Bulletin - Ministarstvo finansija · neta Krivokapić - Senior advisor PROCEDURES IN THE TAX...

Bulletin IVApril - June 2006

REPUBLIC OF MONTENEGRO

MINISTRY OF FINANCE

BULLETIN IVAPRIL - JUNE 2006

TAX ADMINISTRATION: www.poreskauprava.vlada.cg.yu

CUSTOMS OFFICE: www.gom.cg.yu/carine

ANTI-CORRUPTION DIRECTORATE: www.antikorup.vlada.cg.yu

DIRECTORATE FOR ANTI-MONEY LONDERY: www.gom.cg.yu/aspn

DIRECTORATE FOR REAL ESTATES: www.nekretnine.cg.yu

www.ministarstvo-finasija.vlada.cg.yu

BULLETIN OF THE MINISTRY OF FINANCE/APRIL - JUNE 2006

TABLE OF CONTENTS

2

INTRODUCTION

- Igor Lukšić, PhD, Minister of Finance

LAW ON PROPERTY-LEGAL RELATIONS

- Assistant to the Minister of Finance, Krsto Racković

LAW ON STATE PROPERTY

- Milodarka Novosel, Senior advisor

RESTITUTION

- Đorđina Lakić, Director of the Compensation Fund

BY RESTITUTION BONDS TO THE STATE PROPERTY

- Assistant to the Minister of Finance, Krsto Racković

LAW ON TAX ADVISORS

- Koviljka Mihailović, Assistant Minister of Finance, - Antoa-

neta Krivokapić - Senior advisor

PROCEDURES IN THE TAX PROCEDURE

- Chief of the Department for the Second Instance Admi-

nistrative and Customs Procedure, Pero Mrdak

4-5

6-9

10-12

13-14

15

16-17

18-23

TABLE OF CONTENTS


TABLE OF CONTENTS

3

29

26-28

24-25

30-31

32-33

34-35

36

37-39

40-48

PROJECT "1000 HOUSING LOANS "

- Senior Employee, Dragan Darmanović

INTERNATIONAL COOPERATION - EBRD

- Jadranka Radunović, International Co-operation and

EU Integrations Department, Co-ordinator

TRANSFER OF THE ARMY PROPERTY

TO THE REPUBLIC OF MONTENEGRO

- Predrag Stamatović, Advisor to the Minister

SUPPORT TO REFORM PROCESSES

OF THE DEFENCE SYSTEM

- Mijajlo Savović, M.A., Advisor for the Defence Budget

in the Ministry of Finance

OVERVIEW OF THE ACTIVITIES OF THE MINISTER OF

FINANCE - PR SERVICE OF THE MINISTRY

- Ana Miljanić, Spokesperson, Maja Bašić, Senior Employee I

OVERVIEW OF OTHER NEWS

- PR SERVICE

OLD FOREIGN CURRENCY SAVINGS

REPORT ON ACCOUNT OF PUBLIC DEBT OF THE

REPUBLIC OF MONTENEGRO UP TO 30. JUNE 2006

- Department for Debt and Cash Management,

Indebtedness Analysis and International Co-Operation

SneŽana Ivanović, Mersija Purišić, Mina Jovović, Nikola

Vukićević

16. MACROECONOMIC ANALYSIS

- Stanko Jeknić, PhD, Co-ordinator of the Macroeconomic

Analysis and International Co-Operation Department,

Vladislav Karadžić, Senior Employee I, Macroeconomic

Anaysis and International Co-Operation Department

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Introduction

4

Taking over of the full responsibi-lity for implementation of economicpolicy, and the participation in full ca-pacity in the integration processes,should give a strong impetus to theeconomic growth and developmentin medium and long term. Recentcontinuation of negotiations on Mon-tenegro's membership in the WorldTrade Organization, then expectednew mandate for negotiations withEuropean Commission on Stabilisa-tion and Association Agreement, andrecently ended Mission of IMF on thesubject of medium-term macroecono-mic policy and structural reforms, re-present and will represent positive

signal, first of all to foreign but und-oubtedly to domestic investors too.Stability of the system and predicta-ble economic policy are of great im-portance for business planning. If weadd to that reform of property laws,chances for higher investments andtherefore an opening of new job va-cancies, become more certain.

In this respect, it is necessary tostart preparation of specific Agenda2010, or activities as a follow-up ofeconomic reforms conducted in theperiod 2002-2006. Achieved macroe-conomic stability, high percentage ofprivatised public capital, and legal

INTRODUCTIONMMiinniisstteerr ooff FFiinnaanncceeIIGGOORR LLUUKKŠŠIIĆĆ,, PPHH..DD..

CCOONNTTAACCTT::

PPHHOONNEE:: ++338811 8811 224422--883355FFAAXX:: ++338811 8811 222244 445500EE--MMAAIILL::mmff@@mmnn..yyuuWWEEBB::wwwwww..mmiinniissttaarrssttvvoo--ffiinnaannssiijjaa..vvllaaddaa..ccgg..yyuu Successfully conducted Referendum on Independence, then very fast in-

ternational recognition of Montenegro, and express membership in theUnited Nations Organization, represent the beginning of the new poli-

tical period of Montenegro. Democratic consolidation of the system, whichwill progress through parliamentary elections and the draft of the new Consti-tution, creates conditions for economic positioning of our country in a newcontext.

DEAR READERS,


Introduction

5

grounds in many areas, represent spe-cific platform for further transforma-tion and modernization of Montene-grin economy and society. Combina-tion of structural reforms togetherwith control of public spending andreduction of tax rates represent poli-cy which should additionally stimula-te economic freedom, but also makeeasier the exchange of propertyrights with lower transaction costs.Main structural reforms are reflectedin the continuation of privatization,and enabling of long-term conces-sions with business systems such as:Electric Power Company, Port of Bar,Airports or Montenegro Airlines, andin next phase of pension reforms, in-troduction of II pillar or individual ca-pitalized savings. Particularly sensiti-ve, but unavoidable reform in thatcontext is a reform of labour market,through its liberalization. Fallingtrend of unemployment is obvious,and soon it will fall under 16%, butthat is still very high level which is notpossible to be reduced with the libe-ralization of labour legislation. At thesame time, in combination with gra-dual reduction of income tax to thelevel of 9%, terms are created for thelargest share of grey economy to beintroduced into the real sector.

In that context, the main challengefor public finance will be the publicdebt policy of general public sector,which should until 2011 be reducedbelow 30%. That kind of policy forpublic debt would create conditionsfor growth of state credit rating, redu-cing the risk premium in Montene-gro. That implies the fall of interest ra-tes, and therefore has positive in-fluence not only to business, but alsoto the living standard of all citizenswho are referred to the banking sec-tor, allowing a wider range of possibi-lities to them. At the same, with the re-duction of public debt, tax and priva-tisation receipts are allocated moredynamically to the development ofinfrastructure and therefore to achie-ving a high economic growth rate inthe long-term.

SSiinncceerreellyy,,IIggoorr LLuukkssiićć,, PPhhDD

Ministy of Finance


Law on property-legal relations to be adopted soon

6

ted by the Law on Elements of property-legal relationsand numerous separate laws (tenant ownership, mortga-ge, pledge, fiduciary transfer of property rights etc.). Tothe extent to which they are still not regulated by the newregulations, pre-war legal rules can still be applied to the-se relations, under the general conditions contained inthe Law on Invalidated Legal Relations adopted beforeApril 6, 1941 and During the Occupation Period in 1946.

Drafting the Law on property-legal relations in Monte-negro, subject-matter of the real right is gathered in oneplace. In that process were used past experinces, provis-ions of our big general property code of Montenegro, ju-dicial practice, comparative legal decisions as well as de-cisions from the European law, expecially Convention onprotection of fundamental human rights and freedoms aswell as practice of the European Court of Justice.

The Ministry of Finance through relevant WorkGroup composed of the representatives of theFaculty of Law, Ministry of Finance and Ministry of

Justice managed by Prof. Dr. Zoran Rašović, preparedDraft Law on Property -Legal Relations

Property -legal relations in Montenegro have not beenstill regulated integrally by the law. Property, as entirety ofeconomic relations in society and social condition ofexistence, is fundamental base for the overall social re-form. Complete and entire normative regulation of pro-perty-legal relations is necessary for implementation ofthe initiated changes in th economic and legal system ofthe Republic and it is an important condition for fasterrealization of constitutional concept of private propertyand freedom of entrepreneurship.

Subject-matter of the property-legal relations is regula-

LAW ON PROPERTY

- LEGAL RELATIONS TO BE

ADOPTED SOON

THE PROPERTY LAW MUST TAKE HOLD IN ORDER TO BECOME THE RIGHT OF PRACTICE.EVERY NEW TIME REQUIRES ALSO NEW SOLUTIONS. WE ARE SURE THAT THIS LAW'S DIREC-TION IS TOWARDS THE NEW TIMES



7

As it is known, according to earlier constitutional de-cisions, legislative competence for regulating property-le-gal relations was divided so that Federation regulated ba-sic property-legal relations and other issues came withinthe competence of the Republics. Thus, the Law on BasicProperty-Legal Relations in 1980 was adopted ("OfficialGazette of the Socialistic Federal Republic of Yugoslavia",No. 6/80), which regulated: right to property (holders andfacilities, acquiring, protection, discontinuation), real ea-sement, mortgage (pledge o chattels is regulated by theLaw on Obligatory Relations), possession actual, rights offoreign physical and legal persons and meritory right incase of inetrnal conflict of laws. Cetain issues from thesefields, which are not included in this law as well as the ot-her legal areas (co-ownership, joint ownership, tenantownership, fiduciary ownership, shareholders owner-ship, personal easement and neighborly rights) were sub-ject-matter of legal regulation of the republics and theyare partially already regulated by certain separate laws.We can state that numerous property and other real-legalrelations haven't been still regulated legally.

By adoption of the Law on property-legal relations,Montenegro will entirely regulate the general legal sys-tem of issues and rights. The holders will be providedwith these rights, in terms of the real rights, to the sameextent as holders in other European states.

The draft law mostly assumed provisions from the for-

mer federal law. Thus, along with additional regulation ofunregulated relations, a single, consistent and entire texton property-legal relations was offered.

The past Law on Law on Basic Property-Legal Rela-tions regulated certain institutes, but not comprehensi-vely and entirely, leaving to the republican legislation tonormatively regulate the remainder of relations and insti-tutes. Now, these are completely regulated by the draftlaw, which contributes to codification requirements incertain areas of social relations. In that way complex insti-tues, which came earlier within a divided legislative com-petence, are now integrated. Joint regulation of property-legal relations has got all advantages in terms of comple-te regulation, good layout of decisions and their internaladjustment. Purpose-serving reasons also point to jointregulation of these issues.

This draft law regulates also the assumed subject-mat-ter about tenant ownership, fiduciary transfer of owner-ship rights and mortgage, what enables better adjust-ment and systematic quality of the legal text, facilitatesthe entire insight into the subject of regulation as well asregulation itself. As Prof. Dr. Zoran Rašović says, this codi-fication proposal brings about deeper intervention interms of the existing real right and at the same timebrings together the existing real right, which was untilnow regulated by several laws, into one separate unity.Orientation of the proposer towards single integral met-hod of regulation of these relations will contribute also to

Assistant to the Minister of FinanceKrsto Racković



8

easier practical application of the law.

Konstantinovic's model of legal norms formulationwas mostly used in the course of drafting this law. Themodel is characterized by transparency, good layout andelegance of the legal text, and in this process were usedthe best experiences in comparative law adjusted to ourreality and adjusted to the international standards in thisfield.

In the course of drafting this law we transparently de-termined subjects, objects and principles of real rights aswell as general principles on which they are based (defini-teness, prohibition to abuse real rights, limitations of own-ership rights etc.) Legal notion of ownership, social func-tion of ownership, possibility and manner of ownership li-mitation are determined and other real rights are determi-ned and defined (easement, real burden and pledge, own-ership rights of the state etc.) The law also regulates the is-sues of acquiring and termination of the ownership rightson the basis of legal affairs, inheritance, decision of the pu-blic authority under the conditions determined by the lawetc. Certain, so called original ways of acquiring ownershiprights are separately regulated (non-owners' acquiring ofownership) such as creation of a new object, modification,unification, constructing at somebody else's land, long-standing plants, fruits separation, actual possession, acqui-ring from non-owners etc. then occupation, planting andsowing at somebody else's land, reclaimed piece of land,deposit, river flow alteration, abandoned river bed, new ri-ver island, swarm of bees etc.

The law separately regulates the issues of co-owner-ship rights, rights of joint ownership and tenant owner-ship. Of course, easement rights, personal easement andneghborly rights are also regulated in a relevant manner.

Right to pledge, as right of creditors (pledge or mort-gage creditor and pledgee) to enforce their claims beforeall the other creditors, is also regulated by this law.

Because of uniqueness of regulating all the propertyrelations there is, of course, also fiduciary ownership, i.e.fiduciary transfer of ownership rights, what was untilnow regulated by a separate law.

Easement, as factual ownership of objects, is also re-gulated by this law.

This law separately regulates also issues of foreignpersons rights in terms of acquiring ownership rights tomovable and immovable objects. These issues are parti-cularly significant from the aspect of privatization and fo-reign investments, i.e. possibility that foreign legal andphysical persons invest their capital without being distur-bed. In relation to the existing decisions from the mentio-

ned federal law, decisions in this law in this area, are sig-nificantly more liberal and the rights of foreign physicaland legal persons to acquire real estate in Montenegro,along with existence of reciprocity, are equalized withthe rights of our citizens.

Special significance and quality of this law in terms ofestablishment of clear ownership relations and determi-nation of titular of ownership, i.e. elimination of quasi-ownership terms of reference from the legal system aswell as terms such as "usage", "permanent usage" and ot-her relapses of social ownership, is contained in transi-tional and final provisions of this law. Namely, separatearticles regulate the issue of ownership rights transferfrom social ownership and registration of real owners'ownership right. Thus, real legal institutes of ownershipare established and outdated terms of ownership rights,especially in the framework of construction land are eli-minated from the real estate register. Exactly that undefi-ned land ownership caused significant difficulties andproblems in transition in the past period, in particular inthe privatization procedure of economic associations orparts of their property.

Constitutionally guaranteed full ownership rights ofall entities - holders of ownership rights, starting from ci-tizens to economic associations and local governancewill be established by enforcement of this law in the partof transitional and final provisions. Therefore, two consti-tutionally guaranteed forms of ownership, private andstate, with full capacities of disposal and enjoyment ofownership rights will play a role.

Prototype of this decision can be found in the Law onRestitution of Dispossessed Ownership Rights and In-demnification ("Official Gazette of the RoM", No. 21/04)by which the unjustifiably dispossessed property withinthe construction land is not returned to the former own-ers for usage but as their ownership.

