1 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 16– Taxation Bilateral screening: Chapter 16 PRESENTATION OF MONTENEGRO Brussels, 30 April 2013

INDIRECT TAXATION - EXCISE DUTIES Ministry of Finance Bajčeta Ružica Petričević Jovica TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

LEGISLATIVE FRAMEWORK  Excise system is regulated by: Law on Excise Tax; Decree on marking tobacco produces and alcoholic beverages with control excise stamps; Decree on the manner and procedure for determining the most popular price of cigarettes; Rulebook on implementation of the Law on Excise Tax; Rulebook on the manner and conditions for refund of the excise tax on mineral oils used as propellants for agricultural and forestry machinery; Rulebook on determining the amount of the most popular price of cigarettes; Rulebook on the manner of exercising rights to exemption from payment of excise and value added tax for diplomatic and consular representative offices and international organisations; Rulebook on procedures for dyeing and marking mineral oils used as heating fuel; Rulebook on detailed procedure for export of tobacco products. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

TAX CASE (Article 1 of the Law)  Excise tax shall be payable for excise goods produced on the territory of Montenegro and excise goods imported in Montenegro for the following products: – Alcohol and alcoholic beverages; – Tobacco products; – Mineral oils, their derivatives and substitutes.  As of 1 April 2012, following items were introduced in the excise system in Montenegro: – Coffee, and – Carbonated water. The Law provides equal tax treatment for domestic and import excise goods. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

BASIC CONCEPTS (Article 4 of the Law) Excise taxpayer; Excise license; Excise warehouse; Deferred excise payment regime; Exempt excise goods user. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCISE TAXPAYER (Article 17 of the Law) Excise taxpayer is the producer or importer of excise products. Excise tax liability may be transferred from the producer or importer to excise license holder, or exempted excise user. The excise taxpayer is also a natural person – producer of alcoholic beverages in excess of quantities allowed for personal use, if such alcohol beverages are released into circulation (sale). The person that produces, imports, transports or in any other manner releases excise goods into circulation contrary to the provisions of this Law. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

INCEPTION OF EXCISE TAX LIABILITY (Article 2 of the Law)  Excise tax liability shall be incepted when: – Excise goods are produced in Montenegro; – Excise goods are imported into Montenegro. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCISE LICENCE (Article 4 of the Law) “Excise licence” is a document issued by the tax authority to a legal or natural person allowing such person to produce, store, receive or dispatch excise goods under the deferred excise tax payment regime, within the business activities carried out in excise warehouse. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCISE WAREHOUSE (Articles of the Law) Excise warehouse is one or several mutually connected, fenced off areas or premises that constitute a technological whole, where an excise license-holder produces, stores, receives or dispatches goods under the deferred excise tax payment regime, and which must be visibly marked and physically separated from other areas or premises. To ensure the fulfilment of the liability of payment of excise tax, excise license-holder must submit a guarantee instrument for payment of the excise tax to the tax authority in accordance with Law on Excise Tax. The value of the excise tax payment guarantee instrument must correspond to the amount of the excise tax chargeable for excise goods to which the excise license relate. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

DEFERRED EXCISE PAYMENT REGIME (Articles 6-11 of the Law)  Excise tax payment may be deferred if: – excise goods are produced or stored in an excise warehouse; – excise goods are stored in the facility of an exempt excise goods user.  Payment of excise tax on imported excise goods may be deferred, if, immediately upon the entry of such goods into Montenegro, their storage was allowed or if any of the following was initiated: their customs transit procedure, customs warehousing procedure, importation with an aim of exportation under the deferred excise tax payment regime, processing under customs supervision or temporary importation, or if such goods are brought into a duty-free zone.  In case the imported excise goods were released into circulation in accordance with customs regulations, payment of the excise tax may be deferred, if such goods were placed in an excise warehouse or facility of an exempt excise goods user immediately upon being released for consumption. “ Deferred excise payment regime is an institute related to production, storage and movement of excise goods, on the basis of which the liability of excise tax payment is postponed”. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

TERMINATION OF THE DEFERRED EXCISE TAX PAYMENT REGIME (Article 11 of the Law)  The deferred excise tax payment regime shall terminate when: – the excise tax becomes payable, – the excise license-holder, exempt excise goods user or importer are exempted from excise tax liability. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXEMPT EXCISE GOODS USER (Articles of the Law) Exempt excise goods user is a natural or legal person that, under the conditions laid down by this Law, is issued with the excise license by the tax authority allowing such person to procure excise goods without having to pay excise tax, while performing activities for the purposes specified in Articles 44 and 54 of this Law. Exempt excise goods user may procure excise goods without paying the excise tax only if issued the relevant license by the tax authority. The tax authority shall determine on site whether the requirements for issuance of the license are met. Exempt excise goods user shall be obliged to keep records on the purchase, movement and consumption of excise goods according to type, quantity and value. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

