The draft of the Montenegrin law on solidarity contribution, which foresees the introduction of an additional tax for companies with the highest profits, is on public debate until March 20. After that, the Ministry of Finance will consider all the objections it receives, draft a law and send it to the Government for consideration, and if it receives its support, it will be sent to the Assembly for final approval. The first reactions to the draft law from business associations, as well as the opposition, were extremely negative, with emphasis on the fact that the business environment is collapsing and that such frequent changes in tax policy are unsustainable, but also that the government is punishing successful companies.
The Ministry sees the basis for the introduction of this extraordinary form of taxation in the fact that Montenegro is a candidate for entry into the European Union and that it should also follow the European tax policy. The regulation of the European Council of October 6, 2022 proposes to the member states the introduction of this type of tax, which in translation is called "compulsory temporary solidarity contribution". In the explanation of that EU regulation, it is stated that it was noticed that companies from certain areas during the past crisis significantly increased their profits by using their position on the market and rising prices, as well as that these companies should bear a greater burden of the crisis that significantly affected citizens and the state finance.
This type of additional tax in the EU primarily applied at the beginning to companies in the field of oil derivatives, gas and coal, but in many countries it was extended to manufacturers and traders of pharmaceutical products, banks and large retail chains.
In the Montenegrin draft, the activities are not specified, but it would refer to all companies that have an income of more than five million euros and an increase in profit compared to the previous four years.
"The basis of the joint contribution for the year 2023 and 2024 is the taxpayer's taxable profit for the year 2022 and 2023, determined in the tax balance in accordance with the provisions of the Law on Corporate Income Tax, reduced by the amount of the average taxable profit of the taxpayer determined in tax balances for 2018, 2019, 2020 and 2021, increased by 20 percent. The tax period for which the tax on joint contribution is calculated and paid is the calendar year 2023 and 2024. The solidarity contribution rate is proportional and amounts to 33 percent," the draft stated.
The Ministry also cited examples of a company that had a taxable profit of 2022 thousand euros in 200, and in the past four years the average profit was 100 thousand. For her, the basis for calculating this tax would be 200 thousand minus 100 thousand, which is increased by 20 percent (200.000 - 120.000). Thus, the base would be 80 thousand, and the tax amount of 33 percent would be 26.400 euros. That is, the company would pay a regular profit tax of 200 percent - 15 thousand and an additional one of 30, ie a total of 26.400, on a profit of 56.400. This means that the state, in this example, would receive 28 percent of the company's profit.
The American Chamber of Commerce in Montenegro stated that, for them, this tax represents an unacceptable burden and a kind of punishment for successful companies, and points to the bad practice of adopting measures that constantly discourage the business environment.
The Employers' Union is also against this proposal because the new levy is being introduced without consultation with the economy, and they say that it was done hastily, that the assessment of the impact on the economy was not carried out, that it is not possible to conclude how many entities will be affected, and that it will not achieve the promoted goal - taxation of extra profits.
The Law on Solidarity Contribution is a blow to the Montenegrin economy, it was assessed by the Chamber of Commerce and stated that it is a legal proposal that introduces additional and unexpected obligations for companies as carriers of economic activity, and they expressed an explicit position that the Montenegrin economy cannot withstand such an imposition.
The Montenegrin Association of Employers also reacted, saying that the intended introduction of additional taxation of company profits undoubtedly represents a measure with potentially unfathomable adverse consequences for the Montenegrin economy. After the meeting with the Minister of Finance, Aleksandar Damjanović, the Association of Managers of Montenegro extended the deadline for the public hearing.
The State Secretary in the Ministry of Finance, Ilija Vukčević, said that the reaction of part of the large economy to the new crisis measure was rushed and that the purpose of the public discussion was to arrive at the best legal text. He said that this contribution would refer to a small part of 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 definite solutions, some sectors are being imposed as priorities", said Vukčević, citing for example that the energy, trade and banking sectors achieved enormous profits.
BiH: Investors first, then extra profit
Bosnia and Herzegovina is not yet ready to pass a law on an additional profit tax like the one that was passed in Croatia at the end of 2022 and which is popularly called the extra profit tax, according to our interlocutors.
In our neighboring country, the law caused great dissatisfaction, primarily among employers, and employers in our country are of the opinion that before passing such a law, a lot of things should be looked at and adequate solutions should be found that will ultimately be stimulating for companies.
"BiH in principle has a relatively low profit tax of 10 percent, the only region in Montenegro with a lower rate, around 9 percent. The disadvantage of that system is that there are no benefits that would be used by a large number of companies. Today we have reliefs that are very selectively applicable. So, an additional profit tax could sometimes be an option, but in such a way as to work out that there are benefits at least for reinvestment or for export, as was the case before. It is obvious that we must work to create a tax that would be stimulating for the development of the economy, for new investments, for the development of companies. Today, he is stimulated only to extract money. It is a topic that needs to be opened up, but also to look at all the positive and negative sides of that tax", said Adnan Smailbegović from the Association of Employers of the Federation of Bosnia and Herzegovina, adding that a law should be made that will solve some issues in the long term in such a way as to obtain some tax incentives if increase investments in order to further develop the company.