As it is known, in the first years after the World War IIradical measures of disempowerment of the owners ofproduction instruments in Yugoslavia were carried out onthe basis of confiscation of property, regulation on agra-rian reform and nationalization of priovate and economicenterprizes, buildings, construction land and other regu-lations on ownership right disempowerment and its tran-sfer to social, i.e. national ownership. Socialization of con-struction land is continued because according to the Con-stitution of SFRY from 1974 private ownership right toconstruction land in the towns and populated places aswell as in the other areas envisaged for housing and othercomplex constructions was not allowed.

Constitution of the Republic of Montenegro from1992 terminated social ownership and established single



9

ownership system, which guarantees right to ownershipand inheritance without any limitations. Inviolability ofthe ownership right is raised to the level of the highest va-lues of the constitutional order. However, although socialownership is terminated, in the legal system of the Repu-blic of Montenegro remained "right to usage" of construc-tion land by the owner of construction facility as a real re-lict of outdated relations. Therefore, there is an illogicalcombination in the cadastar registars, i.e. citizen who isthe owner of construction facility (family housing buil-ding, business premises etc., which he constructed in ac-cordance with the legal procedure) is not the owner, butonly user of the construction land, i.e. construction lot onwhich the facility is built. Everyday practice derogateseach day these legal illogicalities and gradually introdu-ces universal legal principles, which are appropriate tothe European standards, and which are based on full dis-posal of property and even construction land of the hol-ders, who acwquired thier rights in the legal procedure.

As Prof. Rašović points out, exactly the illogicallitymust be resolved by adopting the Law on Property-LegalRelations in the aforesaid manner, by registering theownership right to the past holders of "right to usage","permanent usage", possibly "management" etc.

By adoption of the set of other laws in the field of pr-operty (Law on State Property, Amendments and Sup-plemnts to the Law on Construction Land and Law onState survey and real estate cadastre) which are envisa-ged by the Agenda of the Government of the Republic ofMontenegro in the first half od 2006 , and which were be-ing adjusted during thier drafting and now make a com-plementary and compatible entirety, the overall subject-matter of this sphere in Montenegro will be regulated ina completely new and modern way, relevant to the Euro-pean standards. Clear and adequate legal institutes ofownership, disposal and possibility of property transac-tions, which are relevant to the rights of entities that areholders of ownership rights in the modern world, are es-tablished in that way.

On these principles, from the Draft Law on Property-Legal Relations the Ministry of Finance prepared a com-pletely new version of the Law on State Property, withambition to perform further diferentiation in the frame-work of property rights and authorizations in relation tostate property with clearly defined ownership positionand authorizations of municipality (separate attachmentin this bulletin).

On the basis of the mentioned principles, from theDraft Law on Property-Legal Relations and Draft Law onState Property, in the ownership registers, i.e. register ofreal estate the ownership rights, which remined undefi-ned until now (usage, permanent usage etc.), which we-

re acquired in a legally valid manner, at the request ofowners of these rights would be registered as the own-ershp right. In addition, on the basis of the mentioned le-gal principles real titulars of private and state propertywill be determined and protected, and clear diferentia-tion of ownership rights and obligations of municipalitywill be executed in the framework of state property.

By amendments and supplements to the Law on Con-struction Land, with much more clear and modern decis-ions, the procedures of overall treatment of property ofthe ownership rights holder in the framework of con-struction land will be integrated and simplified and theholder's rights and obligations will be regulated in a new,quality manner.

In that way, the legislative framework would be inte-grated and real property-legal relations and all actionsand procedures with reference to the property of theownership rights holder would be completely establis-hed.

By adoption of the Law on Property-Legal RelationsMontenegro will obtain a new system of property-legalrelations, i.e. real rights. Property-legal relations are inevery country a foundation of legal relations in general.That is why drafting of this law implied good knowledgeabout the past legal system (regulations, judicial practice,legal theory). Preparation of such a comprehensive lawin the filed of property-legal relations at the momentwhen the system goes through a significant turn and theneed to resolve many relations, which occurred in themeantime and which are resolved through the judicial orextra-judicial procedures, represented a really great chal-lenge.

This law creates prerequisites, resolutions to many va-rious relations established by physical and legal persons.It is expected that iots resolutions would be inspirativefor judicial and other practice, for legal theory and com-parative legal studies, in which process the property Co-dex of Montenegro is a big step forward towards the le-gal partnership with the European Union.

Finally, as Prof. Rašović would say - adoption of the pr-operty codex belongs to big state issues. The propertylaw must take hold in order to become the right of prac-tice. Every new time requires also new solutions. We aresure that this law's direction is towards the new times.

KRSTO RACKOVIĆ,

Assistant to the Minister of Finance


New draft Law on state property

10

Ministry of Finance, in co-operation with the Ministryof Justice, Ministry of Envi-

ronment and Physical Planning andReal Estate Administration, has drafteda new Law on State Property and hassent it to the Government workinggroups for a related procedure.

Legal standards governing the pro-perty and property rights have beencompleted by drafting this Law, toget-her with other regulations in this field.

For a better understanding of thisfield as well as importance of the sug-gested solutions for the legal system ofthe Republic of Montenegro, it is ne-cessary to point to the following:

Conditions and procedure for saleof property located on agricultural,building and forest land, or in structu-res or buildings were defined under

the Law on Sale of Property ("OfficialGazette of the SR of Montenegro", No.27/75), which was subsequently amen-ded in 1989, 1991, 1992 and 1994. Cer-tain provisions of this Law are still ap-plicable.

The provisions under this Law sti-pulate that the property is of publicuse, while organizations of associatedlabour, self-governing communities ofinterest, socio-political communities,local communities and other self-ma-naging organizations and communi-ties or social legal persons are holdersof right of use with respect to socially-owned property.

For example, in case of alienationof the structures or buildings, with res-pect to which a right of use exists, aright to a land appurtenant to suchbuilding is also transferred, includinga land serving for a regular use, and a

NEW

DRAFT

LAW ON

STATE

PROPERTY

STATE OF AFFAIRS

Senior AdvisorsMilodarka Novosel



11

new owner acquires a right of owner-ship with respect to the building, whi-le with respect to socially-owned land,a right of use is acquired as long as thebuilding is located on such land.

Rights and obligations of state aut-horities with respect to the propertymanagement were defined under a se-parate Law on Rights and Obligationsof Socio-Political Communities' Or-gans with respect to Socially-OwnedResources used by them ("Official Ga-zette of SR of Montenegro", No. 21/84).

Accordingly, the said laws gover-ned the rights for socially-owned mo-vable and immovable property mana-gement in the Socialist Republic ofMontenegro.

For the ex Yugoslav countries aswell as for other socialist countries, thereforms in the field of property rightsand related authorizations are essen-tial in their process of transition. Na-mely, as it can be seen from the saidlaws, all movable and immovable pro-perty was socially-owned, with noclear rightful claimant, meaning "com-mon property equals nobody's res-ponsibility".

Reforms in the transition processare aimed at designating a clear right-ful claimant with respect to propertymanagement, thus protecting the pro-perty from usurpation, allowing it tobe privatized and valorized throughvarious types of the receipts stemmingfrom the property.

Republic of Montenegro adopted anew Law on Property of the Republicof Montenegro ("Official Gazette ofRoM", No. 44/99). The objective of thisLaw was to remove all dilemmas rela-ting to the former system and socially-owned property. However, it was notdone adequately. Namely, the Law hasnot been sufficiently implemented,mainly due to the fact that many is-sues, which were to be clearly defined,remained in general and impreciseterms, resulting in non-adoption of re-levant by-laws provided for under theLaw.

Besides, there were certain legaloversights in this field, such as the pro-

visions of the Law on Education, ac-cording to which the Ministry of Edu-cation is entitled to the state propertymanagement; Law on Tourism whichempowered municipalities to managethe state property (mineral waters,which is contrary to the basic right thatmay be exercised with respect to thestate property) etc.

Such inappropriate legal solutionsalso caused problems in the privatiza-tion of certain public enterprises (a fa-cility in the ownership, land for use);unclear registration of the property inthe Real Estate Register as well as an in-correct registration of the state proper-ty belonging to the Republic in favourof a municipality; irregularities withhealth, education and cultural institu-tions, etc.

Following adoption of this Law, inline with the set developmental goals,the reforms were launched in manyareas, particularly in the field of publicadministration, local self-government,budget, public prosecutor's office etc.Relevant legal regulations were adop-ted to this end, such as Law on Budget("Official Gazette of RoM", No. 40/01),Law on Local Self-Government ("Offi-cial Gazette of RoM", No. 42/03), Lawon State Audit Institution ("Official Ga-zette of RoM ", No. 28/04), Law onChief Prosecutor ("Official Gazette ofRoM ", No. 40/01), as well as many ot-her laws that the Law on Property ofthe Republic of Montenegro has to beharmonized with.

All listed arguments as well as a ne-ed for drafting simpler and more pre-cise legal solutions required draftingof a new law governing the state pro-perty issues.

AN OBJECTIVE SET

WHILE DRAFTING THE

NEW LAW ON STATE

PROPERTY

While defining certain solutions inthe Draft Law on State Property, mainintention was to define all terms in thisfield and determine clear authoriza-

tions with respect to right to the stateproperty management, running,using, exchange etc, and to ensure re-cording and assessment of the state pr-operty and establish relevant authori-ties which will be responsible for ma-nagement and protection of the saidproperty (a State Property Authorityand an Inspector for the State Proper-ty).

While drafting the Law, opinions ofall relevant institutions in the Republicwere taken into account, such as com-petent ministries, Secretariat for Legis-lation, State Audit Institution, all muni-cipalities in the Republic and union ofmunicipalities, state Funds etc. Experi-ences and certain solutions were alsoprovided from ex Yugoslav republicsand foreign consultants, such as Ba-rents and its institutions, which werevery useful in making the final text ver-sion of the Draft Law.

MAIN PURPOSE OF

THE LAW

Drafting process of the Law on Sta-te Property started from the followingfacts:

- That the state property repre-sents a direct and most comprehensi-ve legal power of the state, or its aut-horities, organizations and serviceswith respect to the material property.In terms of a civil law, a state is a hol-der or bearer of the most comprehen-sive power over the objects like otherlegal entities (natural and legal per-sons). In terms of a public law, a stateproperty is a set of public law authori-zations and obligations that a state haswith respect to public property, andaccordingly it is a holder of power(imperium). A state property entity isa state as a collective or as an entitythat has a sovereign management overthe public property by means of pu-blic law or civil law enactments. Theseare state authorities, local self-govern-ment units (municipalities) and pu-blic services. The Constitution of theRepublic of Montenegro guarantees aright of ownership to natural and legal



12

persons and its inviolability. This ruleis also applicable to a private and pu-blic property;

- According to the provisions un-der the Draft Law, property rights andauthorizations with respect to the stateproperty are exercised by the Govern-ment of the Republic of Montenegro,or a local self-government authoritydesignated under the Statute of themunicipality. Government or a com-petent local self-government authoritydecides on the state property manage-ment, unless otherwise provided forunder the law.

Therefore, state of Montenegro is aholder or bearer of the most compre-hensive legal power over the state-owned property. State property enti-ties have ownership powers over suchproperty, including state-owned buil-ding land.

In the context of given solutions,the Draft Law clearly defines or deline-ates the state property over which theRepublic or a municipality respecti-vely exercises ownership rights or aut-

horizations.

The Draft Law also clearly distin-guishes a state property serving forfunctioning of the Republic or itsagencies and public services on onehand, and for functioning of a munici-pality, or its authorities and public ser-vices on the other, clearly defining thestate property which represents acommon good (recourses of commoninterest and use).

The Draft Law clearly defines theterms relating to the state propertymanagement, use and running, clarify-ing their respective meanings.

We particularly emphasize that theDraft Law governs a procedure relatedto recording of the state property andestablishing of a Register. Special obli-gation and responsibility to this end isgiven to the competent Republic andmunicipal authorities using and super-vising the state property (state proper-ty which is governed by separate laws,such as Law on Coastal Management,Law on Roads, Law on Forests, Law on

Waters etc. ).

PENAL, TRANSITIONAL

AND FINAL PROVISIONS

In case of non-implementation ofthe provisions under the Law, penalprovisions shall apply to the state aut-horities, municipal authorities and pu-blic services as well as to responsiblepersons in a state authority or a muni-cipal authority failing to manage thestate property in conformity with theLaw

With a view to removing dilemmasand illogicalities caused by the previo-us registration of rights of use or per-manent use of a building land in thecadastre, transitional and final provis-ions stipulate that such rights shall bechanged into a right of ownership ofthe Republic or local self-governmentunit, unless an interested entity provesthat it acquired a right of ownershipover certain land by means of a validlegal transaction

The Draft Law also stipulates thatthe following laws shall not remain inforce: Law on the Property of the Re-public of Montenegro; Law on Sale ofProperty; Article 15a of the Law onEducation, and Article 53, paragraph 6of the Law on Tourism.

Establishing of an authority res-ponsible for property, introduction ofthe state property Register and asses-sment of the state property as new so-lutions relevant for this field deserveto be separately discussed in a next is-sue of the Bulletin.

Senior Advisor

MILODARKA NOVOSEL


Restitution

13

RESTITUTION

LEGAL FOUNDATION FOR RESTITU-TION AND COMPENSATION OF FOR-MER HOLDERS FOR THE PROPERTY

RIGHTS EXPROPRIATED IN FAVOUR

OF NATIONAL WIDE, NATIONAL, PU-BLIC AND COMMON PROPERTY IS

CONTAINED IN THE LAW ON RESTI-TUTION OF EXPROPRIATED PRO-PERTY RIGHTS AND COMPENSA-TION ("OFFICIAL GAZETTE ROM",NO.21/04), WHICH ENTERED INTO

FORCE ON 9TH APRIL 2004.

Director of the Compensation fund Đorđina Lakić

According to the provisions of the Law, for-

mer holders have right to demand restitu-

tion or compensation, if their property

rights were expropriated in favour of national wide,

national, public or common property, without just or

market compensation. In the settlement of matters

that are subject of this Law, provisions of the Law,

which regulate property-legal relations, debenture

and other relations shall be applied if they are in ac-

cordance with this Law. In the procedures for exercis-

ing rights by this Law, the Law on General Administra-

tive Procedure is applied.

BILTEN Ministarstva finansija Crne Gore/april-jun 2006.

Restitution

14

Gaining of property rights for real estate and other

property rights, or reimbursement realised according

to this Law is not a subject to tax payment.

Persons under obligation of restitution of objects

and rights are natural and legal persons who are their

owners at the moment of the entering into force of the

Law, except in cases when those persons gained pro-

perty right in accordance to the Law. Republic of Mon-

tenegro is under obligation of restitution of former

holders and it will provide funds for the Compensa-

tion Fund. Therefore, former holder has right for com-

pensation in case when expropriated objects and

rights are not object of restitution.

