THU, 13 SEP 2001 22:12:43 GMT
Montenegro's Government Fights the Grey Economy
The Goat and the Cabbage
Should a goat be left to guard the cabbage? This proverb immediately
brings to mind the latest campaign launched by the Montenegrin
government to curb the grey economy, a phenomenon which, according to
all indicators, has been sponsored by the state all along.
AIM Podgorica, Sept. 6, 2001
The grey economy has been one of Montenegro's chief problems for some
time now. Depending on whether they are official or unofficial,
estimates say that 40-60 percent of all business activities in
Montenegro take place in that zone. It is also assumed that one-third of
Montenegro's work force -- 70-100,000 people, make their living by
participating in some form of illegal activity.
This is why it came as no surprise that the public is paying a great
deal of attention to the government's efforts to deal with the grey
economy. This was also one of the first moves made by the new minority
government of Filip Vujanovic after being elected in mid July in the
wake of several weeks of negotiations between the Victory Is
Montenegro's coalition and the Liberal Alliance of Montenegro.
The first concrete step in the war on the black market was thus made at
the beginning of August. Owners of merchandise of unknown origin and
those who did not pay duties, taxes, or excise taxes on their goods, had
an opportunity to freely and anonymously declare what they had to the
Public Revenues Agency, and after paying certain fees, legalize the
goods. Almost 3,500 official and unofficial merchants used this chance
and declared goods worth DM20 million.
>From this, the republic budget received DM2.5 in unplanned revenues. As
expected, cigarettes (worth DM5 million) topped the list of smuggled
goods. It turned out, however, that only a part of the illegally
procured goods, stored across Montenegro and already on the market, have
been reported. During initial controls by finance and business police,
goods (mostly cigarettes) worth 1.3 million German marks had been
"Since Aug. 1, tax revenues have increased 31 percent compared to the
same period a month ago, and sales tax revenues went up as much as 47
percent," says Predrag Markovic, director of the Public Revenues Agency,
summing up the results of the government program. From that angle,
everything seems to be in perfect order.
On the ground, however, the effects are far from what was promised.
Those selling illegal merchandise, mostly alcoholic beverages and
cigarettes, are back on the job, after briefly withdrawing to safer
ground. The only noticeable change is that prices have gone up, both of
legally and illegally imported goods. Which is to say of everything that
is sold in local stores.
Imported cigarettes are the best example. When the government went
public with its program of curbing the grey economy, it was logically
assumed that the "tobacco business" would be the first to come under
fire. Calculations showed that the "tobacco tax" could become one of the
major sources of state revenues.
Some 200,000 packs of cigarettes are daily consumed in Montenegro. If
each were to yield one German mark in tax revenues, the state treasury
would get up to DM70 million annually. Instead, the government has for
years been content with getting only crumbs. The Montenegrin vice
premier and vice president of the Coordinating Team for curbing the grey
economy, Zarko Rakcevic, stresses that during the first six
months of 2001, the treasury received about DM6.5 million in tax on
cigarettes, while calculations showed than the sum should have been much
higher, according to Rakcevic, at least DM40 million.
The better portion of that sum went to the organizers of cigarette
smuggling. And it hasn't changed. Some 20 days after the first raids,
affecting mostly street vendors, the only thing the government has to
show for its effort is higher prices. Scared, the street sellers, the
last link in the long chain of those involved in the tobacco business,
raised prices enormously. The most popular brands -- Lucky Strike and
Pall Mall -- are 50 to 70 percent more expensive. Initially it was
believed that the price hikes were due to fear stirred up by the
government's action. The locked doors of warehouses in and around
Podgorica, where all sorts of cigarettes were freely sold for years,
also testified that the illegal trade was done with once and for all.
But with controls gradually laxing, it became clear that the state, or
someone on its behalf, had enabled the many participants in the illegal
trade to gain extra profit from the illegal cigarette trade.
"The objective of the campaign to curb the black market, what we
required that state bodies actually do, was not to 'attack' the street
vendors. The purpose was, and I personally insisted on that, to target
wholesalers, who are the reason why the state is not getting its due
share," says Rakcevic, adding that "the results have not been achieved."
"In other words, I am not satisfied with the quantity of confiscated
cigarettes," stresses the vice premier.
Meanwhile, the warehouses that had been systematically sealed reopened.
Only the manner of "doing business" changed. According to well-informed
sources, the trade cigarette trade now operates as follows: a "trusted"
buyer delivers money and a "specification of goods" to the supplier. The
goods are delivered later (often during the night), and to an address
specified by the buyer.
Once the excise tax stamps appear, the order will be given for swift
action against all those selling illegally procured cigarettes. That
includes street vendors, said Rakcevic.
Until then, small distributors will be hardest hit by the government
offensive. On the other hand, big distributors seem to have been granted
a grace period in which they could freely sell their undeclared goods
worth, according to some estimates, DM15 million. And enough time to
switch to other, legal business.
Meanwhile, all those willing to legally sell goods goods subject to
excise tax are waiting for the government to specify a tax rate and
"settle the stamp-printing problem." Will this be enough to do away with
the consequences of 11 years of business anarchy?