A new survey by the Centre for Economic and European Studies — CEES puts a sharp number on a problem that many Montenegrin businesses have been describing for years: fiscal and parafiscal charges are no longer only a cost line. They are becoming a direct constraint on investment, employment and formal business growth.
According to the research conducted for CEES by DeFacto Consultancy, 86.6 per cent of surveyed companies said that fiscal and parafiscal burdens had negatively affected their investment plans. Another 60 per cent of business owners assessed that high taxes, fees and other charges encourage activity in the grey economy. For a small open economy trying to attract investment, formalise local enterprise and prepare for deeper EU integration, those figures are not a routine complaint from the private sector. They are a warning about the quality of Montenegro’s business environment.
The findings were presented at a workshop in Bijelo Polje, organised under the project “Economic Development of Northern Municipalities: Achieving Greater Development Through Reform Of Charges”. The location was important. Montenegro’s north has long carried the burden of weaker economic activity, lower investment density, demographic pressure and fewer large private-sector anchors than the coast and Podgorica. A debate about taxes and charges in Bijelo Polje is therefore not only a technical discussion about municipal revenues. It is a discussion about whether northern Montenegro can realistically build a stronger business base.
The headline result — 86.6 per cent of firms reporting a negative effect on investment plans — suggests that the issue has moved beyond irritation into delayed expansion. When a business postpones investment, the impact spreads quickly. Equipment purchases are delayed. New workers are not hired. Premises are not expanded. Digital upgrades are postponed. Suppliers lose orders. Local banks see weaker demand for productive credit. Municipalities lose the future tax base they were trying to protect by increasing or maintaining charges.
This is the paradox at the centre of Montenegro’s local-business model. Public authorities often turn to fees, taxes and administrative charges to support budgets. But when those charges become too heavy or unpredictable, they reduce the very activity that would generate sustainable revenue. The CEES research captures that tension clearly. Higher charges may look like a fiscal solution on paper, but in a fragile local economy they can become a brake on formal growth.
The employment signal is just as concerning. 65 per cent of surveyed business owners said that high fiscal and parafiscal charges had limited their ability to hire new workers over the past year. In Montenegro, where companies already face labour shortages, seasonal hiring pressures and emigration of skilled workers, this is a serious structural problem. Labour availability is no longer only about wages or education. It is also about whether employers can afford the total cost of formal employment in an environment where other charges are already absorbing cash flow.
The private sector is effectively saying that it faces pressure from both sides. On one side, inflation and operating costs have increased. On the other, taxes, fees and administrative charges remain high or unstable. In between, companies are expected to invest, hire, formalise and compete. For larger firms with stronger balance sheets, that may still be possible. For smaller companies in the north, the margin for error is much thinner.
The survey also points to the grey-economy risk. When 60 per cent of business owners say high charges push activity into informal channels, policymakers should treat that as a practical competitiveness warning. Businesses do not move into the grey economy only because of weak enforcement. They also do so when the cost of full compliance feels disproportionate to expected profit. A high-burden system can punish compliant firms while making informal competitors more attractive to price-sensitive customers.
This is especially damaging in municipalities trying to grow local enterprise. Formal businesses pay taxes, register workers, issue invoices, carry inspection risk, rent or own legal premises and interact with banks. Informal operators avoid part of that burden. The more expensive formality becomes, the harder it is for compliant firms to compete. That weakens public revenue, undermines fair competition and discourages serious investors from entering markets where the rules are unevenly applied.
The CEES findings on local charges are particularly relevant. 73.4 per cent of respondents identified fees for communal land development among the largest local burdens. These fees matter because they are connected to construction, business premises, expansion and physical investment. A company that wants to build, adapt or enlarge facilities may face significant municipal costs before the project has generated any revenue. In more developed coastal municipalities, such costs may be absorbed by higher property values or tourism-linked returns. In northern municipalities, the same burden can make a project unviable.
Bijelo Polje’s position makes the debate more nuanced. Participants at the workshop noted that the municipality is often ranked as the most competitive in northern Montenegro by international-organisation reports, but they also stressed that many of the pressures faced by businesses are not under the direct control of local government. This is an important distinction. Local administrations can improve communication, speed up procedures and review municipal charges, but many cost pressures come from national tax policy, VAT rules, labour regulation, inflation and the wider administrative system.
That is why the problem cannot be solved only municipality by municipality. Montenegro needs a broader review of the total burden on companies, not only the most visible tax rates. Businesses feel the combined effect of national taxes, local fees, inspection costs, permits, utility charges, administrative procedures, delayed approvals, reporting obligations and the cost of compliance. A single charge may look manageable. The full stack can be enough to stop investment.
The tourism sector offers one of the clearest examples. Business representatives at the workshop pointed to the negative effect of increasing the reduced VAT rate on tourism services from 7 per cent to 15 per cent. For a country whose growth model depends heavily on tourism, this is a sensitive issue. A higher VAT rate may increase fiscal revenue in the short term, but it can also weaken competitiveness, especially for smaller accommodation providers, restaurants and local service companies that are already dealing with labour shortages, food-price inflation and seasonal concentration of demand.