Practical application of the Law started with forma-

tion of the Municipal Commissions for Restitution and

Compensation, and in the second half of 2005, first

restitution of expropriated property started. Finally,

first payments were made by way of compensation of

former holders or their successors in November 2005.

First payments of the compensation started year

and a half after the day of enactment of the Law, which

is significantly shorter period when compared to

countries in the region, which even initiated restitu-

tion process several years ago. In those countries the

procedure is still not over, and payment of the com-

pensation in bonds started only after four years and

more from the enactment of the Law on Restitution.

(Slovenia 1992, Macedonia 1996, et al.).

With the enactment of the Decree on Bond Issue

Method and the Procedure of Exercising of Rights for

Reimbursement of Former Holders and Decision on

Bonds Issue of the Republic of Montenegro Based on

the compensation of former holders, conditions were

met for compensation to be performed also in bonds.

Bonds can be sold or used for purchase of stocks,

shares and other property of the Republic of Monte-

negro and state funds, in accordance to the regula-

tions on privatisation. Trade with bonds on the market

is performed according to the regulations that regula-

te securities trading, or at the exchange market, thro-

ugh authorised participant in the equity market.

According to the provisions of the Article 25 of the

Law and the Decision on Bond Issue, 28 certificates

were issued by way of compensation of former hol-

ders in bonds to total amount of 3.684.075,00 EUR.

Until now 658.350,00 EUR has been realised thro-

ugh the exchange market.

Compensation Fund makes payments, according

to provisions of the Article 22 of the Law on Restitu-

tion of Property Rights and Compensation, every six

months according to the available funds until their fi-

nal payment.

Payments upon decisions refer to the expropriated

property rights of former holder, but in most cases

compensation is paid to the successors on which the

total amount is divided, on six-month instalments.

By now, 53 valid and enforceable decisions, whose

total value is 9.530.388,66 EUR were delivered to the

Compensation Fund, by Municipal Commissions for

Restitution and Compensation.

Decisions were delivered by following municipal

commissions: Podgorica (5), Budva(1), Cetinje(2), Nik-

šić(9), Pljevlja (29), Danilovgrad (4) and Bijelo Polje

(3).

Upon all decisions that came in first six-months in-

stalment was paid to the total amount of 527.259,05

EUR.

Upon all individual decisions during 2006, pay-

ment of the second and third six-month instalment

matures.

Deadline for submission of claims of former hol-

ders for restitution of expropriated property has expi-

red in all commissions except in Commission Kotor (it

expires at the beginning of 2007), and in Žabljak the

Commission still has not been formed.

Director of the Compensation Fund

ĐORĐINA LAKIĆ


By restitution bonds to the state property

15

Government of the Republic of Montenegro at its ses-sion dated June 20, 2006, made a Decision onAmendments and supplements to the Decision on

Conditions and Procedure of Purchase of the Property ofthe Republic of Montenegro by Bonds of Foreign ExchangeSavings of the Citizens. The aforementioned changes of theexisting decision enables purchasing of the state property -real estate by means of bonds of the Fund for Indemnifica-tion. By amendments to this legal act by means of bonds ofthe Fund for Indemnification it is possible to buy propertyof the Republic, which is determined by the Government forthat purpose, equally as with the bonds of old foreign ex-change savings. By enforcement of the mentioned amend-ments apart from shares of economic associations in the sta-te property and property of state funds, it will be possible tobuy certain real estate from the state property fund with therestitution bonds.

In the essence, the amendments serve to completelyequalize the bonds of the Fund for Indemnification in termsof possibility of their usage for purchase of shares and pro-perty of the state and state funds with the bonds of old fore-

ign currency savings.

On that occasion, along with amendments and supple-ments to the Decision the Ministry of Finance proposed anadditional list of state property for this purpose, which willalso be published in the "Official Gazette of the RoM". Thelist consists of one residential building in Bar, hotels "Šavnik"and "Boan", several business premises in Budva, Bijelo Po-lje, Nikšić, Šavnik, three premises in Podgorica, departmentstore in Šavnik, house with a courtyard in Žabljak, facility forcatering business in Plav etc. The extended list will also con-sist of a building in noneconomic business in Bijelo Polje.The list will be supplemented with new real estate, whichwill be proposed to the Government of the RoM by the Mi-nistry of Finance. The practice will be continued and it willincrease the offer to the owners of foreign exchange bondsand bonds of the Fund for Restitution, in order that they rea-lize them before the time of their maturity.

KRSTO RACKOVIĆ,

Assistant to the Minister of Finance

BY RESTITUTION BONDS

TO THE STATE PROPERTY

Goverment of the Republic of Montenegro


Contents of draft law on tax advisors

16

RATIONALE OF LAW

Adoption of a separate Law on Tax Advisors is aimed atensuring a more favourable environment and infrastructurerequired for efficient implementation of the tax and cus-toms regulations in practice. Introduction of a tax advisor asan independent expert will allow the taxpayers to be advi-sed about the tax and customs issues in a qualified and pro-fessional manner. The tax advisors shall be authorized to re-present the taxpayers professionally before administrativeauthorities (Tax Administration, Customs Administrationand Ministry of Finance) as well as before competent courts.

Draft Law on Tax Advisors (hereinafter referred to as:Draft Law), which was drafted by the Ministry of Finance,has been placed at the Ministry's web site: www.ministar-stvo-finansija.vlada.cg.yu, and all interested persons maysend related remarks or suggestions. The Law is expected tobe adopted in the Parliament by the end of 2006.

WHAT IT TAKES TO BE A TAX ADVISOR

According to the Draft Law, the tax advisory servicesmay be provided by a natural person as an independent ac-tivity or a legal person (partnership) specialized in provi-ding tax advisory services. A natural person who providestax advisory services independently, may not be employedwith another natural or legal person.

The Draft Law defines general and special conditions tobe met by a person who wants to become a certified tax ad-visor.

General conditions to be met: a tax advisor shall (1) be aMontenegrin citizen; (2) have general physical and mentalabilities and (3) have no criminal records that make him/herineligible for doing the tax advisor's activities, such as crimi-nal offence against: property; payment operations and com-mercial operations; state authorities; judiciary and legal du-ty, during the period of five years following validity of rele-vant court decree.

Special conditions to be met: a tax advisor shall (1) be agraduate lawyer or economist; (2) have at least 10 years ofworking experience in tax or customs related assignmentsand (3) have passed an exam for becoming a tax advisor andhave approval for work.

In order to become a certified tax advisor, a person shallhave to pass an exam for tax advisor. The exam shall be ta-ken before a special commission to be established by the Mi-nistry of Finance, which shall be composed of at least fivemembers, half of them being from the Ministry of Finance,Tax and Customs Authority, while the other members shallbe experts in economics and law theory and practice res-pectively.

Exam for becoming a tax advisor shall be taken in com-pliance with a program to be recommended by the Cham-ber of Tax Advisors and adopted by the Ministry of Finance.A person taking the exam shall bear related expenses, whilethe amount shall be determined by the Ministry of Financeat the proposal of the Chamber.

According to the Draft Law, the Ministry of Financeshall be authorized to issue a license for work to a certainnumber of recognized tax advisors (but not more than fi-ve) without taking a special exam. The above has been sug-gested for the purpose of speeding up the process of esta-blishing a professional association (the Chamber), whichrequires recruitment of 10 tax advisors in order to become

CONTENTS OF DRAFT LAW

ON TAX ADVISORS


Contents of draft law on tax advisors

17

operational.

The Chamber shall issue a license for work to a tax advi-sor, which shall be subject to renewal every five years. A taxadvisor who has been engaged in tax or customs businessover the last three years may not be awarded a contract ontax advisory services within a year from a date of obtainingthe license.

RIGHTS AND OBLIGATIONS

OF TAX ADVISORS

According to the Draft Law, a tax advisor shall be autho-rized and obliged to represent taxpayers in line with the taxregulations and his/her personal principle. A tax advisorshall be obliged to abide by the principles of legality, scru-pulousness, competence and professional code to be enac-ted by a competent Chamber. A written contract on tax advi-sor's services shall be concluded, while the provision of ser-vices shall be charged at a rate to be determined by theChamber with prior approval from the Ministry of Finance.

A tax advisor shall discharge his/her duties based on da-ta and documents provided by a client with whom a con-tract is concluded. The tax advisor shall keep such data con-fidential.

One or more tax advisors may establish a specialized as-sociation for tax advisory services (partnership). The Cham-ber shall give an approval for registration of such partner-ship into the relevant register of companies. All rights andobligations related to the tax advisors shall also apply to thepartnerships for tax advisory services. Competent Chambershall supervise the work of the partnership for tax advisory

services. The Draft Law provides for liability insurance in case of

possible damage caused to a client by a tax advisor or spe-cialized partnership while discharging their duties. The lo-west insurance rate per a tax advisor amounts 10.000,00 eur.

State authorities and legal persons having public autho-rity shall be obliged to provide a tax advisor with all infor-mation that he/she may require.

JOINING THE CHAMBER

According to the Draft Law, tax advisors shall be obligedto join the professional Chamber (Chamber of Tax Advi-sors), being an independent and self-governing organiza-tion having a legal person capacity. The Chamber shall intro-duce tax advisors, promote their work and represent theircommon interests. The Chamber shall also be obliged to ke-ep relevant registers (on passed exams, issued licensesetc).The Chamber shall, under its Statute, more precisely de-fine issues related to its organization, membership fee andother issues relevant for its work.

KOVILJKA MIHAILOVIĆ,

Assistant Minister

ANTOANETA KRIVOKAPIĆ,

Senior Advisor

Senior AdvisorAntoaneta Krivokapić

Assistant MinisterKoviljka Mihailović


Procedures In the tax procedure

18

NORMATIVE DECISIONS

• LLaaww oonn TTaaxx AAddmmiinniissttrraattiioonn (''Official Gazette of theRoM'', No. 65/01 and 80/04);

- RReegguullaattiioonnss oonn FFoorrmm aanndd CCoonntteennttss ooff SSttaatteemmeennttss ooffWWiitthhoollddiinngg TTaaxxeess PPaayymmeennttss (''Official Gazette of the RoM'',No. 31/02, 33/02 and 67/02);

- RReegguullaattiioonnss oonn CCrriitteerriioonn ffoorr DDeetteerrmmiinnaattiioonn ooff BBiiggTTaaxxppaayyeerrss (''Official Gazette of the RoM'', No. 16/05);

- DDeeccrreeee oonn LLeevveell ooff TTaaxx OObblliiggaattiioonnss EEnnffoorrcceemmeenntt(''Official Gazette of the RoM'', No. 24/05);

- RReegguullaattiioonnss oonn FFoorrmm aanndd CCoonntteennttss ooff RReeggiissttrraattiioonnFFoorrmm ffoorr TTaaxxppaayyeerrss (''Official Gazette of the RoM'', No.24/05);

- RReegguullaattiioonnss oonn MMaannnneerr ooff TTaaxx BBaassee DDeetteerrmmiinnaattiioonn bbyyMMeeaannss ooff EEvvaalluuaattiioonn (''Official Gazette of the RoM'', No.36/05);

- RReegguullaattiioonnss oonn tthhee MMaannnneerr ooff SSaallee ooff TTaaxxppaayyeerr''ss PPrroo--ppeerrttyy iinn tthhee PPrroocceedduurree ooff EEnnffoorrcceemmeenntt ooff CCllaaiimmss (''OfficialGazette of the RoM'', No. 36/05, 73/05 and 33/06);

Subsidiary application of the following Laws: • LLaaww oonn GGeenneerraall AAddmmiinniissttrraattiivvee PPrroocceedduurree (''Official

Gazette of the RoM'', No. 60/03);• LLaaww oonn IInnssppeeccttiioonn CCoonnttrrooll (''Official Gazette of the

RoM'', No. 39/03);• LLaaww oonn EExxeeccuuttiivvee PPrroocceedduurree (''Official Gazette of the

RoM'', No. 23/04);• LLaaww oonn MMoorrttggaaggee (''Official Gazette of the RoM'', No.

52/04);• LLaaww oonn PPlleeddggee (''Official Gazette of the RoM'', No.

38/02).

BASIC CHARACTERISTICS OF THE LAW ON TAX ADMINISTRATION

- Law on Tax Administration is based upon the positiveexperiences from the Anglo-Saxon and European Tax Legis-lation, as well as the legislations of certain countries in tran-sition (countries of former Yugoslavia and Eastern Europe-an countries);

- It represents a codification of legal standards (procedu-res), which regulate the procedure of determination, controland collection of taxes and other duties depending on thetype of tax as well as other issues, which should have beenregulated in a different manner than in the manner regula-ted by the general regulation due to their peculiarity;

- Subsidiary application of the Law on General Adminis-trative Procedure and the Law on Inspection Control is regu-lated for all the issues of procedure that have not been regu-lated by this law, while the instructing norm for applicationof the Law on Executive Procedure, Law on Mortgage orLaw on Pledge is offered for certain issues;

- Self-taxation is the basic principle in the procedure ofdetermination and enforcement of taxes and other duties;

- Assessment principle has been established as authoriza-tion and obligation of the tax authority in the situationswhen tax determination is not executed or incompletely orwrongly executed by the principle of self-taxation, or if it isregulated by the tax law.

SELF-TAXATION IN THE TAX SYSTEM

- Self-taxation is voluntary participation of a taxpayer intax events in accordance with the tax laws;

Chief of the Department for the Second Instance Administrative and Customs Procedure Pero Mrdak

PROCEDURES

IN THE TAX PROCEDURE



19

For implemetation of the system of self-taxation it is ne-cessary:

- To execute registration of taxpayer with the competenttax authority and assign him/her a tax identification num-ber (TIN);

- To provide that the taxpayer, tax authority and all themediators in tax events to use the tax identification numberin the way that TIM is filled in all the documents and it beco-mes the basic connection in relation to all taxpayer's transac-tions;

- To publish all the laws and other tax regulations duly inthe ''Official Gazette of the Republic of Montenegro'';

- To produce and make available in due time and free ofcharge registration forms, tax returns, statements, recordsetc., as well as the instructions to fill in the same to taxpayersand tax mediators;

- That taxpayer duly keeps business records, executes do-cumentation composing in due time and provides other da-ta and information, which he/she can use to calculate the taxobligation in accordance with the requests of the tax law;

- That the taxpayer prepares and files a tax return in duetime and accurately, without previous consultation with thetax authority;

- That the taxpayer, according to his own initiative or ini-tiative of tax authority, corrects in due time the incompleteor wrongly filled tax returns;

- That the tax authority provides for a fair and impartialrelation to all the taxpayers, treating the tax return data withfull confidentiality, and keeps records of the declared taxamount in the account of taxpayer without any check up, aswell as all the changes, which occur according to the propo-sal of taxpayer or on the basis of the findings of the inspec-tion control of the tax authority;

- That tax authority consistently applies offence and ot-her sanctions regulated by the law and calculates interest ra-te in accordance with the law aimed at change of the tax-payer's behaviour and creation of tax discipline, not in anycase for the purpose of reprisal due to non-execution of thelaw;

- That tax authority establishes efficient tax administra-tion, supported by powerful information system, connectedto the integral information system of the Republic;

- This system may not be open to negotiations, bargai-ning, arbitrary approvals or non-acceptance of tax credits,postponement of obligations to file tax returns, statements,payments and slective approach in relation to taking measu-res of enforcement of claims against taxpayers.