OCCURRENCE OF LIABILITY TO ACCOUNT FOR AND PAY EXCISE TAX (Articles of the Law)  For producer: at the moment when excise goods are released into free circulation..  On import: the liability for payment of excise tax on import of excise goods shall occur at the moment of payment of import duties, except for the cases when the payment of the excise tax is deferred in accordance with Law. The release into free circulation shall be considered to be: -any dispatch of excise goods from an excise warehouse or exempt excise goods user’s facility, except if the excise goods are dispatched: to another excise warehouse or other exempt excise goods user’s facility, to a customs bonded warehouse, to a free zone, under the customs transit procedure or for export, and - any dispatch from the production facility of an excise taxpayer that is not an excise license-holder. The release into free circulation shall be considered to be: -any dispatch of excise goods from an excise warehouse or exempt excise goods user’s facility, except if the excise goods are dispatched: to another excise warehouse or other exempt excise goods user’s facility, to a customs bonded warehouse, to a free zone, under the customs transit procedure or for export, and - any dispatch from the production facility of an excise taxpayer that is not an excise license-holder. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

ACCOUNTING FOR AND PAYMENT OF EXCISE (Articles of the Law) Excise taxpayer shall calculate the excise tax by him/herself. Excise tax is calculated on monthly basis and such calculation is submitted on the corresponding tax return to the tax authority by 15 th day of the current month for the previous, while the excise liability is paid within the same time frame. The liability to account for excise tax for cigarettes shall occur on the day of takeover of control excise stamps. Excise tax on cigarettes is paid on 60 th day from the day of takeover of control excise stamps (this refers to domestic and imported cigarettes). TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCISE TAX REFUND (Article 30 of the Law)  The following shall have the right to excise tax refund: excise license-holder that procured excise goods at the price with the excise tax included and used such goods in the excise warehouse for the production of excise goods; importer that is returning imported goods abroad in the unchanged condition, and that paid the excise tax for such goods on their import; exporter exporting excise goods for which the excise tax was paid; entity that procured excise goods at the price with the excise tax included or the excise tax for such goods is paid on import, and the excise goods are used for the purposes defined in Articles 44 and 54 of the Law. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

REFUND A PART OF PAID EXCISE TAX (Articles 29a-29b of the Rulebook on implementation of the Law on Excise Tax)  Right to refund a part of paid excise tax exercised:  At the event of procurement of gas oils (euro-diesel) used for industrial and commercial purposes;  At the event of procurement of mineral oils used as propellants for agricultural and forestry machinery (including tractors);  At the event of procurement of gas oils used for heating.  Detailed procedure and the manner of returning a part of the excise tax are prescribed by the Rulebook on implementation of the Law on Excise Taxes and by the Rulebook on the manner and conditions for refund of the excise tax on mineral oils used as propellants for agricultural and forestry machinery. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCISE TAX EXEMPTIONS (Article 31 of the Law)  Excise tax shall not be paid for the following excise goods: for the official needs of diplomatic and consular missions accredited in Montenegro; for the official needs of international organisations, if this is established by international agreements; for the personal needs of foreign staff members of diplomatic and consular missions accredited in Montenegro, including their family members; for the personal needs of foreign staff members of international organisations, including their family members, if this is established by international agreements.  Details on the right to these exemptions is prescribed by the Rulebook on the manner of exercising rights to exemption from payment of excise and value added tax for diplomatic and consular representative offices and international organisations. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

OTHER EXEMPTIONS FROM EXCISE TAX PAYMENT (Article 32 of the Law)  Excise tax shall not be paid for excise goods: that are sold on ships and aircrafts on international traffic routes; that a passenger may bring in from abroad as a part of his/her personal luggage, and they are exempted from payment of import duty in accordance with customs regulations; mineral oils, mineral oil derivatives and substitutes in the standard reservoirs of motor vehicles, watercrafts or aircrafts incoming from abroad and are not intended for further sale and are exempted from import duties in accordance with customs regulations; which are dispatched from customs bonded warehouses to duty free shops opened at international border crossings with customs and passport control provided, for sale to passengers in accordance with customs regulations. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Travellers Allowances (Article 32 of the Law on Excise Tax, Article 28 of the Law on Value Added Tax and Article 184 of the Customs Law)  Goods brought from abroad by a traveller in personal luggage exempted from payment of import duties in line with the customs regulations;  Goods in personal luggage of travellers, intended for personal use during travel and imported for non-commercial purposes. Goods imported for non-commercial purposes are goods: -imported by travellers for a specific event, of negligible value and in small quantities; -only for personal use of travellers or families thereof or goods intended for presents, and the type and quantity of such goods must not be such to indicate that is imported for commercial purposes. Portable vessel containing fuel is not considered personal luggage. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Travellers Allowances Articles 9-11 of the Decree on the manner of exercising the right to relief from the customs duty payment  Goods brought in by traveller in his/her personal luggage from abroad and not intended for further sale (non-commercial character), and so as follows: Tobacco products: 200 cigarettes, or 100 cigarillos (cigar max weight of 3 gram per unit), or 50 cigars, or 250 grams of smoking tobacco, or proportional quantity of various listed tobacco products; Alcohol and alcoholic beverages: 2 litres of wine and 1 litre of spirit; Perfumes: 50 g, or eau de toilette: 0.25 litres. Travellers under 17 years of age are not entitled to listed exemptions.  Articles imported by nationals and foreign citizens with residence in Montenegro up to a total value of 150 euro. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCISE GOODS I.Alcohol and alcoholic beverages; II.Tobacco products; III.Mineral oils, their derivatives and substitutes; IV.Coffee; V.Carbonated water. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