Saša Aćić from the Union of Employers of the Republika Srpska is of a similar opinion.
"We shyly promote progressive taxation, although it is an issue that, as we can see, has already been adopted in Croatia and which is a certain certainty that awaits us in the future. However, before passing any additional tax legislation, we need to resolve certain issues. First, it is necessary to solve the issue of distribution through the reduction of public spending, and the second issue that we must solve is the issue of the informal economy. If we do not resolve these issues and eventually pass the law without any preparations, it would, in addition to the reduction of investment potential and wage growth, as stated by employers from Croatia, lead to tax evasion. Therefore, I think that at this moment we are not ready to introduce extra profit taxation", said Aćić.
Admir Čavalić, an economic analyst and representative in the House of Representatives of the FBiH Parliament, believes that BiH is not yet ready for the introduction of the so-called extra profit tax.
"BiH is trying to achieve some fiscal competitiveness with a low profit tax of 10 percent, it is trying to attract both domestic and foreign investors. However, we see year after year that we do not succeed in this, we have a low level of investment. On the other hand, Croatia has a far more developed economy and all these debates about taxing extra profits or introducing additional levies opened after Croatia reached a certain level of economic development that BiH currently does not have. Understanding the fiscal indiscipline in Bosnia and Herzegovina, I believe that such a law would not have the expected effects in our country. Probably, in the public, such a law would be accepted by citizens, but not by businessmen, taxpayers. I think it would have a negligible effect on budgets," Čavalić pointed out.
As the interlocutors said, it is obvious that such a law in BiH needs a lot of preparation, discussions, and a lot of preconditions to be fulfilled.
Serbia: No special tax for the powerful
The five largest oil companies in the world, Total Energies, Exxon Mobil, Chevron, BP and Shell, made a profit of 143 billion euros last year. They paid out an incredible 110 billion dollars to their shareholders.
This is a record profit for the world's largest oil companies and twice the previous record.
The energy crisis and unprecedented prices of almost all energy sources, oil, natural gas and electricity, which hit the pockets of consumers to a good extent.
Last year, the European Union decided to introduce a tax on extra profits for energy companies that produced and traded fossil fuels in order to use part of those profits to help citizens.
This measure was introduced by some countries in the region, but not Serbia.
The President of Serbia, Aleksandar Vučić, mentioned in October last year that the introduction of extra profits is being considered.
"To all those who have earned huge profits from these energy sources in the past year, we are thinking of introducing extra profits, and these will be measures that the people will welcome with enthusiasm, I know that the tycoons will not, but what should we do", Vučić said. talking primarily about companies that produced electricity from renewable energy sources (RES).
Last year, the Serbian oil company NIS almost quintupled its profit compared to 2021. Then the net profit was 21 billion dinars, and last year it jumped to 92,4 billion dinars (about 786 million euros). This is, for example, almost twice as much as the Russian Gazpromneft once paid for 51 percent of NIS.
Goran Radosavljević, a professor at FEFA University, explains that last year there were such circumstances that oil prices went high, that demand did not fall and that oil companies recorded huge profits.
"It was obviously easier for states to take that tax than to protect citizens from rising prices. From the point of view of the welfare state, those companies did make huge profits, which were not the result of their more efficient operations or anything they did, but they benefited from the circumstances", notes Radosavljević.
He adds that it is the states that should have protected their citizens from rising prices and that the burden of the crisis fell on them: "On the other hand, it is problematic that a precedent is created, once a state introduces such a tax, whenever it needs money it can say that someone was earning more than they should and take a part of it through taxes. That's why I'm more in favor of a systemic approach, that the law states the conditions under which a higher rate of profit tax can be applied."
As far as Serbia is concerned, the payers of this type of tax on extra profit could be anyone who is engaged in the exploitation of natural resources, but also if they come to some mature branches where there is no need for a lot of investment.
"I am in favor of significantly increasing the rate of profit tax, but allowing tax relief for those who invest profits", our interlocutor assesses.
After 2000, Serbia, that is, FR Yugoslavia, passed the Law on a special tax on extra profit and extra property acquired through the use of special benefits, which required the state to return part of the money acquired through privileges and connections with the government during the XNUMXs to the budget.
This law was supposed to bring justice, or at least that's how its application was imagined, but in practice it served as a one-time washing of biographies.
390 solutions were distributed for the collection of 270,461.421 German marks, of which 55,333.529 marks were collected.