TAX AUTHORITY COMPETENCE

- Activities of determination, collection and control of ta-xes, which are introduced by the Republic, are performed bythe competent Republic administration authority - Tax Ad-ministration of the Republic of Montenegro;

- Activities of determination, collection and control of ta-xes, which are introduced by the Office of Local Governan-ce, are performed by the competent authority of the localgovernance;

AUTHORIZATION OF THE TAX AUTHORITY

• In realization of its competences regulated by the lawthe tax authority is authorized to:

- Perform inspection activities, take collection measuresand other actions and activities it is in charge of accordingto the laws;

- Make decisions on the rights of taxpayers;- Register taxpayers and keeps tax register;- Perform determination of taxes in the way and accor-

ding to the procedure regulated by the law;- Request from the taxpayers and other legal persons to

submit the documentation and offer other necessary infor-mation for determination of tax obligation;

- Invite persons to participate in the tax procedure;- Come in and search the business premises, in which are

kept or may be kept the business documents and records orother objects necessary for tax regulations application;

- Exclude the business documents and records and otherobjects necessary for tax regulations application in accor-dance with the law;

- Pronounce penalties for tax offences regulated by taxlaws;

- Use services of experts and masters, physical and legalpersons in the procedure of determination of tax obliga-tions, when professional knowledge is necessary;

- Institute and conduct first instance administrative andoffence proceeding;

- Plan and implement training of employees;- Keep tax records;- Inform the taxpayers on inspection control develop-

ment and on their rights and obligations in that procedure;- Offer professional assistance to the taxpayers in rela-

tion to application of tax regulations;- Provide the taxpayers with a tax return form free of

charge;- Keep tax secret;- Refer to taxpayers and other persons with respect and

consideration;- File criminal charges, economic offence charges i.e. re-

quest for instituting offence proceeding;- Send the information, including tax secrets, which were

revealed during criminal investigation or which were comeacross during such due dilligence, to the authorities in char-ge of law implementation, when there is a founded suspi-cion that an offence or criminal act were committed;

- Apply international agreements and contracts on avoi-dance of double taxation and other advantages related to



20

tax payment;- Prepare statements about situation in the field of taxes;- Give initiative for adopting regulations and other acts

for arrangement of tax system and tax policy of the Ministryof Finance;

- Cooperate with other authorities and organizations inthe country and abroad about issues related to criminal taxacts and in accordance with the international contracts oragreements;

- Take measures that are necessary for tax officers' secu-rity;

- Take measures for preventing corruption of officers inperforming their official duties;

- Organize functioning of Single Information System inthe field of taxes;

- Provide for execution of statements and conclusions ofthe Government in the field of taxes.

RIGHTS OF THE TAXPAYER

• Taxpayer is entitled to:- Be informed about all issues, which enable him/her to

file and pay the tax obligations accurately and in due time;- Request from the tax authority to keep secret the co-

llected data about tax obligation determination and usethem i.e. reveal it only to the institutions and bodies in themanner and according to the procedure regulated by thislaw;

- Request reexamination and new determination ofhis/her tax obligation, in the way which is regulated by thislaw;

- Get free of charge from his/her tax authority informa-tion on tax regulations, rights and obligations, which arisefrom them;

- Get tax return form and other tax forms;- Enjoy respect and consideration of the tax authority;- Represent his/her own interests to the tax authorities,

alone or through his/her authorized person;- Use tax reliefs in accordance with the tax regulations;- Get insight into data on determination and collection of

tax obligation, which are kept about him/her with the taxauthority and request change of inaccurate and incompletedata;

- Attend the inspection control;- Use also other rights envisaged by the law.

OBLIGATIONS OF TAX PAYER

• Taxpayer is obliged to:- File a tax return for the purpose of registration to the

tax authority in charge;- Calculate accurately the tax and file tax return to the tax

authority in due time and in the manner determined by taxregulations;

- Report to the tax authority in charge any change of themain place of doing business, i.e. residence and other datafrom the register of taxpayer;

- Keep business books and records in the regulated man-ner and maintain them in accordance with the law;

- Settle tax obligations in the manner and within termsdetermined by the law and other regulation adopted pur-suant to the law;

- Submit documents and other data, which are necessaryfor determination of tax obligation at the request of tax aut-hority;

- Enable undisturbed work of employees of the tax aut-hority in performing their legal authorizations;

- Execute other obligations determined by the tax regula-tions.

REGISTRATION OF TAXPAYERS

• Registration of taxpayers is performed by entry intothe register of taxpayers, which is kept by the tax authorityin charge:

- Registration is performed on the basis of registrationforms PR-1 and PR-2, which are submitted by the taxpayer;

- Registration form PR-1 is submitted by the taxpayers, le-gal persons or organizations, which earn income in the Re-public or outside the Republic and foreign legal persons ororganizations, which earn their income in the Republic;

- Registration form PR-2 is submitted by physical persons,who earn their income or possess property in the Republicor outside the Republic and foreign physical persons, whoearn their income or possess property in the Republic;

- Legal persons and organizations submit their registra-tion forms to the tax authority, which is in charge of that per-son's main place of doing business, i.e. organization withinfive working days from the day of entry into the court or ot-her register;

- Physical persons submit their registration form to thetax authority according to the place of residence, i.e. livingplace of these persons within five working days from theday of earning the taxable income, entry into the relevant re-gister, i.e. acquiring the property, which is subject to taxa-tion;

- Physical persons, who do not have residence, i.e livingplace, submit their registration form to the tax authority he-adquarters, within five working days from the day of ear-ning taxable income, i.e. acquiring property, which is sub-ject to taxation;

- Legal persons - big taxpayers, listed according to the cri-teria for determination of big taxpayers, submit their regis-tration form to the the headquarters of the tax authority;

- Along with the registration form the taxpayers submitalso evidence about identification (act on registration of le-



21

gal person or entrepreneur, personal ID, passport, driving li-cence, certificate on Household, title deed, evidence aboutemplyment);

- If legal or physical person does not submit a registra-tion form within the regulated deadline, the tax authoritywill submit the form for these persons on the basis of availa-ble data;

- For the purpose of identification of taxpayer, the taxauthority makes decision about registration, by which the le-gal and physical persons are given PIB;

- PIB is single and only number of legal i.e. physical per-son for all kinds of taxes and it is kept in case of change ofregistered office, residence i.e. living place of the taxpayer;

• PIB is entred into:- Act, which is submitted to the tax authority, state autho-

rities and authorities of local administration by the taxpayer; - Act, which is submitted to the taxpayer by the tax autho-

rity;- Order according to which the taxpayer pays the tax

obligation.

DETERMINATION OF TAX OBLIGATION BY MEANS OF TAX RETURN (SELF-TAXATION)

- Tax procedure is started by filing a tax return in the wayand within the terms regulated by the law, which regulatescertain types of taxes.;

- Tax return is filed by taxpayer to the tax authority,which entered him/her in its register of taxpayers;

- If the tax return is not filed by taxpayer within the envi-saged term, the tax authority will file it within three daysfrom the day it got information that the tax return is not fi-led;

- The tax authority is authorized to fill up the incompleteand correct the wrongly completed tax return, immediatellyafter it got information about omissions and mistakes in thefiled tax return and to inform the taxpayer about that;

- Taxpayer is entitled to file a changed tax return within10 days from the day of expiration of term for filing the taxreturn, in case of a mistake or omission in the tax return;

- The tax return is filed by filling up the form regulated bythe Ministry of Finance in accordance with the law, whichregulates individual types of taxes;

- Tax return is filed by the taxpayer himself or throughthe authorized person;

- The tax return must consist of the PIB of the taxpayerand authorized person, if the tax return is filed by that aut-horized person;

- Tax return is filed to the tax authority directly, by postlor electronic mail;;

- Tax authority is obliged to receive the filed tax return re-gardless of its accuracy, and if the tax return is filed directly,the tax authority will on the basis of visual control, indicate

to the taxpayer obvious mistakes or omissions, whichhe/she can correct within the term for its filing;

- Determination of tax obligation is performed by thetaxpayer on the basis of data from the business records anddocumentation, which he is obliged to keep according tothe law, i.e. the newly registered taxpayer on the basis of es-timate of the income to be earned in the tax period forwhich he/she files the tax return.

DETERMINATION OF TAX OBLIGATION BY THE TAX AUTHORITY

• The tax authority determines the tax obligation if:- Taxpayer did not file a tax return;- The tax return is filed incorrectly or incompletely and

the mistake is not corrected or the new tax return is not filedwithin the legal term;

- During the inspection control procedure, on the basisof new facts and circumstances, the inspection states thatthe taxpayer did not determine the tax properly;

- It is regulated by the tax law (assessed taxes);- Determination of tax obligation is performed by the tax

authority on the basis of business books, records of the tax-payer;

- If the tax authority can not determine the tax obligationon the basis of business books and records of the taxpayerthen it will determine the tax obligation on the basis of thetax base estimate;

• In the course of tax obligation determination by tax ba-se estimate, the tax authority proceeds from:

- Available duly business documentation, if it is not ente-red in the books;

- Available duly business documentation about doing bu-siness within a certain period, which is shorter than the ta-xation period (daily, weekly or monthly);

- Data and facts about achieved turnover (daily, weeklyor monthly) found by the inspection control;

- Data obtained by making comparison with other tax-payers, who do the same or similar business in the same orsimilar location under approximately same conditions;

- Other relevant data and facts the tax authority disposesof;

- The tax authority determines the tax obligation by taxdecision, against which an appeal may be filed, which doesnot put off its non-execution.

• Determination of assessed taxes- Tax authority always makes decision on determination

of assessed taxes when it is regulated by the law;• Assessed taxes are:- Tax on real estate determined by the municipal tax aut-

hority;- Tax on turnover, and - Tax on turnover of used motor vehicles, vessels, airpla-



22

nes and aircrafts.• These two taxes are determined by the Tax Administra-

tion of the Republic of Montenegro.

DETERMINATION OF TAX OBLIGATION BY THE PAYING AGENT

• Determination (calculation, suspension and payment)of witholding tax is done by the tax paying agent, i.e. media-tor, through tax return (report) he/she files to the tax authori-ty reskom organu as follows:

- collective tax return on the same day when payment ofof revenue is made and the individual tax return on January31 of the current year for the previous year at the latest.

TAX OBLIGATION PAYMENT

- Tax obligation is paid by the taxpayer within the termregulated by the law, which regulates individual type of tax;

- Tax obligation payment is made, by rule, through theholder of payment operations, by making payments on therelevant payment accounts;

- Day of tax obligation payment is considered the daywhen the tax obligation payment is received on the relevantpayment account;

- Tax obligation, which is determined in the procedure ofself-taxation, is paid simultaneously with filing the tax re-turn;

- Tax obligation, which is determined by the tax decision,is paid within 10 days from the day of submitting the decis-ion, provided that it is not regulated otherwise by the taxlaw.

ENFORCEMENT OF CLAIMS RELATED TO TAXES

- If the taxpayer does not pay the tax obligation in thecourse of filing the tax return i.e. when the tax decision bec-ame executive, the tax authority undertakes the procedureof enforcement of claims;

- The enforcement of claims procedure is initiated by theconclusion on enforcement of claims related to tax obliga-tions;

- An appeal can be filed against the decision on enforce-ment of claims related to tax obligation and the appeal doesnot put off the execution of conclusion.

SUBJECT OF ENFORCEMENT OF CLAIMS

• Subject of enforcement of claims can be:- Funds of the taxpayer;- Monetary claims of the taxpayer;- Property (movable and immovable) of the taxpayer.

PLEDGE, I.E. MORTGAGE

- For the purpose of tax claims security, the taxpayer's pr-operty can be mortgaged or right to pledge can be determi-ned in the course of procedure of enforcement of claims;

- Determination of right to pledge, i.e. mortgage is per-formed in the manner regulated by the Law on Pledge, i.eLaw on Mortgage.

ENFORCEMENT OF CLAIMS FROM THE FUNDS

- Enforcement of claims from the funds of taxpayer isperformed by transfer of funds from the account of the tax-payer to the account of the one to whom tax obligation pay-ment is made;

- Enforcement of monetary claims of the taxpayer is per-formed in the manner and according to the procedure regu-lated by the Law on Executive Procedure;

- Conclusion on enforcement of claims is performed bythe Central Bank of Montenegro.

COLLECTION OF TAXES FROM THE PROPERTY

- Enforcement of claims related to tax obligationsfrom the property of the taxpayer consists of attachmentand sale of property (movable and immovable) and usageof funds obtained through the sale or other procedure to co-llect the tax obligation.

PROPERTY ATTACHMENT

- Attachment consists of inventory and estimate of pro-perty;

- Attachment is [erformed by an officer of the tax autho-rity in the presence of two witnesses;

- Attachment procedure lasts until the tax obligatin is set-tled or until the enforvcement of claims is discontinued;



23

- The authorized officer makes minutes about the imple-mented attachment procedure, in which he states apartfrom the title of the authority, names and surnames of theauthorized officer and witnesses, name and surname, title,residence i.e base and PIB of the taxpayer, inserts also theplace and time of attachment, debt amount, interest rate andcosts of the attachment, name, sign and description of the at-tached object, value of the attached object according to theestimate, surname, name, address and residence of the per-son to which the attached object is left to keep it;

- The taxpayer and other persons from which the proper-ty was attached are each given a copy of the attachment mi-nutes.

ATTACHED PROPERTY SALE

- Attached property sale is done by the tax authority thatcarried out the attachment, through an announcement ofthe property sale, which is announced in the media and inthe notice-board of the tax authority within five days fromthe day of attachment;

- Officers of the tax authority, spouse, ancestors and de-scendants of the officers, then ancestors and descendants ofhis/her spouse can not take part in the announcement forpublic bidding neither directly nor indirectly;

- In case that the attached property is nondurable, whenthe value of the attached property is less than 10 thousandEuro and when the tax authority estimates that there are ex-tremely important circumstances, which justify unpostpona-ble sale, the sale can be executed by direct deal;

- The funds earned through the attached property saleare used to settle the tax obligations in the following order:procedure costs, interest rate, tax.

INSPECTION CONTROL

- Inspection control includes the procedure of checkingthe facts and data that are important for the taxpayers andother persons' taxation and taking measures in accordancewith the law;

- Inspection control is performed by the tax authoritythrough tax inspectors;

• The inspection control procedure is initiated by the or-der for incpection control, which contains:

- Subject of the inspection control, - Period of the inspection control,- Form of the inspection control (office or on-site con-

trol),- Time (start) of the inspection control,• Order for the inspection control is submitted to the

taxpayer 15 days i.e. to big taxpayers 30 days before startingthe control.