ALCOHOL AND ALCOHOLIC BEVERAGES (Articles of the Law)  Alcohol and alcoholic beverages that are subject to excise tax are: -beer, -wine, -other fermented drinks, -intermediate alcohol beverages and -ethyl alcohol.  Type of alcohol or alcohol beverages referred to shall be determined in accordance with the: classification of these products and their Tariff codes or codes contained in the nomenclature of the Customs Tariff (CT), and depending on the content of alcohol in such products. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

AMOUNT OF EXCISE PAID ON ALCOHOL AND ALCOHOLIC BEVERAGES (Article 43 of the Law) BeerEUR 5.00 per content of alcohol by volume per hectolitre of beer  Wine: still wine sparkling wine EUR 0 (null) per hectolitre of still wine EUR 35 per hectolitre of sparkling wine  Other fermented beverages: other non-sparkling fermented beverages, other sparkling fermented beverages EUR 0 (null) per hectolitre of other non-sparkling fermented beverages EUR 35 per hectolitre of other sparkling fermented beverages intermediate alcohol beveragesEUR 100 per hectolitre of intermediate alcohol beverages ethyl - alcohol.EUR 650 per hectolitre of pure alcohol TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

USAGE OF ETHYL ALCOHOL FOR EXCISE EXEMPTED PURPOSES (Article 44 of the Law)  The ethyl alcohol covered by the Tariff code CN shall be excise tax exempted if used as a raw material in the following: production of fermented products; production of vinegar covered by the Tariff code CN 22.09; production of food items provided that the alcohol content in chocolate goods covered by the Tariff code CN does not exceed 8.5 litres of pure alcohol per 100 kilograms of goods, or for other food items - 5 litres of pure alcohol per 100 kilograms of goods; manufacturing of chemical and cosmetics goods. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

II TOBACCO PRODUCTS (Articles 46-50a of the Law)  Tobacco products subject to payment of excise tax are: cigarettes, cigars and cigarillos, fine cut smoking tobacco (hand rolling tobacco), and other smoking tobacco. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCISE TAX ON CIGARETTES  The excise tax for cigarettes shall be paid as:  The retail price of cigarettes shall be the price determined by the producer or importer, which includes the excise tax and value added tax.  Minimum amount of excise tax referred shall be 110% of the total amount of excise tax (specific and ad valorem) determined for the category of cigarettes with most popular price (most popular price category). Specific excise tax, determined as an amount for 1,000 pieces, and Ad valorem excise tax, determined as a percentage of retail price of cigarettes (MPPC). Specific excise tax, determined as an amount for 1,000 pieces, and Ad valorem excise tax, determined as a percentage of retail price of cigarettes (MPPC). TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Example of calculation of a minimum excise tax in Montenegro for 2013 Example of calculation of the excise on cigarettes (pack of 20 cigarettes): (most popular price category of cigarettes in 2012 was EUR 1.20) Acquisition price of the pack EUR Excise - specific: EUR 0.30 /1000pcs - ad valorem: EUR 0.43 (36% of MPCC) = Total exciseEUR 0.73 (60% of MPCC) Price (VAT excluded)EUR VAT(14.53 % of MPCC) = EUR 0.17 Total retail prices: EUR 1.20 Minimum excise 0.73x110 = EUR TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Comparison of the excise on cigarettes level with the Directive 2011/64/EU CriteriaMontenegroEU Tax burden in MPCC (excise + VAT)75% - Total excise for the most popular price category 60% of MPCC, Or EUR 36.5/1000 pcs 57% of the weighted average retail price of cigarettes (WAP), or EUR 64/1000 pcs Share of specific excise in the total tax burden 33% 5%-76.5% TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

REVENUES FROM EXCISE TAXES ON CIGARETTES Mill € TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

