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IMF Urges Montenegro To Increase Consumption Taxes

Tuesday, March 13, 2018

Montenegro should make its tax system more conducive to economic growth by removing taxes on labor and transferring them to consumption and environmental taxes, the International Monetary Fund has recommended.

In its latest report on the economy of Montenegro, the IMF said that high taxes on labor inhibits growth and supports the informal economy.

"Combined with a labor tax wedge of close to 40 percent, any employment in the formal sector results in a net loss of income for low-income workers, providing a strong disincentive for formal work," the IMF said in its concluding statement.

Revenue losses from reforms to labor taxation could be replaced by increasing environmental taxes and lowering tax expenditures, the IMF proposed.

"A higher coal excise would promote investment in cleaner energy sources and tax an activity with negative externalities (coal burning) rather than a desired activity (work)," the statement said.

"Reductions in tax expenditures for the VAT and corporate tax also hold significant revenue potential."

The IMF said it was concerned that the VAT base was "narrowing."