MEASURES OF THE INSPECTION

• In the course of inspection the tax inspector is obligedand authorized to order taking following measures:

- Submit needed documentation and data;- Temporary dipossess the documentation, equipment

and working devices;- Compulsory open or close the facilities for the purpose

of inspection activities;- Prohibit disposal of the funds on the account;- Prohibit performing the activities, i.e. performing certa-

in activities for a certain period of time;- Temporary dispossess illegally obtained property bene-

fits;- Temporary dispossess raw materials, production mate-

rials, semi-manufactured products, finished products andgoods which are not accompanied with the evidence aboutsupply, when the goods are put into circulation by a person,who is not registered for that or does not have evidence oa-but the origin of goods, when the circulatiion of products isdone without a proscribed mark, when the goods are trans-ported without obligatory documentation and when thegoods are sold outside the business registered office or ot-her place, which is determined by the competents state aut-hority;

- Files a complaint to the competent authority for a com-mitted criminal act or economic offence and submits a re-quest for instituting the offence proceeding;

- Pronounces mandatory penalty;- Take other measures that he is authorized by means of

the law and other tax regulations.

LIMITATIONS

- Limitation period for the right to tax obligation de-termination is five years from the expiry of the year in whichthe obligation was to be determined;

- Limitation period for the right to tax obligation co-llection is three years from expiration of the year in whichthe tax was determined;

- Limitation period for return of the excess paymentof tax obligation is three years from expiration of the year inwhich the excess payment was made;

- Limitation period for the right to determination, co-llection and return of tax is always 10 years from the expiryof the year in which the tax was to be determined, collectedi.e. in which the excess payment was made.

Prepared by: PERO MRDAK,

Chief of the Department for the Second Instance

Administrative and Customs Procedure


„1000 housing credits”

24

In order to help certain number of citizens, and employe-es in the public administration bodies to solve housingissues, Ministry of Finance and Commission for Housing

Issues of the Government of Montenegro created the pro-ject "1000 housing credits". The project was worked out inorder to provide opportunity to persons with inadequatelysolved housing issues to purchase new housing objects, andthe reconstruction of the existing ones, through credit allo-cation, with subsidized interest rates.

For the purpose of stated project, Government of Monte-negro has made conclusions at the session on 16th March2006 and entrusted with them the Ministry of Finance andthe Commission for Housing Issues to prepare and to deli-ver to the Government directions for method and criteria ofallocation of funds earmarked for project realisation, and tomake adequate contracts with commercial banks.

In accordance to that, Commission for Housing Is-sues of the Republic of Montenegro has formed Work

group for implementation of procedure of credit indeb-tedness in the Project "1000 housing credits". Work grouphas prepared the procedure and determined criteria forcredit allocation on public administration bodies, andthe content of the Public invitation for Project "1000 hou-sing credits".

Based on the conclusions of the Government of the Re-public of Montenegro, Ministry of Finance and the Commis-sion have included into the project commercial banks inMontenegro. In accordance to that, contracts have been con-cluded with Crnogorska komercijalna banka, Montenegro-NLB Bank, Podgoricka- Societe Generale Bank, Hypo-Alpe-Adria Bank and Niksicka Bank. Those contracts definerights and liabilities of the Ministry of Finance, of the Com-mission, banks and ultimate credit beneficiaries.

In order to introduce the content of the project to citi-zens and employees in the public administration bodies, Mi-nistry of Finance and Commission have announced Public

PROJECT OF THE

GOVERNMENT OF MONTENEGRO

„1000 HOUSING CREDITS”


„1000 housing credits”

25

invitation for participation in allocation of "1000 housingcredits".

Public invitation was announced on 10th May 2006, andit lasted for 15 days. During that period, as it was defined bythe Public invitation, citizens submitted their claims tobanks, while employees in the public administration bodiessubmitted their claims in bodies where they work.

Public invitation defines that project "1000 housing cre-dits" should comprise following credit lines:

• 200 credits for reconstruction to the amounts up to5.000 eur, and repayment period up to 5 years;

• 300 credits for enlargement and/or supplemental pur-chase of the housing to the amounts up to 15.000 eur and re-payment periods up to 10 years; and

• 500 credits for solving of housing issue to the amountup to 30.000 eur and repayment periods up to 20 years.

Of anticipated 1000 housing credits, 800 credits wereearmarked public servants, out of which: 600 housing cre-dits for employees in the government administration bodies,200 housing credits for employees in the Health InsuranceFund of the Republic and other public medical institutions.For citizens of the Republic of Montenegro 200 housing cre-dits were projected.

Public invitation determined that claimants should sub-mit data on whether they possess housing or is it inadequa-te, on the years of service, and on number of family mem-bers.

The project estimated that the total interest rate of thebank is 6,4% yearly. For ultimate credit beneficiaries interestrate was 4% yearly, while the Government of the Republic ofMontenegro accepted to subsidize rate with 2,4% yearly.Subsidized interest rate amount Ministry of Finance wouldpay by more instalments, during the period not longer than3 years.

After the expiration of the deadline for submission of

claims, provided for under the Public invitation, banks andstate authorities were obliged to process the received claimsin the period of 20 days, and deliver lists of approved claimsto the Commission. By consideration of mentioned lists it isdetermined that the total number of claims is 184, which ha-ve met conditions of banks, which was less than the determi-ned quota of 200 credit claims projected for citizens. There-fore, Work group has accepted lists from all banks, with allclaims and amounts, as they were submitted to the Commis-sion. In accordance to that, the Work group sent the draftconclusion to the Commission to verify mentioned lists ofbanks and to inform banks about that.

Commission verified and approved the lists and infor-med the banks regarding that. After the approval, banks star-ted the procedure of concluding contracts with citizens, forthe purpose of realisation of the approved housing credits.

Furthermore, the Commission also received lists of em-ployees in the governmental bodies, which have submittedtheir claims to heads of the governmental bodies where theywork in. Bodies made lists where the employees were ran-ked according to the terms specified in the Public invitation(years of service, number of household members and sol-ved housing issue). After the consideration of the receivedclaims, Work group stated that the large number of claimswas received from public administration bodies (over twothousand), and has made credit reallocation based on thepreviously fixed quota and methodology. Based on that,Work group has made credit allocation according to bodies,and determined how many credits belong to which body.

After the claim analysis, 595 credits were granted, out ofwhich 301 to the amount up to 30.000eur, 183 up to 15.000eur and 111 credits up to 5.000 eur. To the Health InsuranceFund of the Republic and other medical institutions, forwhich 200 credits were provided for under the Public invita-tion, 185 credits were allocated, 93 credits up to 30.000 eur,56 up to 15.000 eur and 36 up to 5.000 eur, while the remai-ning 15 credits will be subsequently allocated within themedical institutions.

Commission adopted the suggestions of the Work groupat the session held on 14.06.2006, and informed governmen-tal bodies and banks about its decision, so that signing ofcontract between employees in the governmental bodiesand banks could begin.

Public servants, who according to the rank-list made bythe public administration bodies have passed the selection,will conclude with banks contracts on allocation of housingcredits, if they fulfil terms of the banks.

Senior advisor

DRAGAN DARMANOVIĆ

Senior employeeDragan Darmanović


European Bank for Reconstruction and Development

26

INTRODUCTION


(EBRD) was established in 1991 with a view to speed up

and strengthen market reform process and transition in

Central and East European countries and create condi-

tions for efficient functioning of open market economies

in these countries. It is owned by 60 countries and two in-

tergovernmental institutions. EBRD, with its capital, is the

largest single investor in the region.

The Bank uses its relationship with the governments

in the region to promote creating of better and more ef-

ficient business environment. The mandate of the EBRD

stipulates that it must only work with the countries that

are committed to democratic principles. Respect for the

environment is an integral part of the strong corporate

governance attached to all EBRD investments.

EBRD, inter alia, provides project financing for banks,

industries and business, both new ventures and invest-

ments in existing companies. The Bank also supports pri-

vatization process, restructuring of state-owned compa-

nies and improvement of municipal services.

MEMBERSHIP OF THE STATE UNION

SERBIA AND MONTENEGRO

TO THE EBRD

Former Socialist Federal Republic of Yugoslavia was

one of founders of the European Bank for Reconstruc-

tion and Development since 1991. Accordingly, the SFRY

was entitled to use the Bank funds.

After break-up of the SFRY, State Union Serbia and

Montenegro (which was Federal Republic of Yugoslavia

until 2003), regulated its membership to the EBRD in Ja-

nuary 2001, on the basis of Resolution No. 81 adopted by

the EBRD Board of Governors on 13 December 2000 on

SaM membership to the EBRD.

It is noteworthy that State Union Serbia and Montene-

gro (SaM) hosted EBRD Annual Meeting. Namely, 14th

Annual Meeting was held in Belgrade from 21-23 May

2005. Serbia and Montenegro, as a host country, succes-

sfully presented and promoted its economy and poten-

tial opportunities and projects for making foreign invest-

ments to the representatives of governments, central

banks, international financial institutions, banks and ma-

jor companies that were present at the Annual Meeting.

EUROPEAN BANK FOR

RECONSTRUCTION

AND DEVELOPMENT



27

INFRASTRUCTURE PROJECTS IN

THE REPUBLIC OF MONTENEGRO

Following renewal of SaM membership to the EBRD,Montenegro has intensively co-operated with the EBRDrepresentatives. Over the last couple of years, EBRD in-vested significant funds in Montenegro by providingloans for projects in the area of transportation, air androad infrastructure as well as for the privatization of com-panies.

Namely, EBRD invested in Montenegro credit fundsamounting 28,18 mil. eur, out of which following projectswere funded:

• Pre- Privatization Loan for Aluminum Plant Podgori-ca (KAP) aimed to facilitate the preparation and imple-mentation of the KAP privatization, with the assistance ofan independent privatization adviser and independentadviser for the Project Implementation Unit.

• Podgorica and Tivat Airports Modernization Projectfor ensuring a higher level of safety and better services incompliance with the International Civil Aviation Organi-zation (ICAO) standards. The funds were earmarked forconstruction of a new passenger terminal; moderniza-tion and runway lightings of the Podgorica Airport; ex-tension of existing passenger terminal at the Tivat Air-port; procurement of fire-fighting equipment; and con-sulting services.

• Future Air Traffic Management Modernization andUpgrading System. The credit funds were earmarked formodernization of air traffic control with a view to impro-ving air traffic safety and capacity increasing.

• Montenegro Regional Road Rehabilitation Project.The Project is aimed at rehabilitation of the road and sta-bilization of slopes on Mioska-Kolasin road, and con-struction of climbing lane at Obzovica, on the section ofCetinje-Budva road.

The Bank is interested in further investing in Monte-negro, primarily in terms of providing loans for projectsrelated to improvement of transport and energy sectorand regional infrastructure in the country; projects rela-

ted to environmental protection along the MontenegrinCoast that are relevant for development of tourism whichrepresents a potential for investment growth and impro-

International Co-operation and EU Integrations Department,Co-ordinatorJadranka Radunović



28

vement. In order to improve tourism, the Bank is interes-ted in funding the projects, which are mainly related towater supply; addressing the waste water disposal issue;coastline pollution etc.

It is important to note that the EBRD has been fun-ding the following programs:

TTuurrnnAArroouunndd MMaannaaggeemmeenntt (TAM) Program, aimed atincreasing of industry-specific know-how and confiden-ce and management level in enterprises, and

BBuussiinneessss AAddvviissoorryy SSeerrvviicceess (BAS) Program, providingbusiness consulting services, where local consultantsprovide assistance to SMEs in their business operations,

TAM and BAS programs have been financed with a vi-ew to support economic reforms in countries in transi-tion, enabling companies to successfully conduct theirbusiness operations under market economy conditions.The programs imply business advisory services whichare provided by most renowned experts in the field ofbusiness, organization of work, marketing, finance etc.

The programs have been mainly financed from EU

funds- through the European Agency for Reconstruction(EAR), Europe Aid, PHARE, and TASIC and from bilateraldonations (Austria, Belgium, Canada, Denmark, France,Greece, Italy, USA etc.).

In order to apply for participation in the TAM andBAS programs, a company needs to meet certain criteria,i.e. it should be a private local company, which may not:offer any financial and banking services; produce any mi-litary equipment and tobacco; and organize any gamesof chance. The company should: have developmental po-tentials; require consulting services and have capacitiesin place for implementation of assistance which has beenhereunder provided.

State Union Serbia and Montenegro has been inclu-ded in the said program since 2000. For the purpose ofthe BAS Program realization, a regional office was esta-blished and became operational in Podgorica in 2003.106 projects have been launched through the regional of-fice, which have been mainly financed from the EARfunds.

Following regaining of the state sovereignty, Monte-negro has undertaken steps to speed up a renewal of itsmembership to the EBRD and continue successful co-operation in implementation of credit arrangements thathave already been or are to be launched. During the Con-ference of a prominent British Agency "Euromoney" inLondon, from 19 - 21 July 2005, the EBRD representativesand Montenegrin delegation exchanged their views oncurrent political and economic situation in Montenegrofollowing renewal of independence, including currentprojects funded by the EBRD and future projects as well,focusing on a future status and membership of Montene-gro in this multilateral institution. President of the Bank,Mr. Jean Lemierre announced opening of a permanentEBRD Office in Podgorica due to increasing investmentinterest and for the purpose of institutional co-operationstrengthening.

International Co-operation

and EU Integrations Department,

Co-ordinator,

JADRANKA RADUNOVIC

EBRD


Transfer of army property to the Republic of Montenegro

29

TRANSFER OF ARMY PROPERTY

TO THE REPUBLIC

OF MONTENEGRO

Rule over the immovable property, which was in the for-mer country given for utilization to the Army of Serbiaand Montenegro, is one of the issues that during the

past period were objects of great interest of the home-public,but also of the significant number of foreign investors.

Property, which in certain procedures had been estima-ted as unnecessary for the Army, and for which investors ha-ve shown interest, was transferred to former Fund for the Re-form of the Defence System of the Serbia and Montenegro,and all funds that were realized by sale were transferred tothe accounts of the Ministry of Finance of the Republic ofMontenegro. Ten objects were sold this way and the realizedincome was 14.1 mil eur.

After the 3 June, all immovable property used by the Ar-my at the territory of the Republic of Montenegro, becamethe property of the State of Montenegro. The Governmentof Montenegro at the session held on 08.06.2006, made con-clusions which refer to the transfer of army property to theRepublic of Montenegro. The conclusions defined procedu-res, deadlines and obligations of responsive military and ot-her services in charge of their implementation and entrus-ted Ministry of Finance for coordination of activities ontheir realisation.

