“Europe Now” as a recovery plan for Montenegrin economy

In the beginning of November, the government of Montenegro announced the “Europe Now” programme (or “Marshall Plan”) which sets the strategic goal of Montenegro’s economic recovery. The focus of this programme is on inclusive economic growth that will increase the living standards of all citizens, improve the business and investment environment and reduce the grey economy in the labor market. The program received strong support from EU officials and the European criteria are met by its content.

The main reform of this plan is the reduction of the tax burden on labour with the following changes:

– increase of the minimum wage from 250€ to 450 € in net amount (In October this year, the minimum wage has already been increased from 222€ to 250€);

– introduction of the non – taxable part of the salary of € 700 on the gross basis (rate income tax of 0% on gross basis up to € 700);

– introduction of an increased income tax rate of 15% on a gross basis above € 1,000;

– abolition of obligations to pay contributions for compulsory health insurance

This plan anticipates the reduction of the tax burden on labour from current 39% to 20,4% It is expected that these reforms will contribute to the growth of budget revenues.

Another important aspect of the “Europe Now” programme relates to corporate income tax. it implies the abolition of the current proportional rate of 9% and the introduction of a progressive taxation system. The planned tax rates are at the level of 9%, 12% and 15% which will be applied depending on the amount of taxed profit. Also, an increase in tax rates on dividends, interest, royalties and capital gains is envisaged.

The proposed new tax policy measures are as follows:

– up to EUR 100,000.00€ – 9%;

– from 100,000.01€ to 1,500,000.00€: 9,000.00€ + 12% on the amount over 100,000.01€;

– over 1,500,000.01€: 177,000.00€ + 15% on the amount over 1,500,000.01 euros.

This plan includes other measures related to fiscal growth: increasing excise duties on tobacco and tobacco products, alcohol and alcoholic beverages, carbonated and non-carbonated water with added sugar, introduction of excise duties on sugar, cocoa and ice cream products and disposable plastic products. The changes of tax policy related to the introduction of new tax obligations for cash withdrawals for legal entities and the taxation of undeclared income have been defined as well.

If adopted by the Parliament of Montenegro, program Europe Now will be implemented as of January 1, 2022.