Montenegrin hoteliers are facing significant concerns as most have already sold their packages for the upcoming year, assuming a 7% VAT rate on accommodation. The impending increase to 15% VAT, set to take effect in January next year, is expected to cause major financial losses and disrupt their business operations. The proposed changes to the VAT Law, as outlined in Montenegro’s fiscal strategy for 2024-2027, include a new reduced VAT rate of 15% for certain tourism services, such as accommodation and hospitality. This move has raised alarms among industry representatives who worry it will undermine Montenegro’s competitiveness compared to Mediterranean EU countries with much lower VAT rates.
Ranko Jovović, President of the Tourism and Hospitality Association Committee of the Chamber of Commerce, highlights that the proposed 15% VAT rate is significantly higher than in countries like Cyprus, Italy, Spain, Croatia, and Greece, as well as neighboring states like North Macedonia, Albania and Serbia.
Jovović warns that this increase could reduce Montenegro’s tourism competitiveness, complicate operations for hoteliers and restaurateurs, and lead to potential losses due to already-sold packages for the next year.
He advocates for maintaining the current 7% VAT rate on accommodation while introducing a competitive rate for hospitality services. This approach would better support the growth of Montenegro’s tourism and related industries.
Impact on competitiveness
Jovović compares the proposed VAT rate with those in other Mediterranean EU countries, where the reduced VAT rates for tourism services range from 9% in Cyprus, 10% in Italy and Spain, to 13% in Croatia and Greece. In the region, VAT on accommodation is as low as 5% in North Macedonia, 6% in Albania, and 10% in Serbia. The 15% rate in Montenegro is notably higher, which he believes will adversely affect the country’s tourism industry.
Many hoteliers have already priced packages assuming the 7% VAT rate. The increase to 15% could create substantial issues and financial losses for them. Jovović underscores that tourism is highly sensitive to price changes, necessitating careful long-term planning rather than short-term adjustments.
Concerns and Recommendations
Jovović notes that the 7% VAT rate on accommodation has not negatively impacted budget revenues; rather, it has resulted in increased VAT income due to higher overnight stays. He argues that VAT rates significantly impact industry competitiveness, and reduced rates are commonly used in the EU to enhance competitiveness in the tourism sector.
The proposed increase could have the opposite effect, raising concerns about tax evasion and the shadow economy. Jovović suggests that maintaining the reduced VAT rate for accommodation and introducing a competitive rate for hospitality services would better align Montenegro with other Mediterranean and European countries. This approach could boost investment and job growth in the sector, as seen in other countries that have lowered VAT rates.
Jovović emphasizes the importance of creating favorable conditions for the tourism sector to ensure its continued growth and competitiveness. He calls for retaining the 7% VAT rate on accommodation and establishing a new competitive VAT rate for hospitality services to support Montenegro’s tourism industry and related sectors.
Conclusion
Montenegro has the potential to enhance its tourism sector by encouraging investment and improving hotel quality, which in turn supports employment and economic growth in related industries. Jovović stresses that while the proposed VAT increase might yield short-term fiscal benefits, it could ultimately harm competitiveness and limit future investments. He advocates for policies that support the tourism industry’s growth and ensure a balanced tax environment to foster long-term success.