Almost the entire extra profit was paid by businessmen known as the Karić brothers, about 40 million marks. For example, TV Pink was one of the first companies to pay that tax, the list of payers included individuals such as Živadin Jovanović, Dragomir Tomić, Dragan Tomić (director of Simpa), former police minister Vlajko Stojiljković, former president of Serbia Milan Milutinović, former minister Radmila Milentijević...
The announcements of the governor of NBJ Mlađan Dinkić were that the tax base will amount to 8,3 billion marks.
A little later, in 2004, the telecommunications company Mobtel, owned by Karić, was taxed in the name of the extra profit that Bogoljub Karić's Astra bank had in the amount of 2,4 billion dinars. When the Supreme Court annulled the tax ruling for procedural reasons, the Ministry of Finance returned the money to Mobtel.
Almost 20 years later, on February 29, 2020, the Law on determining the origin of property and special tax was passed. The goal of this law is for the Tax Administration to discover property that cannot be proven to have been legally acquired and then to collect a special tax on it. This would be done by tracking the increase in assets and comparing it with income during that period. If they do not agree and if it is discovered that "in a maximum of three consecutive calendar years in which you have an increase in assets, there is a difference between the increase in assets and the reported income that is greater than 150.000 euros" a tax rate of as much as 75 percent is paid.
In the middle of last year, the Tax Administration announced that through data processing, it found 13.000 persons whose incomes and property growth in the previous three years do not match and for whom there is a reason for further investigation, but for now there is no information on whether a case has been initiated against anyone.
Croatia: Bad message to investors
The announcement of the introduction of the tax on extra profit stirred up business circles in Croatia. As a reminder, tax payers will be companies with revenues in 2022 of more than HRK 300 million (about EUR 40 million), at a rate of 33 percent, but only on profits greater than 20 percent compared to the four-year average. Although the Ministry of Finance said that it is a joint and one-time tax, and that when drafting the law they tried to take into account everything that is rational, reasonable, realistic and well-argued, there are more and more people who think that this is a completely wrong direction of the fiscal, i.e. tax policies.
Croatian entrepreneur Đuro Božanović, owner of the company Mons Multifidus with about a hundred employees for the engineering and assembly of industrial and energy facilities, believes that introducing an additional tax on profits punishes those who work and contribute to society. According to him, those who create should be given relief in order to bring even more profit. In this way, he says, entrepreneurs are encouraged to speculate and transfer the company abroad, where they will report the profit.
"The Croatian economy is not ripe for an additional tax. Industry and production should be left alone to develop. Our companies are just recovering from the crisis and they should be allowed to continue working," says Božanović.
He states that the Ministry of Finance has introduced some good things in the last few years, such as tax breaks for small entrepreneurs, but also notes that entrepreneurs do not like unstable tax systems that change almost overnight. Although the profit tax in Germany is higher than in Croatia, he opened another company in that country a few years ago precisely because of the stability of the tax system. Instead of companies that are doing well, Božanović believes that a tax on extra profit should be introduced to speculators who are engaged in the resale of real estate.
Director of the Regional Office of the Croatian Association of Employers in Osijek, Ivan Sarić, believes that the Government's measures to help entrepreneurs overcome the corona crisis and the current financial crisis are commendable, but there is room for this support to be even bigger and better. According to him, not only employers deserve it, but all citizens. Referring to the announcement of the introduction of additional profit tax, he said that it punishes good employers who did good business and who did not make their income in Croatia but abroad, in other markets.
"It can't be like that. The introduction of a new tax on extra profit sends a bad message to future investors who would come to Croatia, and we live off investors. With investors comes employment and a new driving force, capital will be secured and new buildings and infrastructure will be built," said Sarić.
Economic analyst Damir Novotni also opposes the introduction of the new tax, because he believes that it does not make any sense. He claims that this tax has already had negative effects on the entire European economy in the field of energy. He explains how the largest European energy companies such as British Petroleum or the Norwegian Equinor, formerly Statoil, made enormous profits from the production and sale of oil, so then the European Commission reacted under public pressure and proposed the introduction of an additional profit tax. However, this is not the case with INA, which according to projections should pay the highest tax on extra profit in Croatia.
"Ina has become a dominant distribution company. It no longer has oil or gas production, so it cannot be said that it makes an extreme amount of money. I think that the additional profit tax cannot contribute to the attractiveness of Europe as a whole, and especially of Croatia, for international investments," Novotni points out.
Energy consultant, former Minister of Economy Davor Štern says that it is okay for those who earn a lot to pay more, but that it must then be incorporated into the basic tax system.
"I am not inclined to "ad hoc" changes to the tax system. The state introduced a tax on extra profit and now that income will go to the state budget instead of investment potential. I heard that INA is already saying that because of the new profit tax, they will not have money to continue investments," said Štern.
See more:
Download the app and follow the news
FOLLOW US ON
