Press release from 33rd Cabinet session: Government proposes VAT rate to rise from 19% to 21%

Podgorica, Montenegro (6 July 2017) – At today's session, the Montenegrin Cabinet passed the Draft Law on Foreign Affairs in order to achieve and protect the interests and reputation of Montenegro internationally, as well as to protect its citizens and other economic and legal entities at the international level. The discussion underscored that today's Montenegrin diplomacy requires additional development as an adequate response to new international obligations and challenges, bearing in mind that in the decade after the restoration of independence, Montenegro has achieved notable foreign policy results, such as membership in NATO, a leadership position in the field of European integration, and membership and fulfilment of obligations in a large number of international organisations. The new law is proposed in order to modernise the system and increase the functionality and efficiency of the foreign affairs service, which will further affirm new values and set standards.

By concluding the discussion on this item on the agenda, the Prime Minister pledged full support for this approach, pointing out that the new law on foreign affairs represents a normative basis for a more efficient and efficient work of our diplomatic and consular network, especially in the circumstances of our country's membership in NATO. In that regard, the Prime Minister emphasised the necessity of improving the organisational structure of the Ministry of Foreign Affairs and strengthening the capacities of some of its parts based on the analysis of the effects of the diplomatic-consular network.

In line with the Proposed Fiscal Strategy, the Cabinet passed the draft laws amending the Law on Value Added Tax and the Law on Excise. As announced, in order to reduce the budget deficit, it is envisaged to increase the general VAT rate from 19% to 21%, while the lower rate applied to the trading of basic foodstuffs remains unchanged at the level of 7%, which is the Government's response aimed at keeping prices of basic food products, or preventing the price increase of these products. The proposed amendments to the Law on Excise provide for a gradual increase in the excise tax on tobacco products, ethyl alcohol, carbonated beverages and coal, for the period from 2017 to 2020.

Furthermore, in accordance with the Proposed Fiscal Strategy, the Government adopted the Guidelines for Macroeconomic and Fiscal Policy for the period 2017-2020. According to projections, the average real GDP growth rate in this period will be 2.6%, 2.7% in 2017, 3.2% in 2018, 2.3% in 2019 and 2.1% in 2020. The growth of public revenues is also projected, so that in 2020 it will reach the level of about EUR 2 billion.

The projected public finances deficit will be decreased, and in 2020 it will cross the surplus zone of 5.3% of GDP, and in the same year, a significant reduction in public debt up to 67% of GDP is expected.

The document provides for the medium-term objectives of economic and fiscal policy, the medium-term macroeconomic and fiscal framework, on the basis of which the spending limits by economic classification and consumer spending units of the first order are established, which are binding for 2018 and indicative for the next medium-term period.

Prime Minister Duško Marković instructed the line ministers to inform the Government at the next session on whether all bodies respected the Law on Salaries in Public Sector, which reduced salaries of public officials as of 1 July.

Government also passed the Draft Law on Business Enterprises, whose adoption, inter alia, is a key measure for the temporary closure of negotiations in Chapter 6 - Commercial Law. The Government tasked the Ministry of Economy to conduct a public debate on the text of the Law in line with the regulations, emphasising its systemic importance for a society based on a market economy.

PUBLIC RELATIONS SERVICE OF THE GOVERNMENT OF MONTENEGRO