuing struggle against the grey economy?

– The level of arrears on the basis of taxes and contributions on employee earnings has experienced a downward trend in recent years, especially if we bear in mind that these obligations have the largest share in the structure of tax debt, and this data best testifies to increasing tax discipline.

We are also encouraged by the fact that the tax debt was reduced by 25 million euros during the past year, and by as much as 167 million during the last three-year period. The fight against the grey economy represents a special priority in the work of the Government of Montenegro, and the results of the Government’s Commission for Combatting the Grey Economy are good and visible, though for now all of this is still a long way from the goals we want to achieve.

Considering strong growth in the start-up community and the pace of changes brought to the economy by digital operations, are you planning to liberalise regulations in this domain?

– The government has prepared several important documents that should give new impetus, new content and a better environment for start-up entrepreneurship.

It was in December 2018 that the Government adopted the Programme of Incentives for Innovative Start-ups in Montenegro with the Action Plan for the 2019-2021 period. This programme aims to establish attractive framework conditions for Montenegro’s innovative ecosystem, with a focus on innovative start-ups. This means removing legal barriers, developing advanced financial schemes, encouraging and attracting talented individuals, in order to intensify the creation of knowledge and new values, an entrepreneurial culture and access to markets for innovative and entrepreneurial projects.

The impact of this Programme should be visible through increases in the number of innovative start-ups with growth ambitions and their quality through more efficient use of the latest knowhow available in the country or abroad. The programme also activates certain current reform processes that run in parallel within several ministerial departments, suggesting ways in which innovative start-ups can contribute to their realisation (S3 strategy, digitalisation, creating an encouraging business environment, opening up data to the public sector, strategically attracting foreign investment, practical teaching at universities, cooperation with the diaspora, public procurement innovations, economic citizenship etc.).

The government took significant strides and expressed a greater state, institutional and financial relationship towards this important need and key policy – the digital economy that is the economy of the future, which is extremely important for the Montenegrin economy and the acceleration of development, to which the government will be dedicated in the following period. Apart from this, we would also point out the existence of certain private initiatives and the example of company M-tel, which formed the first HUB for Start-up companies, bringing together a significant number of people. 

INVESTMENTS

The aim of the government is to create an environment conducive to investing and the development of entrepreneurship, based on low tax rates that are competitive in the region

TRANSPARENCY

We plan to establish effective oversight of flows in the grey zone, especially in tourism, construction and the labour market

DIALOGUE

We are dedicated to strengthening dialogue with the economy and cooperating on overcoming the problems encountered by the business community

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