Montenegro’s accumulated tax debt has reached approximately €750 million, revealing a growing divide between the Tax Administration’s stronger current revenue collection and its limited ability to recover liabilities accumulated by companies, municipalities, public institutions and insolvent taxpayers over many years.
The latest figure is materially higher than the €655 million reported at the beginning of 2025 and the €633.1 million recorded in mid-2024. The increase does not mean that Montenegro suddenly lost almost €117 million of current revenue. Part of the rise reflects additional interest, completed inspections and the formal recognition of tax obligations that had previously been undeclared or incorrectly calculated. Yet the trend still points to a tax-debt portfolio that is expanding despite repeated rescheduling programmes, interest-write-off schemes and stronger enforcement.
According to Sava Laketić, director of Montenegro’s Tax Administration, around €300 million of the total debt consists of accrued interest. That means the underlying principal is approximately €450 million, while interest now represents about 40 per cent of the entire stock.
The distinction is central to understanding the fiscal risk. Principal tax debt represents revenue that should have entered the budget but did not. Accrued interest is intended to penalise delayed payment, but when it becomes such a large part of the portfolio it can also make liabilities practically impossible to settle. Companies that cannot repay the principal are unlikely to be able to cover an additional interest burden accumulated over ten or fifteen years.
Montenegro applies interest of 0.03 per cent a day to outstanding tax liabilities. On a simple annualised basis, that is equivalent to approximately 10.95 per cent a year. At that rate, an unpaid obligation of €1 million can generate almost €110,000 in additional interest over twelve months, before taking account of payments, enforcement measures or changes in the applicable balance.
The interest mechanism is therefore increasing the nominal value of the state’s tax receivables faster than the authorities can determine which claims are realistically recoverable. The resulting balance-sheet figure may overstate the amount that the budget can ultimately collect, especially where the debtor has ceased trading, entered bankruptcy or no longer owns assets against which the state can enforce its claim.
Official debtor lists provide a partial picture of the concentration. Montenegro’s 200 largest active tax debtors owe more than €95 million, while another 100 taxpayers in bankruptcy account for approximately €130 million. These two groups therefore represent about €225 million, or 30 per cent of the total tax-debt portfolio. Most of the amount is connected to legal entities rather than individuals.
The concentration is financially significant, but it also means that the remaining €525 million is dispersed across a much broader population of taxpayers, including businesses, local governments, public institutions and other entities. Recovering that fragmented portfolio requires more than action against a small number of headline debtors. It requires case-by-case classification, reliable property information, automated account monitoring and a clear distinction between viable companies experiencing temporary liquidity problems and businesses that no longer have any realistic capacity to pay.
The scale of the debt is substantial relative to Montenegro’s economy. Based on the nominal economic assumptions underpinning the 2026 budget, accumulated tax arrears are equivalent to roughly 8.5–9 per cent of GDP. They are also almost 2.7 times the planned €278 million budget deficit for 2026.
The €300 million interest component alone is larger than the government’s projected annual deficit. Tax arrears are not directly interchangeable with budget financing, since a large part cannot be collected immediately and some may never be recovered. Nevertheless, the comparison demonstrates the opportunity cost. Even partial recovery of economically viable claims could reduce borrowing needs, support capital investment or create more room for fiscal buffers.
Montenegro’s headline tax collection has improved in recent years. That makes the continued expansion of accumulated arrears appear contradictory, but the two trends can coexist. Current taxpayers may be paying more regularly while unresolved historical claims continue to generate interest. Inspections can also increase the recorded debt by discovering older liabilities that were previously missing from the system.
Stronger inspection activity may therefore worsen the headline arrears figure in the short term while improving tax administration in substance. A liability uncovered during an audit is not necessarily a new loss to the budget; it may be an old obligation that has finally become visible. The critical measure is what happens after assessment—whether the amount is paid, rescheduled, secured against assets or transferred into a clearly identified uncollectible category.
Montenegro has repeatedly relied on debt rescheduling as an intermediate solution. The Tax Administration is currently monitoring four separate programmes established under arrangements adopted in 2015, 2018, 2022 and 2025. Their results vary sharply.
The programme implemented under the 2018 Regulation on Deferred Payment of Tax Liabilities achieved a reported collection rate of 96 per cent, suggesting that rescheduling can work when beneficiaries remain operational, repayment conditions are credible and compliance is actively monitored.
The 2022 tax-debt rescheduling programme produced weaker results. Slightly more than 60 per cent of the agreed obligations were realised. A total of 5,209 taxpayers entered the programme, but rescheduling decisions were subsequently cancelled for 780 taxpayers that failed to comply with the repayment conditions. The terminated arrangements covered claims worth approximately €64.5 million.
This is more than an administrative shortfall. Repeated rescheduling creates an incentive problem when taxpayers expect that non-payment will eventually be followed by another opportunity to extend maturities or obtain an interest write-off. Compliant businesses finance their obligations on time, while persistent debtors effectively receive unsecured credit from the state.
A rescheduling policy remains commercially justified where a viable company can preserve employment, continue operating and repay its principal from future cash flow. The same approach becomes counterproductive when it merely delays enforcement against businesses that have no sustainable activity or when public-sector entities continue accumulating new liabilities while paying instalments on old ones.
That problem has been visible among municipalities, local public institutions and municipally owned companies. Even where instalments under earlier agreements were paid, some entities failed to keep their current taxes and social contributions up to date. The authorities then introduced a new programme to consolidate both old rescheduled liabilities and subsequently accumulated obligations.
