Montenegro has the lowest wage taxes in the region, which is why there are now requests from employers' organizations in Bosnia and Herzegovina and Serbia to reduce rates.
On the other hand, in Bosnia and Herzegovina the profit tax rate is lower, and in Serbia the upper VAT rate is slightly lower.
Depending on the amount of salary, due to the high limit of the non-taxable part, in Montenegro the total duties for earnings amount from 23 to 38 percent, in BiH they are on average 42,5 percent, and in Serbia about 45 percent. This is also influenced by the fact that Montenegro has the largest non-taxable part of earnings of 700 euros, in Bosnia and Herzegovina it is from 250 to 400 euros, and in Serbia it is 213 euros.
The profit tax rate in Montenegro is progressive and ranges from 9 to 15 percent, while in Serbia it is nominally 15 percent with the possibility of more certain advantages, and in both entities of BiH it is 10 percent.
In Montenegro, there are two rates of VAT, of 7 and 21 percent, in BiH there is a single rate of 17 percent, and in Serbia there are two, of 10 and 20 percent.
Two years ago, Montenegro abolished the payment of health insurance, which until then amounted to 10,5 percent of the gross salary, as well as the tax on salaries up to 700 euros gross, with a major fiscal policy reform called "Europe Now". This had an effect on the growth of the net salary of employees by about 20 percent, but also on the reduction of the employer's costs.
At the same time, progressive taxation of profits was introduced, so that the previous single rate of 9 percent now applies to profits below EUR 100. A tax rate of 12 percent is calculated on part of the profit from that amount up to one and a half million euros, and on the amount over one and a half million, the state receives 15 percent.
For example, now on an average net income of 800 euros, total taxes and contributions amount to 230 euros, and previously they were 510 euros.
Secretary General of the Montenegrin Association of Employers (CUP) Rasko Konjević says that the tax system is an important segment of economic policy, and that tax policy should contribute to the creation of a competitive and predictable business environment.
"For investors and the economy, the predictability of tax policy is more important than the level of rates, and any change should be the result of broad consultations with the private sector. If every government that comes changes the essence of the tax policy, then it is a bad message for the economy and investors who want to invest in Montenegro", Konjević said.
He states that Montenegro made a step forward in 2021 by reducing the burden on the basis of work, which had a positive effect on both income and the reduction of the gray economy in that segment.
"Today, these burdens are the lowest in the region and Montenegro is certainly more competitive than Serbia and Bosnia and Herzegovina. That lower taxes give better results through the expansion of the tax base was confirmed by this reform, and governments should take this into account in other segments of tax policy. Building an optimal and efficient public administration and the lowest possible taxes are a safe environment for economic progress. By taking less money from the economy, that money goes into investments that create new value," stressed Konjević.
Consider lowering the corporate tax
He, however, believes that the introduction of progressive taxation with 9, 12 and 15 percent is a significant increase.
"We should consider returning these rates to a single rate of 9 percent, which could position Montenegro regionally as a leader in the competitiveness of the tax system," says the general secretary of the CUP.
In Montenegro, there are two rates of VAT, 7 and 21 percent. It was increased from 19 to 21 percent in 2018.
Konjević says that he believes that the increase in VAT rates is not being considered because that would be bad.
"We should not lose sight of the fact that this rate was 17 percent when we entered the VAT system and that it was increased twice. The economy assesses this rate as moderately high, and if we had an efficient administration that was not burdened with unnecessary employment, there would be room for this rate to return to one of the previous levels, which would certainly have a positive impact on the competitiveness of the economy."
High parafiscal levies and municipal duties
In the last survey of the business environment conducted by the Chamber of Commerce of Montenegro in March 2023, the economy's assessment of the business environment is worse than in 2019 due to unfavorable trends - inflation, energy crisis, covid...
In CUP, they believe that business conditions are not only reflected in the rates of the main taxes.
"Although progress has been made with taxes and contributions to earnings, excise taxes and many parafiscals are still high. Local fees, communal fees, executor fees, real estate tax rates, which are local revenues, are extremely high and this negatively affects both the business environment and the competitiveness of the economy. If the new Government is focused on optimization, professionalization and increasing the efficiency of the state administration, as well as on the reduction of some taxes and various parafiscals, the tax system could be further developed in order to be regionally competitive. I would say that the formula for success is clear. Efficient administration, lower taxes and broad tax discipline will always produce results. That lower taxes give better results in the long term is the best example of reducing the burden on the basis of work," Konjević said.
Bosnia and Herzegovina: Employers are asking for lower taxes
Unburden the economy. In these two words, we could put the demands of employers in Bosnia and Herzegovina who for years have been asking the authorities to amend and supplement the fiscal laws that should reduce the cost of labor. Employers' demands were particularly expressed in the past years, when employers and workers around the world, including in BiH, faced problems caused by the pandemic, the post-pandemic situation, as well as wars and riots.
Although employers in FBiH hoped that a set of fiscal laws would be discussed at the end of last year, and then at the beginning of this year, nothing has come of it yet.
