Collection of public revenues increased in the first half of 2013 as Montenegro strives for progress on an issue crucial to European integration.
By Drazen Remikovic for Southeast European Times in Podgorica -- 09/08/13
The gray market in Montenegro's lucrative tourism industry costs the country significant amounts of money and tax revenues. [Drazen Remikovic/SETimes]
Montenegro's government is focusing efforts on reducing illicit incomes, and while experts agree much work remains to be done, the country has made recent progress in an area that is crucial on its path toward the EU.
The government announced last week that public revenues in the first six months of 2013 increased 40 million euros compared to the same period in 2012.
"Everything is running according to the action plan for fighting the gray economy, adopted at the beginning of this year," Marija Radenovic, a spokesman for the ministry of finance, told SETimes. "Reinforced inspection in the area of taxes contributed to [the 40 million euro increase], which leads directly to the reduction of illegal business."
Marko Sosic, project co-ordinator and researcher with Podgorica's Alternativa Institute, which researches public administration and finances, said that by opening negotiations with the EU, Montenegro undertook a responsibility to implement reforms to reduce the gray economy.
"A lot of laws need to be adopted, and new institutions need to be set up. ... However, what is most important is that Brussels will seek concrete results and figures which are achieved, not only reports on the adopted laws. And local authorities need to understand that eliminating the gray economy from legal businesses will bring a huge influx of money in the state budget, which now ends in someone else's pockets," Sosic told SETimes.
According to Global Financial Integrity statistics for 2011, Montenegro lost 138 percent of its GDP to crime, corruption and tax evasion.
Officials say they are working to counteract the problem, timing their efforts to coincide with the lucrative summer tourism season. About 1.5 million tourists visit Montenegro during the summer.
Dragan Ivancevic, chairman of the tourism committee in the Chamber of Economy of Montenegro and director of the Queen of Montenegro hotel in Budva, said there is a gray market in the tourism industry, especially in unreported income from accommodations.
"According to our estimates, about 60 percent of the accommodations are illegal. Tourism experts I spoke with say that it is around half a billion euros of damage per year. We have been warning about this problem for years, and the state needs to go into action more determined. Some improvements are seen, but it is all insufficient. The underground economy creates unfair competition and investors are avoiding such destinations. We need to stand in the way of it once and for all," Ivancevic told SETimes.
The Inspectorate of Montenegro said its inspectors are constantly in the field and spend significant time examining the labour market, tax evasion and the issuing of fiscal receipts.
"For only one month, May, inspectors carried out 3,722 inspections, which is almost twice as many compared to last year. The inspectors found irregularities in 2,873 cases; 1,656 offences were written in the amount of almost 400,000 euros. With the start of the tourist season, we increased our control to combat the gray economy. We've improved co-operation with other government agencies, local governments, and we have opened a free call centre where citizens can anonymously report any irregularities," Iva Cukic, spokeswoman of the Inspectorate of Montenegro, told SETimes.
Some officials say efforts to fight the gray economy should be the focus of regional co-operation.
"The underground economy is a cancer of Montenegrin tourism and economy. We have an unacceptable level of gray economy, and this directly affects the results in tourism. There are also cross-border spillovers of that economy, which means that it is a regional problem. It would be good to take on an international level, establish a common mechanism to prevent this phenomenon," Branimir Gvozdenovic, vice president of the Montenegrin government, told reporters at a news conference in July.
Vukasin Zogovic, president of the Union of Free Trade Unions of Montenegro, said the collection of 40 million euros during the first half of the year indicates progress, but added that additional measures should be taken.
"We still have about 40,000 employees working in the black market. Earlier this year [in March], the government formed a commission to combat the gray economy, which gathers all the social partners, and which is trying to find solutions to these problems. The union has managed to raise the minimum wage from 145 to 193 euros. Of course, things can always be better, and the union will continue to fight to improve the position of workers," Zogovic told SETimes.
What steps should Montenegro take to continue its progress in battling the gray economy? Share your thoughts in the comments section.