The competitiveness issue is not abstract. Montenegro competes with other Adriatic and Mediterranean destinations, many of which have larger infrastructure systems, deeper labour pools, stronger airports and better-developed destination management. Raising the tax burden on tourism services without improving infrastructure and service conditions risks squeezing the operators that are expected to upgrade quality. The result can be higher prices, weaker margins, lower reinvestment and more informal behaviour in parts of the sector.
For northern municipalities, the tourism question has a different dimension. The north is trying to develop mountain, rural, active and cultural tourism, but those products are still less mature than the coast. Small accommodation providers, family farms, local guides, restaurants and event organisers need space to formalise gradually. If the formal cost base is too heavy too early, many will either remain informal or abandon expansion. That weakens the entire policy objective of regional development.
The comments from Selma Omerović, president of the Bijelo Polje municipal assembly, reflect the priorities businesses have been repeating: fewer administrative procedures, a stable regulatory framework and better communication with institutions. These are not expensive reforms in the same way as highways, airports or industrial zones. They are governance reforms. They depend on how public authorities design rules, consult businesses and deliver services.
That point was reinforced by Nina Vujošević, the project coordinator, who noted that larger northern municipalities such as Bijelo Polje and Berane generally have more stable and predictable local charge policies, while smaller municipalities more often change the level and number of local charges in an effort to increase budget revenues. The problem is that raising charges does not automatically raise income. Some smaller municipalities have increased certain fees without achieving expected revenue because the local economy simply could not absorb the new burden.
This is one of the most important lessons from the CEES analysis. A municipality cannot tax itself into development if the private sector is too weak to carry the load. Local budgets need revenue, but local economies need oxygen. The balance between the two is delicate, especially in northern Montenegro, where the business base is narrower and investment alternatives are fewer.
The reform challenge is therefore to distinguish between necessary public revenue and charges that suppress growth. Montenegro does not need a race to the bottom in taxation. It needs a cleaner, more predictable and more economically rational system. Charges should be transparent, proportionate, stable and connected to actual public services. Businesses are more likely to accept fees when they can see what they are paying for, when the rules do not change unexpectedly and when administrative service is fast enough to justify the cost.
Consultation is central to that process. Workshop participants concluded that timely dialogue with the business community is necessary before adopting new national or local regulations that change fiscal and parafiscal burdens. That should be treated as a minimum standard, not a courtesy. A small business owner will often understand the real effect of a proposed charge faster than the institution drafting it. Without consultation, policy can look balanced in a budget table but destructive in commercial practice.
For investors, the CEES survey is also a signal about execution risk. Montenegro has attractive headline features: euro use, EU accession momentum, NATO membership, a strong tourism brand, proximity to the EU market and competitive headline tax positioning. But investors look beyond headline tax rates. They look at the full cost of doing business, regulatory predictability, local-government behaviour, administrative speed and the hidden cost of compliance. A country can have appealing headline rates and still be difficult for companies if parafiscal burdens are layered, unpredictable or poorly explained.
The north is where this risk becomes most visible. Regional development will not be delivered only through grants, infrastructure promises or promotional campaigns. It requires a local business environment where a small manufacturer, hotelier, logistics operator, food processor, construction company or family tourism business can plan investment with confidence. If 86.6 per cent of companies say current burdens are harming investment plans, then the policy framework is not yet aligned with the growth objective.
The issue also has a banking and credit dimension. Banks lend more easily to companies with stable cash flow, predictable costs and formal records. High and unstable charges weaken all three. They reduce free cash flow, increase uncertainty and encourage informality. That makes it harder for companies to qualify for loans and harder for banks to finance productive expansion. In that sense, parafiscal reform is indirectly a credit-market reform as well.
Montenegro’s EU path makes the question more urgent. As the country moves closer to membership, it will need stronger institutions, cleaner public finance, more formal businesses and better local economic data. A heavy, fragmented and unpredictable charge system works against that direction. EU alignment is not only about adopting laws. It is also about building an economy where businesses can comply without being pushed into delay, avoidance or informality.
The CEES survey should therefore be read as a practical reform document, not only a set of private-sector complaints. It shows where the pressure is strongest: investment delays, hiring constraints, grey-economy incentives, communal land-development fees, VAT pressure in tourism, labour shortages and weak consultation before new charges are introduced. These are precisely the issues that determine whether local economies grow or remain dependent on public employment, remittances and seasonal activity.
For Montenegro, the reform path is clear enough. The country needs a full inventory of fiscal and parafiscal charges at national and municipal level, a competitiveness test before new burdens are introduced, stronger consultation with business associations, simpler procedures, faster administration and a clearer link between fees paid and services delivered. Municipalities should be encouraged to protect revenue through growth of the formal tax base, not through repeated increases in charges that smaller firms cannot carry.
The strongest message from the Bijelo Polje workshop is that business development in the north cannot be separated from the cost of formality. Companies are not refusing to invest because they lack ambition. Many are delaying expansion because the numbers no longer work. When taxes, fees, charges, labour shortages and administrative friction accumulate, the rational response is caution. That caution is now visible in the survey data.
Montenegro’s economic policy often speaks about regional development, entrepreneurship and investment attraction. The CEES research shows where that agenda meets reality. A company will invest when it can see demand, finance the project, hire workers and trust that the operating burden will remain manageable. Without that confidence, even the most competitive municipality in the north will struggle to convert potential into sustained private-sector growth.
