Montenegro’s hospitality industry is grappling with potential discrimination and unfair competition due to the prevailing provisions of the Value Added Tax (VAT) Law. Under these regulations, restaurateurs and hoteliers currently face a 21% tax rate on food and beverage preparation and services, posing significant challenges for the sector.
In January, Montenegro’s Hospitality Association submitted a petition to the Constitutional Court, seeking a review of the constitutionality of certain sections of the VAT Law. The special tax relief introduced during the COVID-19 pandemic, allowing a reduced 7% VAT rate for food and beverage services (excluding alcoholic and sugary drinks and coffee), expired on January 1, 2024. Now, only restaurants and food delivery services can benefit from this concession.
The hospitality sector argues that these VAT provisions violate constitutional principles, including non-discrimination, economic space, inequality, and the right to work. They believe that certain sections of the VAT Law are inconsistent with the Constitution, EU VAT directives, and other international agreements.
However, the government disagrees with this stance. In late March, the Prime Minister and Finance Minister issued a statement asserting that there are no grounds for accepting the hospitality industry’s initiative. The government maintains that the European Commission had previously called for a review of reduced VAT rates and tax exemptions. Furthermore, the 2024 budget projects increased VAT revenue due to the restoration of the standard 21% rate for the hospitality sector.
The hospitality industry’s initiative highlights concerns about the economic impact of these changes. They argue that without the previous tax relief, Montenegro’s hospitality businesses would struggle to remain competitive, especially in comparison to neighboring countries like Croatia, where the VAT rate for food preparation is 13%. Additionally, they emphasize that most hoteliers finalized pricing agreements and contracts with tour operators before the VAT change, leaving no room for adjustments.
If the government does not reconsider its VAT policies, it could have far-reaching consequences, not only for individual businesses but also for society as a whole. The implications of such tax measures extend beyond the hospitality sector, impacting the broader economy and employment landscape.