Considering the fact that it is a large number of locations,out of which a significant number is very attractive, a specialcommission which is to perform evaluation of real necessi-ties of the defence system in Montenegro, will be formed inthe forthcoming period. Those locations which are found tobe unnecessary for functioning of the new defence systemshall be assigned to other governmental bodies for usage orwill be subject to possible sale, rent, forming of special busi-ness companies, pooling of property etc. toward which theGovernment of Montenegro shall take a stand regardingeach individual case.

It is to be expected that, because of the attractiveness oflocations, especially those located at the coast, a large num-ber of international companies shall become part of thisprocess. Aggravating circumstance for investors is that theselocations are not urbanized, so a secret partnership shouldbe made between the State as seller, local self-governmentsand future investors. Beside the significant income that willbe realized this way, another goal that we find to be very im-portant goal will be accomplished and that is further valori-sation of space in accordance to the strategic developmentcommitments.

Advisor to the Minister

PREDRAG STAMATOVIĆ

Advisor tothe MinisterPredrag Stamatović


Support to reform processes of the defence systems

30

MINISTRY OF FINANCE

- SUPPORT TO REFORM PROCESSES

OF THE DEFENCE SYSTEM

By gaining independence and sovereignty, and by for-ming Ministry of Defence of the Republic of Monte-negro, one of the few common functions of the Sta-

te union, related to the Ministry of Defence and Army has ce-ased to exist.

Montenegro now has chance to fully complete its defen-ce system and the activities on that plane are in full swing.

Since the transition to the territorial principle of finan-cing (May 2003), Montenegro has been creating conditionsand has taken specific actions for successful Army reformand independent performance of the defence functions,which can be seen in the following:

- Determination of the government officials of the Repu-blic of Montenegro regarding the necessity and course of

Army reform was clearly noticeable, and the support to re-form process was also given by the Army itself;

- Since January 2004 until June 2006, number of personsthat receive salary from the Army, with planned and transpa-rent process has been reduced for 3.236, or for 47%, so thatin June it amounted 3.624 persons;

- Social program for the surplus of manpower in armywas fully financed and for that purpose circa 5 million EURwas spent;

- Total stability in the army financing was achieved;

- Expenditures for defence in the estimated GDP were re-duced, from 2,53% in 2005, to 2,40% for 2006;

- Accounting center was formed as important body of

Advisor for the Defence Budget in the Ministry of Finance of the Republic of MontenegroMijajlo Savovic, M.A.


Support to reform processes of the defence systems

31

the Ministry of Defence of the Republic of Montenegro forlogistic support for payroll accounts, keeping of the finan-cial books, control of business operations and relations withthe Treasury;

- The payment of military pensions for beneficiaries onthe territory of the Republic of Montenegro was taken over,after Social Insurance Fund for Social Insurance of MilitaryInsurees Beograd had unilaterally suspended further pay-ments in the second half of 2005;

- Two non-profitable army-income institutions were li-quidated (''Ribnica'' and ''Lovcen'') with about 200 employe-es;

- Privatisation procedure of the Military Medicine Cen-ters Meljine and TRZ ''Sava Kovacevic'' Tivat had started;

- Through active and cooperative work in the Fund forDefence System Reform of the State Union, assets were pro-vided from the sale of the part of the real estate, which Com-mission of the Council of Ministers for Property Divisionproclaimed to be the property unnecessary for further func-tioning of Army, and after that Government of the Republicof Montenegro consigned to the Fund for Reform of the De-fence System for sale. Funds acquired from sale were, in ac-cordance to Conclusions of the Government of Montene-gro, spent for necessities of Army (social program, paymentof wages arrears and material expenses, and one part fell tothe share of the Restitution Fund);

- After the analysis of funds with which Republic of Mon-tenegro participates in the financing of the functions of theState Union and with the projection of optimal expenses,the conclusion has been reached that Montenegro can per-form those functions independently;

Activities on arranging and organisation of functioningof unique defence system of the Republic of Montenegroare underway or forthcoming, regarding:

- Enactment of the Law on Defence and Law on Army ofMontenegro, and of related by-laws and other doctrinairedocuments;

- Total professionalisation of Army which, among otherthings, implies abolition of recruitment;

- Defining of amount and structure of Army of Montene-gro, and further activities on reform which will last for a lon-ger period of time;

- Realisation of the assignment of professional armymembers, which expressed wish to continue their serviceon the territory of the Republic Serbia (552), and thosewhich want to continue their service from the territory ofthe Republic Serbia to the territory of the Republic of Mon-

tenegro (13);

- Planning of the budgetary expenditures in accordanceto the international standards and the projection of expen-ditures of independent forming of military forces, whichincludes continuation of the trend of reduction of costs fordefence at circa 2% of GDP, change of structure of costs, de-fining of social program for surplus of manpower, and ear-marking of resources for modernisation and equipping ofArmy;

- Defining of property needed for functioning of the Ar-my and procedure with property which is no longer neces-sary for the Army (sale of the part of that property for pur-pose of Army needs of high priority - solving on housingmatters etc.);

- Reforms of health care and pension and pension anddisability insurance of military insurees;

- Inclusion of military pensions into Pension and Disabi-lity Security Fund of the Republic of Montenegro - by theFund, taking over of the logistics for accounts and payment;

- Admission in Partnership for Peace, NATO, and otherinternational organisations and institutions, for the purposeof development and maintenance of collective and nationalsafety.

Furthermore, two important questions arise due to theiractuality, which are to be solved in the forthcoming period,and those are:

1. Ministry of Defence of the State Union left to Montene-gro one very serious problem regarding large number of li-tigations of professional and pensioned army members bec-ause of the mismatched wages for some years past;

2. By taking over of the payment of military pensionsMontenegro gained right and possibility to claim from theFund for Social Security of Military Insurees Belgrade (Re-public Serbia), revalorised or in other method determinedamount of investment in the Fund during the employmentof professional soldiers at the territory of the Republic ofMontenegro.

Ministry of Finance of the Republic of Montenegro ishighly involved in the reform processes of the Army and de-fence system in total, and it gives support to those processesfull.

MIJAJLO SAVOVIĆ, M.A.,

Advisor for the Defence Budget

in the Ministry of Finance

of the Republic of Montenegro


Most important activities of the minister of finance

32

REVIEW OF THE MOST IMPORTANT

ACTIVITIES OF THE MINISTER OF

FINANCE APRIL - JUNE 2006

2288..0066..22000066.. --MMeeeettiinngg ooff tthhee MMiinniisstteerrss ooff FFiinnaannccee aannddCCeennttrraall BBaannkk GGoovveerrnnoorrss:: LLuukkssiicc -- DDiinnkkiicc -- JJeellaassiicc -- KKrrggoovviicc

Minister ofFinance in theGovernment ofMontenegro IgorLuksic: "To Mon-tenegro belongs5.88 percent of44.6 million $,which will be re-

duced for certain liabilities to Serbia. Serbia will pay 30 mil-lion EUR balance to Montenegro, out of which 1.5 millionEUR is for membership in international financial institu-tions. Membership deposits depend on economic strengthof country, therefore it is possible that they will be lower forMontenegro".

Minister of Finance in the Government of Serbia MladanDinkic: "Existing quota in IMF amounts 467.7 million of Spe-cial Drawing Rights or 698 million $ and Serbia succeeds it.Montenegro will get 5.88 percent or 41 million $".

At the meeting they discussed about old foreign curren-cy savings, and it has been agreed that future talks should beheld on the level of former SFRY. Military pensions were al-so discussed, for which negotiators had no mandates to ma-ke any specific agreements.

Dinkic and Jelasic congratulated yesterday to citizens ofMontenegro on raising of flag at East River.

2200.. 0066..22000066.. -- MMiinniisstteerr ooff FFiinnaannccee IIggoorr LLuukkssiicc hheelldd ttaallkksswwiitthh tthhee PPrreessiiddeenntt ooff tthhee EEuurrooppeeaann BBaannkk ffoorr RReeccoonnssttrruuccttiioonnaanndd DDeevveellooppmmeenntt JJeeaann LLeemmiieerr

During the meeting, viewswere exchanged on the currentpolitical and economic situationin Montenegro after the gainingof independence, and both si-des have expressed satisfactionwith the democratic atmosphereand overall economy plan.

Also, they discussed current projects financed by ERBD,and possible future programs, with emphasis on future sta-tus and membership of Montenegro in that multilateral insti-tution. The mutual satisfaction was expressed with progressin economic and overall reforms, and with past cooperation,and the president of EBRD Jean Lemier announced the ope-ning of permanent office of that institution in Podgorica-Montenegro, due to growing investment interest and streng-thening of institutional cooperation.

1133..0066.. 22000066..ggoodd.. -- MMiinniisstteerr ooff FFiinnaannccee IIggoorr LLuukkssiicc hheellddttaallkkss wwiitthh HHeeaadd ooff DDeelleeggaattiioonn ooff tthhee IIMMFF,, PPeetteerr DDooyyllee::

"I had a chance today, together with the president of theCouncil of the Central Bank, Mr Ljubisa Krgovic first of all totalk to Mr Peter Doyle, new chief of IMF Mission for Serbiaand Montenegro within the mission that recently startedand actually has officially started with the meeting we hadtoday. We are talking about the visit of IMF with the purpo-se of analysis of macroeconomic situation in Montenegroand Serbia and at the same time with the purpose of analy-sis of forthcoming medium-term challenges in that peri-od"…

0022.. 0066..22000066.. -- SSvveettii SStteeffaann:: OOppeenniinngg ssttaatteemmeenntt ooff IIggoorrLLuukkssiicc,, MMiinniisstteerr ooff ffiinnaannccee aatt tthhee RReeggiioonnaall CCoonnffeerreennccee ooff MMii--nniisstteerrss ooff FFiinnaannccee aanndd GGoovveerrnnoorrss ooff CCeennttrraall BBaannkkss ooff SSoouutthh--EEaasstt EEuurrooppee

"It is my pleasure to welcome you on behalf of the Go-vernment of Montenegro. We are grateful for the occasionto be hosts of the conference as eminent as this. These gat-herings always represent a good opportunity for improve-ment of cooperation and establishment of strong relationsbetween our countries…

At the very beginning, I would like to emphasise that pre-viously realised economic independence and sustainabilityof Montenegro had its logical sequence - the gaining of for-mal independence. The issue of state-legal status of Monte-negro has been solved and we expect this to have a great in-fluence at the further development of our economy. Positio-ning itself as one of European centers, instead as a part of


Most important activities of the minister of finance

33

non- funct ionalunion allows ourcountry to partici-pate and stimulateeconomic integra-tion processes onequal terms. Thisway, it will promo-te easier numero-us resources that

will have for goal economic development."

2266..0044..22000066:: -- MMiinniisstteerr ooff ffiinnaannccee IIggoorr LLuukkssiicc,, PPhhDD,,aanneenntt ssiiggnniinngg ooff CCooooppeerraattiioonn AAggrreeeemmeenntt bbeettwweeeenn MMiinniissttrryyooff FFiinnaannccee ooff MMoonntteenneeggrroo aanndd MMiinniissttrryy ooff FFiinnaannccee ooff IIccee--llaanndd::

"I had a pleasure today to sign the Agreement on coope-ration between two Ministries with my colleague, Ministerof finance of Iceland Arni Mathiesen. Small countries are

oriented to eachother, especially ifthey have signifi-cant similarities.For us in Montene-gro, especially af-ter the renewal ofsovereignty, expe-rience of Island isvery interesting,because it can re-

present a model for a faster growth and development, whatis in today world characteristic of smaller countries..."

2244..0044..22000066:: -- WWoorrkkiinngg vviissiitt ttoo WWaasshhiinnggttoonn ccoonnttiinnuueeddwwiitthh ttaallkkss wwiitthh AAmmeerriiccaann aaddmmiinniissttrraattiioonn

Representatives of the American administration showedspecial interest in current political moment in Montenegroand projection of future relations with IMF and World Bank.In that contest, Minister Luksic stated that political develop-

ments, organisa-tion of referen-dum and later ofelections, shallhave no negativeinfluence on eco-nomic perfor-mance and hasrepeated willin-gness of the Go-vernment of

Montenegro to discuss with the Government of Serbiaabout all maters of mutual interest in the period after the re-ferendum...

2244..0044..22000066:: -- DDeelleeggaattiioonn ooff MMoonntteenneeggrroo ccoonnttiinnuueeddwwoorrkkiinngg vviissiitt ttoo WWaasshhiinnggttoonn wwiitthh ttaallkkss wwiitthh rreepprreesseennttaattiivveessooff tthhee IIMMFF

Delegation of Montenegro, headed by Minister of finance,Igor Luksic, PhD and President of the Central Bank, Ljubisa Kr-govic continued its working visit to Washington with talkswith the representatives of the IMF: Ann Kruger, deputy direc-tor of IMF, Michael Deppler, director of IMF for Europe, andnew chief of Mission Peter Doyle. Topic of the talks was cur-rent economic situation in Montenegro and audit of just finis-hed arrangement, and framework for future arrangement…

2244..0044..22000066::-- SSpprriinngg mmeeeettiinnggss ooff tthhee IIMMFF aanndd WWoorrllddBBaannkk'' ttaallkkss ooff MMoonntteenneeggrriinn ddeelleeggaattiioonn wwiitthh UUSSAAIIDD

Delegation of the Republic of Montenegro, during Springmeetings of the IMF and World Bank, met the director for Bal-kans in the USAID, MrEdward Dickens. Fis-cal movements inMontenegro and rela-tions with internatio-nal financial institu-tions were analysed.The question of reali-sation of currentUSAID projects wasemphasised, as was the question of program for the next 3years, especially in infrastructural and other development are-as…

Minister of Finance, Igor Luksic, PhD and the presidentof the Council of Central Bank of Montenegro, Mr LjubisaKrgovic, within the contacts with the business communityhad meeting with investment group from New York, Pick-wick Capital. They discussed about economic ambient forprivate investments in Montenegro. They emphasised thespecial interest of this investment group for areas: tourism,energetics, health, education and financial services.

PR SERVICE

Spokesperson, ANA MILJANIĆ

Senior Employee I, MAJA BAŠIĆ


34

Review of other news

REVIEW OF OTHER NEWS

- ACTIVITIES OF THE MINISTRY

OF FINANCE

DDrraafftt LLaaww AAmmeennddiinngg aanndd SSuupppplleemmeennttiinngg LLaaww oonn PPeerr--ssoonnaall IInnccoommee TTaaxx ffoorr PPrriivvaattee PPeerrssoonnss ssiinnccee FFrriiddaayy 11sstt -- 1155tthhJJuullyy 22000066 oonn ppuubblliicc ddeebbaattee..

All interested subjects can send their proposals, sugges-tions and opinions at e-mail address of the Ministry of Fi-nance [email protected] or on fax: 224 450.

