The increase in value-added tax (VAT) on tourism services in Montenegro creates additional financial pressure on the economy, reduces the competitiveness of the destination and threatens to slow down tourism growth, it was assessed at a conference of the Chamber of Commerce (PKCG).
Moderator and Secretary of the Board of the Association for Tourism and Hospitality of the Chamber of Commerce and Industry of Montenegro, Sanja Marković, said that tourism is a very sensitive branch of the economy whose development must be planned carefully and in the long term by everyone.
"Positive experiences of other countries teach us that the expected effects of lower VAT rates on the tourism industry are that fiscal policy will influence the improvement of business and competitiveness of tourism, increase investments, increase employment and reduce the shadow economy in the tourism sector," said Marković at a panel on the impact of tax policy on tourism development organized as part of the "New Days of Better Tourism" conference.
Co-owner of Montenegro Stars Hotel Group, Žarko Radulović, recalled the circumstances under which the VAT on tourist services was increased from seven percent to 15 percent.
"Even without this VAT increase, we were working in difficult circumstances. We all emerged from the corona pandemic badly wounded and covered the costs of that period with loans. We received the VAT increase to 15 percent on January 1. We entered 2025 with a huge burden. If we paid a million euros in VAT last year, we are paying 2,14 million euros this year," said Radulović.
As announced by the Chamber of Commerce and Industry of Montenegro, he pointed out the negative effects of the VAT increase.
"At Splendid, we invest between 1,7 and two million euros in maintenance and improvement every year, and we can't do that anymore. If we reduced VAT, we would automatically reduce prices, and the result would be that we would have more turnover, more money, and those in the government would have more money in the budget," said Radulović.
He called on the Government to cooperate more effectively with representatives of the tourism industry in order to find solutions to these problems.
"We have good will, as far as the tourism industry is concerned, you have an outstretched hand. Let us engage our experts who would be used anywhere else. I am grateful to the Chamber of Commerce and Industry of Montenegro for giving us the opportunity to talk. If you had talked to us more, there would certainly have been better solutions," said Radulović.
The Chief Advisor to the Croatian Minister of Finance, Matej Bule, pointed out that in that country, tourism revenue has only been lower on three occasions than the year before, in 1999, 2009, and 2020.
"When we entered the EU, we had 60 million overnight stays. Today, we have 400 more beds, the quality structure has changed. Private accommodation has grown significantly thanks to online platforms for booking accommodation, but also because the tax policy was very favorable for its development. In Dubrovnik, for example, you can have accommodation with eight beds, earn 50 euros a year, and pay a flat rate of around three thousand," said Bule.
In Croatia, the VAT rate was ten percent, but it was increased to 13 percent for hotels and 25 percent for catering establishments.
"Croatia is increasingly planning and managing space, and destination development is what we all need. We expect Montenegro to join the EU and the borders between us will be removed. We will connect with highways and the number of guests coming to Montenegro by car will be dramatically higher," said Bule.
The Director General of the Directorate for Tax and Customs Systems of the Ministry of Finance of Montenegro, Biljana Peranović, said that the increase in the VAT rate on accommodation services from seven to 15 percent is part of a broader fiscal reform, not an isolated measure, and that its goal is to preserve fiscal stability while simultaneously reducing the burden on labor.
As she stated, the amendments have unified tax treatment, with an effort to provide additional budget funds to reduce the workload.
Although she is aware that part of the burden is borne by the tourism industry, Peranović pointed out that this is a cost that is ultimately borne by the tourist as a consumer.
"We have to look at the complete tax picture. Montenegro has one of the lowest labor burdens in Europe, lower than in Croatia, as well as one of the lowest corporate tax rates, and we have to provide funds for infrastructure from VAT," said Peranović.
She announced improvements to the Law on Foreigners, and plans are underway to introduce a mobile application that will enable online visa applications, which is expected to be implemented next year, in cooperation with the Ministry of Foreign Affairs.
"Preserving the competitiveness of a tourist destination remains a priority, therefore it is important to view tax policy holistically, with a balance between the economy, the investment cycle and the state's needs for financing public infrastructure," concluded Peranović.
The CEO of Fidelity Consulting, Miloš Vuković, pointed out that Montenegrin tourism is characterized by an increase in the number of arrivals, fewer overnight stays and stagnation of revenues, and the trends are lower guest spending, shorter stays and three dominant markets from which they come - Serbia, Russia and Turkey.
He warned that tourism is facing price and administrative "shocks", due to the increase in VAT and the introduction of a visa regime for citizens outside the European Union (which could lead to the loss of 25 percent of the market), and the implementation of CBAM, which will lead to an increase in electricity prices.
Vuković expressed fears that these "shocks" will lead to hotels that operate year-round being closed during the winter months.
"When VAT increases, hotel businesses stagnate, the destination becomes less competitive, and tourists go to cheaper places, especially Albania, which has become a popular destination despite our weaknesses," said Vuković.
He listed as key recommendations to the state a reduction in VAT, acceleration of visa procedures, introduction of a season extension program, additional tax and labor incentives in the off-season, strengthening promotional activities of the NTO, and simplifying procedures for new hotel investments.
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