"What the Association of Employers in the Federation of Bosnia and Herzegovina has been pointing out for years, and now it has culminated in a certain way, is the high cost of labor in the Federation. Namely, it has been known for a long time that we have the most expensive price of labor in Europe, and practically when all the obligations and contributions of employers in the name of salary and work of workers in the company are added up, the result is almost salary on salary, that is, salary to the worker - salary to the state", said the director of the Employers' Association FBiH Mario Nenadic.
He added that members of the Association often say that there is no country in the world, such as BiH, unfortunately, where a worker takes home less than what he earns.
"Our intention is to change that and it is possible to change it in a very short time through the reform of fiscal regulations. Here, above all, we are thinking of the law on income tax, the law on contributions, the law on profit tax, but also the law on the minimum wage", said Nenadić.
According to existing laws, employers pay 42,5 percent of salary contributions.
"We expect to be included in the working group that was supposedly formed by the Government of the Federation of Bosnia and Herzegovina, but what we think would be acceptable and very justified from the aspect of retaining workers in Bosnia and Herzegovina, as well as preserving the minimum and other salaries, is that this amount it should not go over 28 percent. We will see what the authorities think about it," Nenadić emphasized, adding that the calculation is very simple and that, when it comes to paying salaries and giving to the state, over 70 percent of the obligations relate to taxes and contributions, and when other burdens and parafiscals are added to that impose it comes as stated above - salary on salary.
The state has no idea about the direction of the reforms
When it comes to the profit tax, according to him, employers have already submitted their suggestions to the authorities, that is, proposals to change the law.
"Our position is that the state, i.e. FBiH, should definitely opt for a progressive rate of taxation, but we simply don't have an idea yet in which direction the planned reforms have gone, if they have gone at all", added Nenadić, saying that they have scheduled meetings this week. in the FBiH Government, after which I guess something concrete will be known.
Director of the Union of Employers of the RS Saša Acić, he told us that, given that the share of the informal economy is estimated at around 30 percent, it is clear that we should consider reducing taxation by 30 percent.
"Both Republika Srpska and FBiH need to reach about 25 percent of labor taxation. In general, the issue of the current fiscal framework, financing of the social protection system and redistribution should be opened. The current fiscal framework is not stimulating for the younger and more productive part of the population that is leaving, which threatens the sustainability of the entire system in the short and long term. The Montenegrin model of labor taxation can be one of the potential solutions", said Aćić.
Serbia: And prices are rising due to high levies on wages
In Serbia, a research on the gray economy was recently conducted, which showed that in 2023, 84,8 percent of employers were able to pay the corresponding taxes and contributions on wages regularly, while this percentage in 2022 was 91 percent.
The research indicated that if the state continues to increase the minimum wage, and at the same time does not reduce high taxes, about 15 percent of companies will be at risk and will not be able to regularly pay wages and related taxes and contributions.
This year, the Government of Serbia has increased the minimum hourly wage by 17 percent, that is, for a minimum of 160 working hours, it amounts to 370 euros, while last year it was 317 euros. For a full 180 hours, the minimum wage is 403 euros. At the same time, the non-taxable part of the salary was increased by 14 percent, from 186 to 213 euros.
Last year, the salary contribution rate in Serbia was reduced by only one percent, from 25 to 24 percent for pension contributions. Employers and businessmen asked for more significant reductions in duties, following the example of Montenegro, but this did not happen.
As always - the government and the people have different views on how they live. The same is true in the relationship between the state and small private individuals and entrepreneurs. And while the governor of the National Bank of Serbia Jorgovanka Tabakovic says that her colleagues from Nemanjina 11 curbed inflation in Serbia, claims that high prices in stores are the result of competition on the market and the availability of goods, small businessmen state that they were administratively and financially overburdened last year and that the state continued to discriminate against them in in relation to foreign investments.
On the other hand, retailers of food products indicate that there has been a significant increase in the operating costs of business - wages, electricity, fuel, rent, maintenance, and that the war in Ukraine and the corona virus pandemic have had a significant impact on the price level in stores because they have made supply more difficult. This led to the fact that in the first nine months of 2023, dairy products rose in price by more than 33 percent, vegetables by 32 percent, and meat by more than 16 percent, and electricity and gas in the same year alone rose three times by eight, that is 10 percent.
At the same time, from the Association Protector of Entrepreneurs and Businessmen of Serbia, they estimate that in 2023, businessmen had to deal more with monitoring regulations and additional costs than with developing their businesses, and state that in this year they expect state institutions to "start doing their job conscientiously". , in order for businessmen to have efficient service and normal business conditions.
"In 2023, domestic businessmen were administratively and financially overburdened and discrimination against foreign investments continued. "Constant changes and additions in the matter of SEF and e-fiscalization contributed to the fact that businessmen had to deal with the monitoring of regulations and additional costs more than developing their business", this association assesses.
When you add to that the union's claim that the average minimum wage for 2024 is approximately at the level of the minimum consumer basket for October 2022, which then amounted to 47.592 dinars (403 euros), which is treated as the poverty threshold, it is clear why citizens are dissatisfied .
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