HARMONIZATION THE RATE OF EXCISE DUTY ON CIGARETTES specific and ad valorem TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Overview of the excise on other tobacco products Cigars and cigarillosEUR 25 / kg Fine cut tobaccoEUR 40 / kg Other smoking tobaccoEUR 25 / kg TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

EXCISE GOODS MARKING (Article 57 of the Law)  Producer or importer shall be obliged to mark tobacco products and alcohol beverages, with the exception of beer and still wine, with control excise stamps prior to releasing them for use or into free circulation.  Exported tobacco products and alcohol beverages shall be marked with special export stamps, if foreign supplier does not provide excise tax stamps for them.  Tobacco products and bottled alcohol beverages sold in duty free shops must be marked with special stamps.  Tax Administration, at request of importer or producer of tobacco goods and alcohol beverages, issues excise stamps. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

MINERAL OILS, THEIR DERIVATES AND SUBSTITUTES (Articles of the Law)  The type of mineral oils referred to shall be determined in accordance with the classification of these products in the Customs Tariff, or based on the features of specific goods.  Mineral oils shall include petroleum oil, coal tar and oil obtained from coal shale, peat or other bituminous substances, but not including such hydrocarbons or bituminous substances that are: in solid or semi-solid state at the temperature of 15°C; or in gaseous state at the temperature of 15°C and under the pressure of millibar.  For the purposes of Law on Excise Tax, mineral oils shall also imply: any product sold or used as engine fuel, additives or extenders added to engine fuels, any other hydrocarbon produced from the crude oil, and which is sold or used as heating fuel except for black coal, lignite, peat or biomass. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

TYPE AND AMOUNT OF EXCISE TAX ON MINERAL OILS, THEIR DERIVATES AND SUBSTITUTES The type mineral oilsAmount of excise tax Leaded petrolEUR 464 on 1,000 litres Unleaded petrolEUR 459 on 1,000 litres Kerosene used: - as motor fuel -- for heating EUR 156 on 1,000 litres; EUR 89.7 on 1,000 litres Gas oils used: - as motor fuel; - as motor fuel for industrial and commercial purposes; - for heating EUR 350 on 1,000 litres EUR 169 on 1,000 litres EUR 117 on 1,000 litres Fuel oil EUR 19.5 on 1,000 kilograms Liquid petroleum gas used: - as motor fuel; - as motor fuel for industrial and commercial purposes; - for heating EUR on 1,000 kilograms EUR 58.5 on 1,000 kilograms EUR 26 on 1,000 kilograms TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

MINERAL OILS MARKING (Article 55 of the Law)  Mineral oils that are used as heating fuel must be marked with the prescribed colour and indicator.  Marking of the mineral oils may be carried out only in the excise warehouse that is issued the marking license by the tax authority.  If mineral oils are not marked in the excise warehouse, such oils shall be considered as not marked.  Rulebook on the procedure for dyeing and marking mineral oils used as heating fuel stipulates the procedure of dyeing and marking of mineral oils used for heating (gas oils and kerosene). TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Coffee (Articles 56a and 56b of the Law)  Coffee subject to the excise payment is: -Roasted coffee and green coffee with or without caffeine, -Extracts, essences and concentrates of coffee, and -Other coffee-based products. Excise tax base and excise tax amount  The excise tax base for calculation of the excise tax on import of the coffee consists of the value of the product established in line with the customs regulations plus the amount of the customs duty and other import duties.  The excise tax on coffee is paid at the rate of 20% on the value set by the Customs Administration. Note: Excise tax level for coffee is the same for all types of coffee stipulated by the Law, meaning that an equal tax treatment for all types of coffee is enabled. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

Types of coffee subject to the excise payment Tariff CodeCoffee Coffee, not-roasted with caffeine Coffee, not-roasted without caffeine Coffee, roasted with caffeine Coffee, roasted without caffeine Coffee substitutes that contain coffee Coffee extracts, essences and concentrates Preparations with a basis of extracts, essences or concentrates or with a basis of coffee TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

CARBONATED WATER (Articles 56c-56d of the Law)  Carbonated water subject to the excise tax payment shall be such carbonated water with added sugar or other sweeteners or aromatisation agents. Excise tax base and amount of the excise tax  The excise tax base for carbonated water shall be the quantity of the excise products expressed in hectolitres.  The excise tax shall be paid in the amount of 10 euro per hectolitre of carbonated water. TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

F U T U R E S T E P S  Continued harmonisation the rate of excise duty on cigarettes with the Directive 2011/64/EU;  Continued harmonisation with the Directive 2003/96/EC with respect to the scope of products that are subject to taxation (including coal and coke, natural gas and electricity);  Harmonisation with the Directive 2008/118 related to Excise Movement and Control System (EMCS). TAXATION Chapter 16: M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 16: Taxation

40 Contacts: - Ružica Bajčeta - Jovica Petričević

41 Thank you for your attention! QUESTIONS