This will initiate the consideration of the amendments tothe Law on Personal Income Tax for Private Persons, whichis planned to introduce the proportional tax rate and its sig-nificant reduction, and which should in 2010 be 9% (as is therate for profit tax for legal persons)

PPaayymmeenntt ooff tthhee tthhiirrdd iinnssttaallmmeenntt ttoo tthhee oowwnneerrss ooff tthheeoolldd ffoorreeiiggnn ccuurrrreennccyy ssaavviinnggss -- 33rrdd JJuullyy 22000066..

To the owners of old foreign currency savings, whichmature on 1st July 2006, payment of the third instalment tothe amount defined by their plan of amortization will starton Monday 3rd July in commercial banks and regional cen-tres of Central Bank of Montenegro. For the payment ofthis, the third bond series from the Budget of the Republic isplanned 8,7 million EUR. Depositors that have after 1st Julyreported to their bank and thus registered themselves atCDA as bond owners based on converted savings can drawthe third instalment in regional centres of the Central Bankof Montenegro and Pljevaljska Bank AD Pljevlja, dependingon their residence, based on their identification document(identification card and passport).

The owners of old foreign currency savings, which ha-ven't used their right on payment of the first and secondbond series to the amount of 380 and 530 EUR can draw allthree instalments. They are to go to the bank in which theyhave their savings deposit book, or to the related counter ofthe Central Bank, where they will receive certificate on con-version of savings into bonds.

MMiinniissttrryy ooff FFiinnaannccee ooff MMoonntteenneeggrroo hhaass ppaaiidd ffuunnddss ffoorrmmiilliittaarryy ppeennssiioonnss-- ffoorr MMaayy 22000066

Ministry of Finance has paid funds for military pensionstoday (for May 2006). The payment will start on Saturday

24th June 2006.

FFiinnaall aannnnoouunncceemmeenntt ooff tthhee IInntteerrnnaattiioonnaall MMoonneettaarryyFFuunndd MMiissssiioonn aafftteerr tthhee vviissiitt ooff tthhaatt ddeelleeggaattiioonn ttoo MMoonntteennee--ggrroo

IInnddeeppeennddeennccee ffoorr MMoonntteenneeggrroo rreepprreesseennttss tthhee nneeww bbee--ggiinnnniinngg.. In that context, our goal is to offer suggestions onhow to use the best this unique chance in the macroecono-mic sphere.

MMaannyy tthhiinnggss aarree pprrooggrreessssiinngg wweellll.. Inflation is low, publicdebt has tendency to fall, collection of the VAT contributesto the good realisation of income, direct foreign investmentsare growing with new ones expected to come, banks are pri-vatized, credit activity is expanding, access to EU markets isrealised with allowances, and chances for achievement ofthe Stabilisation and Association Agreement and for mem-bership in WTO and Partnership for Peace are good.

YYoouurr aammbbiittiioonnss aarree aapppprroopprriiaattee.. You are trying to achie-ve permanent increase of economic growth, employmentand real income, both as independent goals and as basis forentering EU one day.

TThheessee ggooaallss aarree aacchhiieevvaabbllee.. For their achievement willbe necessary, first of all, operating, in order to provide main-tenance of regular terms for economic activity in the con-text of independence, and second, bigger emphasis on mid-dle-term than on short-term goals in formulation of macroe-conomic policies, especially in terms of flexibility, sustaina-bility and offer.

IInnddeeppeennddeennccee

-- Your sovereignty should be fully reflected in legal solu-tions, which regulate your international economic relations.It is necessary to be understood that agreements previouslymade between Serbia and Montenegro and internationalcommunity on questions like free trade in the region, veteri-nary standards, double taxation, etc. now you yourselvesshould accomplish in order to provide continuing regularterms for economic activity. Furthermore, legal regulationsconcerning economic relations with Serbia should be clari-fied. Main issues are matter of stay of citizens from one sta-


Review of other news

35

te in another and exercise of rights from the sphere of socialsecurity and working permits. Agreement on free trade zo-ne would ensure undisturbed continuation of former tradearrangements. Moreover, the total account of former net fis-cal transfers to State Union is recommended. It should redu-ce budgetary transfers to the Union for costs that will nowpay as functions of the Union that are delegated to the Bud-get of Montenegro. This will help realisation of the budgetfor 2006 and making of the budget for 2007.

DDrraafftt LLaaww oonn TTaaxx AAddvviissoorrss -- ppuubblliicc ddiissppuuttee 2222..0066..22000066

This Law regulates activity of the tax counselling as inde-pendent and autonomous occupation, authorisation andobligations of tax and customs advisors (hereinafter: tax ad-visors), and other matters significant for performance ofthose activities... You can send your proposals, suggestionsand opinions at the e-mail address of the Ministry of Finan-ce [email protected] or at fax: 224-450 in the next 15 days.

VViissiitt ooff tthhee ddeelleeggaattiioonn ooff IInntteerrnnaattiioonnaall MMoonneettaarryy FFuunnddttoo MMoonntteenneeggrroo 1122 JJuunnee 22000066

Aim of the mission and talks with Montenegrin officialsand institutions is analysis of the implementation of agreedpolicy, and of further reforms of the financial sector in Mon-tenegro. Also, creating of macro economic policy and set-ting of medium-term macroeconomic goals will be in the fo-cus. After the completion of the mission on 22nd June, weexpect that representatives of IMF publish final statementsconcerning the results of held talks. It is also important toremember that Montenegro has successfully concluded atthe beginning of 2006 so called "extended arrangement"with IMF which lasted from 2002. The outcome of that arran-gement and its successful conclusion led to, beside the sig-nificant positive image of Montenegro at the financial mar-ket, and to further write-off of debt of Montenegro to ParisCreditors Club to the amount of circa 26 million EUR.

CCoommmmiissssiioonn ffoorr iissssuuaannccee ooff lliicceenncceess ffoorr aauuddiittoorrss --AAcc--ttiivviittiieess --

Commission for Issuance of licences for auditors in theperiod from 1st January to 30th June 2006, held 10 sessionson which it issued 29 licences to the auditors and those are:to Milovan Popovic, Dejan Krivokapic, Krsto Spaic, VeselinMilacic, Zorica Vujovic, Ljerka Momcilovic, Branka Bojovic,Predrag Rakocevic, Ljiljana Velimirovic, Ibro Sabovic, JelenaJakovac, Vesna Kotlaja, Ljiljan Milinovic, Momcilo Mihaljevic,Senka Popovic-Mitric, Maja Krstic, Vesna Radunovic, MladenOgnjenovic, Kristina Bukilic, Dejan Savic, Sava Obradovic,Goran Strahinja, Lidija Matovic, Branka Vuksanovic, DraskoPopovic, Vladimir Carapic, Nada Guzina, Milos Macura andVladimir Filipovic.

List and data of auditors with licence can be found at thewebsite of the Ministry of Finance of Montenegro www.mi-nistarstvo-finansija.vlada.cg.yu.

For the purpose of control of financial reports of the Mi-nistry of Finance supplemented lists with data in auditors,

after each newly issued licence, is forwarded to businesscourts.

Commission also issued two approvals for choice of theaudit company for performing of audit of accounting state-ments for 2005, to Crnogorska Komercijalna Bank and Atlas-mont Bank. For that period 3 requests for issuance of licen-ce were turned down because they did not meet the condi-tions proscribed by the Law on Accounting and Revision("Official gazette RoM ", no.69/05).

DDrraafftt LLaaww oonn CChheecckk-- ppuubblliicc ddiissppuuttee -- 3311sstt MMaayy 22000066

You can send all proposals and suggestions concerningDraft Law on Check at the email address of the Ministry ofFinance [email protected] or on fax 224 - 450 during next 15 days.

RReepprreesseennttaattiivveess ooff tthhee wwoorrkk ggrroouupp ffoorr ddrraaffttiinngg ooff ssuubblleeggaall rreegguullaattiioonnss iinn tthhee sspphheerree ooff ppuubblliicc pprrooccuurreemmeenntt hheellddwwoorrkkiinngg mmeeeettiinngg wwiitthh eexxppeerrttss ooff OOEECCDD//SSIIGGMMAA

During the talks, Secretary of the Public ProcurementCommission Katarina Radovic, reminded that the new Lawon Public Procurement will constitute new institutional fra-me and new procedures, harmonized with EU legislation.Spokesperson of the Ministry of Finance Ana Miljanic, em-phasised the necessity of systematic instalment of mecha-nisms for as transparent procedures of public procurementas possible, for the purpose of establishment of more effici-ent system. Realisation of determined activities will provideconditions for full implementation of the Law, from the mo-ment of its entering into force. For education of all subjects,involved in the public procurement system, and presenta-tion of new procedures to them, sub legal regulations willbe drafted prior to the deadline set under the Law.

Spokesperson

ANA MILJANIĆ

SpokespersonAna Miljanić


Payment of third instalment of old foreign currency

36

PAYMENT OF THIRD INSTALMENT

OF OLD FOREIGN CURRENCY

Payment of the third instalment to the amount deter-mined by their plan of amortization, which matureson 1st July 2006, will start from Monday 3rd July to

the owners of old foreign currency savings in commercialbanks and regional centres of the Central Bank ofMontenegro. For the payment of the third bond series, 8,7million EUR is determined by the Budget of the Republic.

Depositors that after 1st July 2004 reported to theirbanks and thus have registered themselves in the CDA asowners of bonds on the basis of converted savings, candraw the third instalment in the regional centres of theCentral Bank of Montenegro and Pljevaljska Bank ADPljevlja, depending on their residence, based on the docu-ment of identification (identity card and passport).

Owners of old foreign currency savings, which haven'tused their right for the payment of the first and secondbond series to the amount of 380 and 530 EUR, from 3rdJuly this year can draw all three annuities. They are to go tothe bank where they have their savings deposit book, or tothe related counter of the Central Bank, where they willreceive certificate on conversion of savings into bonds.

Former depositors of Montenegrobanka AD Podgoricaand Jugobanka AD Podgorica in bankruptcy should reportto the related counter of Central Bank of Montenegro.

Legal persons that have acquired old currency savingsbonds by purchase of bonds at the exchange market candraw the third instalment at the counter of Nikšićka BankAD Nikšić.

For new owners of bonds, which acquired bonds on thebasis of the deed of donation, notice of probate of will orpurchase at the exchange market, arrangement of counters

at which they can draw the third instalment depending onthe residence is also determined.

If the owner of old currency savings bonds is not able tocome to the bank, authorized person based on the nota-rized court authorisation can draw determined amount ofthe third series, instead of the owner.

Owners of old currency savings bonds that have losttheir certificate will be able to get the transcript of owner-ship of old foreign currency savings bonds in the CentralDepositary Agency (CDA).

Successors of old foreign currency savings bonds, whichacquired them based on the valid notice of probate of willfor additional information on exercise of their right canobtain further information in CDA at phone number081/230-084, contact person Rajka Dragićević.

Detailed information and arrangement of paymentplaces will be announced by the Ministry of Finance onFriday, 30th June 2006 in all journals. This information willbe available on all payment places in regional centres of theCentral Bank of Montenegro and in commercial banks.

In June, while the bond payment was temporarilystopped as was the exchange market trade for better prepa-ration for free payment of second instalment, data from allbanks on payment of the first instalment and data from thecapital market on bonds that were subjects of the exchangemarket trade were unified, which provided security of dataon owners of bonds as securities.

PR SERVICE OF THE MINISTRY


Report on account of public debt of Montenegro

37

1. AMOUNT AND STRUCTURE OFPUBLIC DEBT OF MONTENEGRO

Public debt of Montenegro amounted 644,4 million EURas of 30.06.2006. Domestic debt amounted 167,7 million EURor 26,0% of total debt while the foreign debt amounted 476,7million EUR or 74,0% respectively . It is primarily due to ongo-ing negotiations and allocation of debt, ongoing negotiationson succession of former SFRY and impossibility to quantifyexplicit liabilities assumed under the Law on Restitution ofExpropriated Property Rights and Compensation that thisamount has not been fully clear-cut. According to current esti-mations, no great divergences are likely to arise followingconclusion of negotiations on allocation of financial assetsand liabilities with the Republic Serbia.

In 2002, public debt amounted over EUR 1 billion. It is theamount which was determined prior to debt reschedulingwith the International Bank for Reconstruction andDevelopment and Paris Donors Club and prior to final agree-ment with Serbia concerning liabilities to the LondonCreditors Club.

The largest share of public debt of Montenegro refers toinherited long-term liabilities of the old system (former SFRYand SRY). This share primarily refers to foreign debtsassumed by the Law on Regulation of Liabilities and Claimsarising out of foreign debt and foreign currency savings of cit-izens, which at the end of June 2006, amounted 404,9 millionor 62,8% of the public debt, mostly loans extended by theInternational Bank for Reconstruction and Development andParis Donors Club.

Beside old foreign debts, "assumed" public debt is also

REPORT ON ACCOUNT OF PUBLIC

DEBT OF MONTENEGRO

BY 30TH JUNE 2006.

1-2 - According to Maastricht Criteria the amount of public debt does not include debts of public enterprises, including the ones with government guarantee,except it is certain that those debts will be paid from the State Budget or are already being paid, as is the case with the credit of EIB for Port Bar to the amountof 6 million EUR.



38

consisted of liabilities on the basis of old foreign currencysavings, assumed by the same Law. Liabilities on the basis ofold foreign currency savings, at the end of 2004, amounted123 million EUR, at the end of 2005, 117 million EUR, and atthe end of first half-year 114,0 million EUR which is 17,7 % ofpublic debt. Therefore, at the end of June 2006, assumedlong-term liabilities of old system represent 80,5% of totalpublic debt of Montenegro. Remaining 19,5% refer to newindebtedness which arouse in the period from 2000 to June2006, liabilities in the basis of credits, treasury bills, local self-governments debts and outstanding budgetary liabilities.

2. FOREIGN PUBLIC DEBT

Foreign public debt amounted 476,7 million EUR. Theshare of that is "old" debt 404,9 million EUR or 84,9% and thenew amounts 71,9 million EUR or 15,08%. Share of foreigndebt in Gross domestic product which shows the level of for-eign indebtedness of the country had trend from 68,7%before the debt rescheduling to 27,1%, which is his amount atthe end of June 2006.

In the table 3 you can see the structure of foreign debt tocreditors.

As shown on the previous table, in the structure of foreignpublic debt of Montenegro, at the end of June 2006, thebiggest share has foreign refinanced debt to World bank -41,1% or 264,9 million EUR.

Debt reduction when compared to 2005, to the absoluteamount was caused by two reasons:

1. From the 1st January 2006 debt of the public enterpriseŽeljeznica Crne Gore is calculated as public debt since by the

Decision of the Government in November 2005, assumedcredit of the European Investment Bank, which in Juneamounts 15 million EUR (is withdrawn in total). Debt on thebasis of credit of 24 million EUR to the European InvestmentBank for the construction of Sozina tunnel is excluded fromthe public debt, without public enterprises and has becomethe debt of the public enterprise Monteput.

