Vukčević: Solidarity contribution will be paid by a small part of the economy

State Secretary in the Ministry of Finance Ilija Vukcevic he told "Vijesti" that the reaction of part of the large economy in relation to the Draft Law on Solidarity Contribution was rushed, that the purpose of the public hearing was to arrive at the best legal text and that it was clear that it would be applied to a small number of companies.

Last week, the Ministry of Finance put this legal act up for public discussion, for which the first reaction from business associations pointed out that it is an unacceptable tax burden, that it will create additional levies on the economy, and that it was made hastily and without an assessment of the impact on the economy.

"Defining the sector of application of this fiscal form is precisely the main goal of the public discussion, in addition to improving the legal text. Although at the moment there are no definitive solutions, some sectors are being imposed as priorities", said Vukčević, citing for example that the energy, trade and banking sectors achieved enormous profits.

What is the reason that the Ministry of Finance proposed the introduction of this fiscal form?

Last year's global economic crisis, which only followed on from the economic crisis caused by the corona virus pandemic, led to significant disruptions in the market. On the one hand, you have a state that in 2022 waives 50 million euros in fuel excise taxes, and millions in amounts to reduce the VAT rate on food products, as well as citizens who are faced with a drop in standards and purchasing power due to rising prices. On the other hand, some economic branches are recording a significant increase in profits due to such disturbed circumstances. It is obvious that the crisis, not that it did not have a negative impact on them, but that it enabled them to increase their profit compared to the average profit of the past years. So, the state is giving up a part of the income, the citizens are suffering a decline in purchasing power, now it is the turn of the companies that additionally profited from this situation to bear part of the crisis.

What is the position of the Ministry of Finance regarding the negative reactions of part of the large economy in connection with the draft law on solidarity contribution?

I think the reactions are hasty. The purpose of the public debate is to arrive at the best legal text in a reasoned discussion with interested parties. This draft is only a beginning or a guide from which we should start in the public discussion. In addition, it is a complex tax mechanism, and a more detailed analysis makes it clear that it will be applied to a small number of companies and only if they find themselves in a certain situation regarding the realized profit. To this end, we have started consultations with representative business associations and we encourage them to submit all their proposals, suggestions and criticisms.

Can you briefly explain who will be affected by this fiscal form?

The first filter when applying this fiscal measure is that it applies exclusively to companies that had revenues greater than five million euros. However, this does not mean that they will have to pay any liability. The second filter is to which sectors it will be applied, which will be determined by the public discussion. In other words, it is necessary to determine the field of its application. There are three possible concepts. The first is only the energy sector, which is an obligation from Council Regulation (EU) 2022/1854. The second is the complete opposite - the entire economy as in Croatia.

However, this concept has a built-in design flaw in that it does not separate successful companies from those that have made disproportionate profits due to global economic disruptions. The third is sectoral - energy plus e.g. shops, banks or others. I repeat, the main goal of the public discussion is to identify which activities or sectors to which this measure should be applied. The third filter is that the company actually made a disproportionate profit compared to the previous period.

The mechanism works as follows. The average from the four years 2018-2021 is taken. and increases by 20% which represents a reasonable increase in profit. If the company made less than that amount in 2022, it has no tax liability. However, if she achieved more than the above, the average of four years increased by 20 percent is subtracted from it, and this difference represents the base on which the rate is applied. It is clear from the above that this measure is not a draconian tax that will threaten the economy, nor will it bring the state some fabulous sum of money.

It is a kind of collective mechanism that those who have undeservedly made extra profit contribute a part to the budget. Therefore, the measure will apply to a limited number of the largest companies, which operated in sectors that were identified through a public discussion, and only if they achieved a disproportionate growth in profit compared to the average from previous years.

Do you currently have an idea of ​​which sectors could be subject to the application of this tax?

I repeat that defining the sector of application of this fiscal form is precisely the main goal of the public discussion, in addition to improving the legal text. Although at the moment there are no definitive solutions, some sectors are emerging as priorities. Certainly, the energy sector is the first target because it is no accident that the obligation established in Council Regulation (EU) 2022/1854 that it must be subject to this fiscal form.

Data from the Montenegro Stock Exchange show that the largest Montenegrin oil company for the first three quarters of last year made twice as much profit compared to the previous year. Either the citizens and the economy consumed twice as much petroleum products or a disproportionate profit was made through the price jump. Additionally, in this sector, the state has given up 50 million euros in excise tax revenue in 2022, which is the amount of e.g. sum that goes from the budget to child allowances, or to the so-called "remuneration for mothers". Similarly, it is to be expected that the trade sector made a disproportionate profit. The reason for this is the fact that in this sector there is an oligopoly of several large companies that dictate the terms of business.

Citizens are faced with an unrealistic increase in prices because United Nations data indicate that the prices of food products on the world market in February this year are even lower than the prices in February last year. Also, the state budget gave up millions of revenues by reducing VAT, which only spilled over into company profits through increased margins. Whether some other sector of the economy, such as banking, which has also enormously increased profits, will be included in the field of application of this tax is something that the public debate should indicate.