A recent survey conducted by the Centre for Economic and European Studies (CEES) highlights a pressing issue for small businesses in Montenegro: the increasing tax burden is becoming a significant risk for investment and economic growth, particularly in the northern regions. This research, carried out by DeFacto Consultancy, reveals that 86.6% of surveyed companies believe that fiscal and parafiscal charges have adversely impacted their investment strategies.
The findings were discussed at a workshop in Bijelo Polje, part of the project titled “Economic Development of Northern Municipalities: Achieving Greater Development Through Reform Of Charges”. The northern part of Montenegro has historically faced economic challenges, including lower investment levels and demographic pressures. The discussions around taxation in this region are crucial, as they address the fundamental question of whether northern Montenegro can cultivate a robust business environment.
The survey’s results indicate that high taxes and fees not only hinder investment but also push businesses towards the grey economy, with 60% of respondents acknowledging this trend. This shift poses a serious threat to formal business operations as it undermines the local economy’s ability to attract investment while simultaneously preparing for deeper integration into the European Union.
Delays in investment have broader implications; when businesses postpone capital expenditures, it affects hiring, expansion, and overall economic activity. This creates a ripple effect where local banks experience reduced demand for credit, and municipalities face diminished future tax revenues. The paradox lies in public authorities relying on increased charges to support budgets while inadvertently stifling the very economic activity needed to generate sustainable revenue.
Concerns about employment are equally significant, with 65% of business owners reporting that high fiscal burdens have restricted their capacity to hire new employees over the past year. In a country already grappling with labor shortages and skilled worker emigration, this situation exacerbates structural challenges within the economy.
The survey also raises alarms about the grey economy’s growth. When 60% of business owners feel compelled to operate informally due to excessive charges, it signals a critical competitiveness issue. Compliance costs can deter businesses from operating legally, which ultimately weakens public revenue streams and discourages serious investment from entering markets where regulations are inconsistently enforced.
Local charges are particularly burdensome; 73.4% of respondents identified fees related to communal land development as one of the most significant local financial pressures. These fees are crucial for construction and expansion projects but can render such initiatives unviable in less developed northern municipalities compared to their coastal counterparts.
The workshop participants noted that while Bijelo Polje is often rated as one of the more competitive municipalities in northern Montenegro, many challenges stem from national policies rather than local governance alone. Local administrations can enhance efficiency and communication but cannot fully mitigate pressures arising from national tax policy or inflationary trends.
A comprehensive review of the total burden on businesses is essential for fostering an environment conducive to growth. Companies face numerous costs beyond visible tax rates, including local fees, compliance expenses, and administrative procedures. A singular charge may appear manageable; however, the cumulative effect can deter investment altogether.
The tourism sector exemplifies these challenges. An increase in VAT on tourism services from 7% to 15% has raised concerns among business representatives about its impact on competitiveness amid rising operational costs and labor shortages. For a small economy heavily reliant on tourism, such tax increases could have detrimental effects on smaller service providers already struggling with seasonal demand fluctuations.
In northern Montenegro, developing diverse tourism offerings requires careful consideration of formalization costs. If these costs are too high too soon, potential entrepreneurs may remain informal or abandon plans for expansion altogether, undermining regional development goals.
Comments from local leaders like Selma Omerović, president of Bijelo Polje’s municipal assembly, underscore the need for fewer administrative hurdles and a stable regulatory framework. These governance reforms are critical for creating an environment where businesses can thrive without being overwhelmed by costs.
The findings from CEES indicate that larger municipalities tend to have more stable charge policies compared to smaller ones that frequently adjust fees in an attempt to balance budgets without considering their economic impact. This inconsistency can lead to unintended consequences where increased charges do not translate into higher revenues if local economies cannot sustain them.
The insights from this analysis reveal that municipalities cannot simply impose taxes without considering the capacity of local businesses to absorb these costs. A balanced approach is necessary—one that recognizes the need for public revenue while ensuring that businesses have sufficient operational leeway to grow.
As Montenegro progresses toward EU membership, addressing these fiscal challenges becomes increasingly urgent. A fragmented and unpredictable charging system contradicts efforts to strengthen institutions and build a more formalized economy capable of supporting sustainable growth.
The CEES survey serves as a call to action for policymakers to reassess fiscal burdens on businesses. Key issues identified include delays in investments, hiring constraints, grey-economy incentives, and excessive communal fees—all factors critical for determining whether local economies can thrive or remain reliant on public employment and seasonal activities.
To foster a healthier business environment in Montenegro, there is an immediate need for a thorough inventory of fiscal charges at both national and municipal levels. Policymakers should prioritize consultation with business communities before implementing new regulations that could exacerbate existing burdens. By streamlining procedures and enhancing transparency regarding fees and services provided, Montenegro can create an ecosystem where businesses feel confident investing in their future.
