The draft fiscal strategy suggests raising the VAT rate on books and print media from 7% to 15%. This move contrasts with the common practice in many countries where such cultural and public interest products benefit from reduced or zero VAT rates.
The proposed VAT increase would lead to an approximate 8% rise in book prices. Publishers of print media might need to either increase their prices accordingly or absorb the added cost, according to Vijesti.
In the majority of EU countries, books and print media are considered essential for cultural and educational development, leading to reduced or zero VAT rates as a form of encouragement.
Currently, Montenegro employs three VAT rates: 0%, 7%, and 21%. The new strategy proposes an intermediate VAT rate of 15% for products and services that are currently taxed at 7% and partially at 21%.
The government expects an additional €60 million in annual revenue from raising the VAT rate from 7% to 15%, although specific projections for books and print media have not been detailed.
The rationale behind this VAT hike is to “compensate for the decrease in state revenue due to reduced payroll taxes, positioning Montenegro as one of the most favorable tax systems for labor costs.”
The draft strategy also proposes cutting the pension contribution rate from 20.5% to 10% of gross salaries. This change is expected to increase employee wages by about 5% and reduce employer contributions by 5.5%. The anticipated reduction in revenue, around €180 million, will be offset by various measures, including the VAT increase.
Publishing and bookselling associations, as well as print media outlets, have long advocated for a zero VAT rate on books and print media due to declining sales. A 2022 draft media strategy had proposed reducing VAT to zero, but the government later adopted a Media Strategy that excluded this measure, citing that tax rates would be addressed through financial strategies. The latest draft now suggests an increase in VAT.
The strategy also proposes increasing VAT from 7% to 15% on monographic and serial publications, copyright, and services related to education, literature, arts, science, and artistic objects. It also includes VAT on tickets for cinemas, theater performances, concerts, museums, fairs, and sports events. VAT rates on solar panels and hairdressing services are set to decrease from 21% to 15%.
Additionally, VAT will be set at 15% for all accommodation services in hotels, motels, and guesthouses, as well as for food and beverage services (excluding alcoholic drinks, sugary soft drinks, and coffee) in hospitality establishments. Previously, most of these services were taxed at 7% or partially at 21%.