2. Debt to Paris Donors Club on 31. December 2005,amounted 151,6 million EUR, and is shown in the reduceddebt amount for 51%, which represents the write-off in thefirst phase. After the expiration of the three-year arrangementwith the IMF and positive opinion on macroeconomic trendsin Montenegro, the expected reduction has happened to thetotal amount of 24,3 without the debt reduction towards Italywith which negotiations are not over yet and which has notentered the total calculation of the liabilities to the Club. Thereduction is expected to be 2-4 million EUR.

Old or refinanced debts are also liabilities to Council ofEurope Bank and to International Financial Corporation(IFC) and debt arrears to the Anglo Yugoslav Bank. Liabilitiesto Handlowy Bank are settled in total with the payment of thefinal instalment on 15th June 2006.

Smaller share of long-term liabilities is related to the

indebtedness after 2001, when Montenegro as a part of SRY,and State Union Serbia and Montenegro regulated its mem-bership and relations with international financial institutionsand made new arrangements. New concluded, and at thesame time withdrawn, foreign loans until 31.06.2006 amount71,9 million EUR. These loans include indebtedness in:European Investment Bank, European Community andGerman Bank for Reconstruction. The total amount of debt toEuropean Bank for Reconstruction and Development basedon the indebtedness for advisor in the privatisation of the

Source: Ministry of Finance



39

Kombinat Aluminijuma Podgorica, was settled after success-ful process of privatisation of this company.

2. INTERNAL PUBLIC DEBT

Internal public debt of Montenegro consists of liabilitiesbased on old foreign currency savings, liabilities based oncredits taken from domestic financial and other institutions,liabilities based on the issue of short-term treasury bills, debtof local self-governments and payment arrears from thebudget.

Table 3. Structure and amount of internal public debt.

In the indebtedness structure is noticeable the indebt-edness reduction based on treasury bills and almost totalelimination of the debt based on bank credits so that theindebtedness based on treasury bills amounted 6,5 millionEUR. Until 30th June 2006, about 3 million EUR of old for-eign currency savings bonds have been paid. Also, there hasbeen a significant further reduction of liabilities based onoutstanding budgetary payments for 15,2 million EUR. Tothe total amount, domestic debt in first two quarters of 2006,was lower for 19,4 million EUR when compared to31.12.2005.

5. INDICATORS FOR INDEBTEDNESS OF MONTENEGRO- FINAL OBSERVATIONS

According to the methodology of World Bank (DebtReporting System) share of foreign debt in the gross domes-tic product lower than 30% indicates the low indebtedness of

the country, from 30% to 50% indicates the medium indebt-edness of the country, having in mind that Montenegro with21,1% belongs to less indebted countries, and share of over50% the high indebtedness of the country. Just for compari-son, at the end of 2004, with certain number of countries inthe process of transition this indicator was: Bulgaria 57,6%;Czech Republic 37,4%; Croatia 79,9%; Lithuania 43,2%;Hungary 59,0%; Romania 39,8%; Slovenia 50,1%.

When compared to the gross domestic product anticipat-ed for 2006, gross public debt of Montenegro at the end of2006, amounts 36,6%. This is "significantly" lower from thedefined fiscal criterion, of the maximum allowed public debt,of the European Union, which makes the Montenegro meetone of two Maastricht criteria which proscribe that the totaldebt should not cross 60% of the gross domestic product.

This indicator is considered to be the most important indica-tor of the debt sustainability.

According to value of mentioned indicators, Montenegrois ranked in countries with low indebtedness with tendencyof further improvement.

DEBT AND CASH MANAGEMENT DEPARTMENT

SNEŽANA IVANOVIĆ, MERSIJA PURIŠIĆ,

MINA JOVOVIĆ, M.A. NIKOLA VUKIĆEVIĆ

3 - According to the projection of the Deutsche Bank Research


Macroeconomic Analysis

40

INTRODUCTION

Assessment of the public spending of the Republic of Montenegro for 2006 is based on the data on GDP developments,including data on public spending developments in the period from 2001-2006. Public spending policy for 2006 is based onassessment of Montenegro's fiscal potential and macroeconomic trends defined under the Montenegro's Economic ReformAgenda of April 2005. In accordance with the economic policy goals and objectives defined under the Economic ReformsAgenda, 2006 Budget will be further balances, with relative cut in deficit as a share in GDP. Basic fiscal policy parameters willalso be adjusted to the frameworks and objectives agreed with the IMF and World Bank. They will also be harmonized with theEU Directives.

Assessment of the Budget revenues for 2006 is based on projected data on GDP developments, including data on Bud-get revenues developments in the period from 2001-2006. Macroeconomic indicators projection under the Montenegro'sEconomic Reforms Agenda indicates that 2006 GDP will amount 1.759 mil. eur (current prices), while the real growth ratewill be 4,5 %.

Data on GDP are taken from analysis prepared by the IMF and the Ministry of Finance. According to the data, GDP growthand average annual rate show a stabile economic growth trend in the period from 2003. Projections indicate that GDP will amo-unt 1.794,00 mil.eur in 2006, while the nominal growth rate will be 7%.

REPORT ON MACROFISCAL

DEVELOPMENTS FOR THE FIRST

FIVE MONTHS 2006

Macroeconomic Analysis and International Co-Operation Department

STANKO JEKNIĆ, PhD, Co-ordinator

VLADISLAV KARADžIĆ, Senior Advisor I



41

Projected GDP influenced assessment of the total pubic spending in Montenegro for 2006. Public spending level and its re-lative share in GDP are given in the Table below:

Relative cut in public spending share in GDP will be ensuredwith a slower growth of Government Budget spending and vo-lume of health protection than GDP growth. Economic Re-forms Agenda provides for that 2006 public spending share inGDP will be by 43%. However, 2006 projections show relativepublic spending share in GDP by 44,21%, which is not in linewith the objectives set under the Agenda. This deviation comesfrom unreal planning of local governments' spending for 2005and 2006. When 20 mil eur is deducted from underestimated lo-cal government spending, consolidated public spending amo-unts 43% of GDP, which is in accordance with the Agenda.

I CONSOLIDATED PUBLIC SPENDING

Public spending analysis for 2006 was conducted on the basis of preliminary data disclosed under the financial statementsof the Government Budget, extra-budgetary funds and local governments. The financial statements were produced on the ba-sis of cash flow statements and were systematized in a single form with a view to providing an objective methodological appro-ach in tabular presentations and analysis of the public spending system functioning in 2006.

2006 public spending is based on economic policy goals for 2006, projecting employment rate growth, companies' restruc-turing and privatization, poverty reduction and real growth of living standards, while main objectives of public spending are ai-med at increase in Budget revenues, rationalization of Government Budget and HIF spending as well as intensifying the reformsin the field of judiciary, education and public administration.

1. PLAN AND REALIZATION OF PUBLIC SPENDING FOR THE PERIOD JANUARY-MAY 2006

Public revenues in this period were realized to theamount of 322,19 mil.eur, which is by 16,08 mil.eur morethan planned for the said period. Tax collection was hig-her by 24,78 mil eur than planned, primarily due to a mo-re efficient collection of VAT and corporate income taxthan planned. Collection of fees, charges and contribu-tions has been slightly increased as compared to theplanned, while other revenues have been significantlydecreased. The reason for such decrease lies in a muchpoorer collection of outstanding tax liabilities from theprevious period - only 20% than planned.



42

Public expenditures were executed to the amount of334,35 mil.eur, which is by 52,23 mil.eur less than plan-ned for the period January - May 2006. Lower salary dis-bursements than planned are result of an average dura-tion of salaries disbursement of about 5 days, so realiza-tion of a part of the plan is transferred from the currentmonth into the following month. Lower realization of ex-penditures for material and capital expenditures is a re-sult of a change in the structure of disbursements fromthe Republic Budget, which were in the first five monthsearmarked for repayment of outstanding liabilities by9,64 mil eur more than as was planned for the fivemonths.

Public spending deficit for the period January-May2006 amounts 12,8 mil.eur, out of which Pension and Di-sability Insurance Fund accounts for 0,96 mil.eur , Bud-get 13,44 mil. eur, Employment Agency 2,75 mil.eur andlocal self-government 0,29 mil.eur. At the same time, HIFsurplus amounted 4,64 mil.eur, so that consolidated defi-cit in the period January-May 2006 amounts 12,8 mil. eur,accounting for 0,71 % of GDP. Public spending deficitwas financed from the privatization receipts, foreign cre-dits and donations. At the same time 14,91 mil eur of de-posit was drawn, resulting in repayment of domestic cre-dit liabilities to the amount of 6,5 mil eur.

Salaries and other earnings were de-creased by 0,33 mil.eur as compared tothe plan, and their realization is estima-ted to be 99,89 % of the plan for 2006.

Current expenditures were redu-ced by 0,12 mil.eur and were projec-ted to amount 465,53 mil.eur.

All public expenditures are mostlyas planned, except for repayment ofoutstanding liabilities, which wasincreased by 12,5 mil euros, thanks tobetter collection of public source re-venues.



43

II BUDGET OF THE REPUBLIC OF MONTENEGRO

1. PLAN AND REALIZATION OF THE BUDGET OF THE REPUBLIC OF MONTENEGRO FOR THE PERIOD JANUARY-MAY 2006

Source revenues were realized to the amount of 195,4mil.eur, while total expenditures were executed to the amount of 208,8mil.eur. Current and capital expenditures with net loans and repayment of guarantees were executed to the amount of 217mil.eur, while59 mil.eur was disbursed by transfers to the Funds and local self-government. Budget spending is less than plan-ned by 13% in the period January-May 2006. Lower disbursements for salaries than planned are result of average duration of sa-lary disbursements of about 5 days, so realization of a part of the plan is transferred from current month into next month. Lo-wer realization of expenditures for material and capital expenditures is a result of a change in the dynamics of required spen-ding, being less than planned, which influenced allocation of certain amount of available funds for repayment of outstandingliabilities to the amount of 26,3 mil.eur.

Source revenues of the Republic Budget for the first five months 2006 were realized to the amount of 195,4 mil.eur or by11,5 % more than planned for the same period. Positive trends were particularly realized with respect to the following types ofrevenues:

• Corporate income tax, the realization of which is :- Higher by 33,8% as compared to the plan for the first five months 2006

• Value added tax, the realization of which is:- Higher by 30,7% as compared to the plan for the first five months 2006



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Expenditures of the Republic Budget for the period January-May 2006 were executed to the amount of 208,8 mil.eur, whichaccounts for 87 % of total planned expenditures for the said period. For current and capital expenditures with net loans, 217mil.eur was disbursed, while59 mil.eur was disbursed by transfers to the Funds and local self-government,.

Lower level of disbursements on account of planned expenditures for the first five months 2006 had no influence on incre-ase in outstanding liabilities, indicating that spending units, while planning monthly spending decided on a higher level ofspending in the first and second quarter 2006. Real lower level of spending, particularly with respect to capital expenditures, al-lowed repayment of credit and outstanding liabilities from previous years on account of less disbursed amounts for current andcapital expenditures

III PENSION AND DISABILITY INSURANCE FUND (PIO FUND)

From the PIO Fund, for the period January-May 2006, funds for pension disbursement were provided to the amount of62,50 mil.eur.

Pension amounts are adjusted from the semi-annual amount based on the statistic data on cost of living and average ear-nings of employees from the previous semi-annual period. Increase in number of pensioners is planned to decline in 2007,as a result of enforcement of a new Law on Pension and Disability Insurance, which can be seen based on data on average num-ber of pensioners in 2005 (93.033) and average number of pensioners for the period from January-May 2006 (92.159)

1. PLAN AND REALIZATION OF THE FUND PIO BUDGET

FOR THE PERIOD FROM JANUARY-MAY 2006

Current revenues of the Fund PIO were realized to the amount of 49,84 mil.eur and are lower than planned by 2,60 %. Tran-sfers from the Republic Budget were realized to the amount of 20,44 mil.eur and were executed 68,4 % as compared to the plan.

Total spending of the Fund PIO for the period January-May 2006 amounted 71,24 mil.eur, being less than planned by 11 %.Lower level of the Fund PIO spending is a result of lower execution of liabilities to the Pensioners Health Insurance Fund. Inthis period, surplus of the Fund PIO is planned to amount 4,00 mil eur. However, due to lower realization of transfers, it amo-unts 1,00 mil eur.

The Table below shows realization of the receipts and execution of the Fund PIO budget for the first five months 2006, inclu-ding deficit and financing:



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IV REPUBLIC HEALTH INSURANCE FUND (HIF)

1. PLAN AND REALIZATION OF THE HIF BUDGET FOR THE PERIOD JANUARY-MAY 2006

Current revenues of the Health Insurance Fund were realized to the amount of 38,45 mil. eur, which is by 18,75 % more thanplanned. Revenues from contributions amount 35,71 mil. eur and are higher than planned by 11,76 %, while received transfersamount 9,2 mil. eur, and are less than planned by 5,7 mil.eur. In the first five months, less than 3,52 mil.eur was transferred fromthe Republic Budget, and 5,7 mil.eur from the PIO Fund. From the Period January-May, the HIF realized a surplus to the amo-unt of 4,66 mil eur , increasing a deposit to 2,87 mil eur and net domestic debt repayment to the amount of 1,78 mil eur.



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V EMPLOYMENT AGENCY OF MONTENEGRO

1. PLAN AND REALIZATION OF THE EMPLOYMENT AGENCY BUDGET FOR THE PERIOD JANUARY-MAY 2006

Employment agency of Montenegro have realized current revenues to the amount of 5,95 mil. eur, which is by 30% morethan planned. Revenues from contributions amount 2,06 mil. eur and are less than planned by 6,5 %, other revenues amount2,36 mil.eur and are higher than planned by 2,4 mil.eur. Received transfers amount 2,32 mil. eur and are in line with the plan..



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Projected expenditures of the Agency for the period January - May amounted 6,16 mil.eur, and were executed to the amountof 11,03 mil.eur, which is by 4,84 mil.eur more than planned for the said period. Deficit was realized to the amount of 2,75 mil.eur,which was financed from the privatization receipts to the amount of 1,1mil.eur , while the deposit was reduced by 1,6 mil eur.

VI LOCAL SELF-GOVERNMENT

1. PLAN AND REALIZATION OF THE LOCAL SELF-GOVERNMENT BUDGET FOR THE PERIOD JANUARY-MAY 2006

Municipal revenues for the period January - May 2006 were projected to amount 39,72 mil.eur, out of which source revenuesaccount for 38,87 mil.eur, Republic Budget transfers amount 0,85mil.eur, and the revenues in this period were realized to theamount of 33,8 mil.eur.

Expenditures were projected to amount 39,2mil.eur, and were executed to the amount of 33,49 mil.eur. Realized deficit ofthe local self government for the period January-May amounts 0,29 mil. eur.

Bulletin - Ministarstvo finansija · neta Krivokapić - Senior advisor PROCEDURES IN THE TAX...

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