The government plans to temporarily reduce the tax rate on the sale of used vehicles from five to 2,5 percent in order to encourage real and informal vehicle owners to regulate the status, i.e. to register the vehicle with the real owner, but at the same time to increase the amount of the annual tax on the use of vehicles that is paid with each registration.
This is stated in the Fiscal Strategy Draft.
It is a common practice in Montenegro that buyers of used vehicles do not transfer ownership of the vehicle to themselves, but ask the seller for a power of attorney to drive the car and thus use the vehicle as if they were the owner, and avoid paying a tax of five percent of the vehicle's value.
On a vehicle value of 5.000 euros, the tax is now 250 euros, and with this temporary rate reduction, the tax on the same amount would be 125 euros. This tax is paid at every vehicle sale, and it is the responsibility of the buyer to pay it.
This temporary period would last 90 days from the entry into force of the amendments to the Law on Sales Tax of Used Motor Vehicles, Watercraft, Aircraft and Aircraft, which would halve the tax rate. The Government expects that this reduction in the tax rate would be a sufficient incentive for the real owner and the "owner in papers" to regulate the relationship.
"The adoption of the Law on Amendments to the Law on Sales Tax of Used Motor Vehicles, Watercraft, Aircraft and Aircraft is aimed at motivating informal owners to register vehicles in their own name and pay sales tax on used motor vehicles, watercraft, aircraft and aircraft on more favorable terms. Previously, it will imply a reduction in the vehicle sales tax rate of 2,5%, which will last 90 days from the date of application of this law. In the described manner, all vehicle owners who have not transferred the same to their own name will be given the opportunity to do so at twice the lower amount of tax within 90 days from the date of application of this law," stated the draft fiscal strategy.
The Ministry of Finance expects that this measure would motivate a large number of vehicle owners to regulate their status, and that the state budget will have a temporary income of one and a half million euros within that 90-day period.
"By proposing this measure, the aim is to achieve: better records of real vehicle owners, motivation of informal owners to transfer vehicles to their own names and pay tax obligations under more favorable conditions, and increase tax revenues based on sales tax on used motor vehicles, vessels, aircraft and aircraft ", it was stated in the draft.
In 2022, the state budget received 3,53 million euros from the sales tax on used motor vehicles, vessels, aircraft and aircraft.
The Ministry of Finance states in this document that in the coming period they will work on amendments to the Law on the Tax on the Use of Passenger Motor Vehicles, Watercraft, Aircraft and Aircraft. This tax is paid every year when registering the vehicle, and its amount depends on the cubic capacity and age of the vehicle.
"The preparation of the amendment to the Law will entail, first of all, the implementation of a detailed analysis of the current taxation system, and accordingly propose a legal solution that will regulate the taxation of the subject area in a fairer way. The intention of the Ministry of Finance is to establish a taxation system that will change the criteria for taxation, taking into account the challenges we are facing, and provide a greater tax balance among the categories of vehicles that are subject to taxation, with special reference to the taxation of the use of vessels. By proposing this measure, the following goals are to be achieved: a fairer system of taxation among vehicle categories; increase of budget revenues on this basis and changes in the criteria for taxation of the subject area", it was stated in the draft fiscal strategy.
Given the expected increase in budget revenues, an increase in the amount of taxes is planned, but due to the intention of a "fairer system of taxation among vehicle categories" it can be expected that the amounts of taxes will be additionally increased for luxury vehicles with a larger cubic capacity.
Last year, 285 vehicles were registered in Montenegro, and that number is increasing year by year. In 2020, 240 thousand vehicles were registered.
Current vehicle use tax rates
Now the annual tax for the use of vehicles up to 1.300 cubic meters is 25 euros and is reduced by five percent for each year of age, and the total reduction cannot amount to more than 50 percent of the base. This means that for a vehicle of this cubic capacity that is ten years old or more, the tax is 12,5 euros.
As the vehicle's cubic capacity increases, the amount of tax also gradually increases. For vehicles with a cubic capacity of 1.600 to 2.000 cubic meters, the tax is 75 euros, and vehicles ten years old or older can have a 50 percent discount, that is, they would pay 37,5 euros.
For vehicles from 2.000 to 2.500 cubic meters, the tax is now 220 euros, from 2.500 to 3.000 cubic meters it is 500 euros, from 3.000 to 4.000 cubic meters it is 750 euros, from 4.000 to 5.000 cubic meters it is one thousand euros, and for vehicles over 5.000 cubic meters the tax is 1.500 euros . A discount of five percent per year of age applies to all vehicles, but the total reduction cannot exceed 50 percent of the base price.
If the tax amount were to increase by an average of ten euros per vehicle, considering the number of registered vehicles, this would mean that the state budget could increase revenue by 2,8 million euros.
The amount of tax on motorcycles up to 125 cubic meters is now 10 euros, from 125 to 500 cubic meters 30 euros, from 500 to 1.100 cubic meters 150 euros, and over 1.100 cubic meters the amount of tax is 300 euros. The rules for reducing the initial amount based on age apply to them as well as to cars.
For watercraft, the annual usage tax now amounts to 30 to 3.000 euros, depending on the cubic capacity and length, and can be reduced depending on the age according to the same principle as for cars.
For aircraft for personal use, depending on the number of seats, the tax is from 1.500 to 5.000 euros, and if they are used for sports and recreational activities, depending on the number of seats, from 1.000 to 1.500 euros.
Based on the tax on the use of motor vehicles, watercraft, aircraft and aircraft in 2022, the state budget received 9,81 million euros.
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