Under the latest arrangement, adopted for municipalities, funds, public institutions and companies established by local governments, the Tax Administration has issued 55 rescheduling decisions. These cover €54.5 million in principal and €21.5 million in accrued interest. Two instalments had been paid under the new schedules at the time of the latest assessment.
The scheme can stabilise local finances, but it also shifts part of the collection risk into the future. The quality of the programme will depend on whether municipalities simultaneously pay current obligations. A local authority that services an old repayment plan while accumulating new unpaid taxes has not reduced the underlying fiscal problem; it has only changed its maturity structure.
The state is also struggling to determine the precise portion of the €750 million that is genuinely uncollectible. Claims may become impossible to recover because the legal limitation period has expired, the company has been liquidated, bankruptcy proceedings have produced no distributable assets or the debtor’s property is already pledged to secured creditors.
Regional Tax Administration units issue decisions terminating obligations where the absolute statute of limitations has been reached, but the pace of this process has been described as unsatisfactory. Bankruptcy cases add another layer of uncertainty because the final recovery depends on the duration of proceedings, the quality of the debtor’s assets and the priority of competing claims.
Until those cases are resolved, the state continues to report receivables that may have little economic value. This weakens transparency around the tax-debt portfolio. For fiscal analysis, a €750 million gross claim is far less informative than a classified portfolio showing the amount expected to be recovered within one year, amounts under performing rescheduling agreements, secured claims, disputed assessments, bankruptcy claims and liabilities assessed as uncollectible.
Montenegro is attempting to improve that distinction through digitalisation and stronger risk analysis. The new Integrated Revenue Management System, or IRMS, is intended to connect taxpayer records, filings, payments and information from other public institutions. Its introduction was accompanied by complaints from companies, accountants and citizens involving tax-return submission, company registration, certificates and access to the electronic portal.
The system was introduced across multiple modules at once after years of delay, partly because Montenegro needed to advance tax-administration reforms linked to its EU accession process. Some early difficulties resulted from incompatibility between new digital procedures and older legislation rather than failures of the platform itself. Regulations were further harmonised at the end of March 2026.
IRMS has now processed approximately 180,000 cases, including more than 50,000 during June alone. The volume is encouraging, but the system’s fiscal value will be measured by whether it identifies emerging arrears earlier, improves enforcement prioritisation and prevents new liabilities from ageing into another generation of difficult claims.
The Tax Administration’s enforcement strategy includes account blocking, execution against property, automatic institutional data exchange and earlier identification of debtors. These measures should allow the authority to distinguish quickly between temporary liquidity stress and deliberate non-payment. Speed is crucial because the recovery rate falls sharply once a business becomes insolvent, transfers assets or enters a prolonged bankruptcy process.
Tax inspections have also intensified. During the first part of 2026, the Tax Administration submitted 64 cases to the Police Directorate for assessment of possible criminal liability. The police subsequently filed 13 criminal complaints against legal entities and their executive directors involving suspected tax and contribution evasion valued at approximately €1.7 million.
The largest number of reported irregularities was identified in construction, followed by trade and hospitality. These are sectors with extensive subcontracting, cash transactions, seasonal employment and fragmented business structures, creating greater exposure to undeclared turnover, informal wages and unpaid social contributions.
The legal profession remains another focus of fiscalisation. A total of 579 taxpayers from the sector had registered in the electronic fiscalisation system, with the number rising during 2026. Non-compliance can result in fines ranging from €2,000 to €12,000. The issue has become a test of whether electronic fiscalisation will be applied uniformly across politically and professionally influential groups rather than concentrated on retail businesses and smaller service providers.
The arrears matter beyond the immediate amount available for collection. Montenegro is entering a demanding fiscal period marked by infrastructure investment, social spending commitments, public-debt refinancing and the administrative cost of preparing for EU membership. The 2026 budget deficit is targeted at 3.2 per cent of GDP, while international assessments continue to emphasise the need for predictable revenue and stronger control over current expenditure.
Tax debt is not the same as sovereign debt, and markets will not assume that the entire €750 million must be financed by the government. Investors and rating agencies will, however, examine what the arrears say about institutional capacity. A rising stock of unpaid obligations signals uneven enforcement, weak payment discipline among parts of the public and private sectors, and uncertainty over the true value of government receivables.
For commercial banks, the debtor portfolio can also reveal stress that is not immediately visible in headline non-performing-loan ratios. A company with substantial overdue taxes may continue servicing its bank debt while accumulating obligations to the state, effectively using the tax system as a source of working capital. Stronger enforcement can then expose liquidity weaknesses and affect the borrower’s ability to repay banks, suppliers and employees.
The Tax Administration’s immediate priority is therefore not simply to lower the headline number through accounting write-offs. It needs to establish the economic value of the portfolio, enforce viable claims and remove legally expired or demonstrably uncollectible balances through transparent procedures. Interest write-offs should remain tied to full repayment of principal and strict compliance with current obligations.
Montenegro’s €750 million tax debt has become too large to be treated as a technical backlog. With €300 million already attributable to interest and €225 million concentrated among the largest and bankrupt debtors, the fiscal problem is increasingly defined by recoverability rather than assessment. The performance of IRMS, the enforcement of rescheduling conditions and the treatment of public-sector debtors will determine whether the stock begins to decline or continues growing alongside otherwise improving tax revenues.
