On 5 October 2026, the Government of North Macedonia unveiled plans for a comprehensive budget revision to address a widening fiscal deficit estimated at 7-8 billion denars (approximately €113-129 million). The shortfall stems primarily from two tax policy decisions: a reduction in excise duties on diesel fuel and a lowered value-added tax (VAT) rate on fuel products. Prime Minister Hristijan Mickoski, in a press conference on 5 October, disclosed that the excise duty cut alone would cost the budget roughly 5 billion denars, while the VAT reduction would add further pressure. The revision, which must be adopted by the Parliament by the end of October 2026, amends the 2026 Budget Law (Official Gazette No. 2026/45), the Excise Duty Law (Official Gazette No. 2019/12, as amended), and the VAT Law (Official Gazette No. 2019/18, as amended). The move comes amid surging global energy prices, with Brent crude climbing above $85 per barrel, and domestic inflation running at 6.2% year-on-year as of September 2026. The government argues that the tax cuts are necessary to shield households and the transport sector from excessive price increases, while critics warn of risks to the country’s IMF-backed Precautionary and Liquidity Line (PLL) arrangement, which targets a general government deficit of 3.5% of GDP for 2026. The Ministry of Finance has indicated that the excise reduction will be implemented via a government decree effective from the second week of October, while the VAT rate change requires parliamentary approval due to its impact on the VAT Law’s rate structure. Both measures are framed as temporary, with a sunset clause linked to global oil price benchmarks.
Key Takeaways
- Excise Duty Reduction on Diesel: The government will lower the excise duty on diesel by an estimated 3-4 denars per liter, effective from the second week of October 2026. This measure is projected to reduce excise revenue by 5 billion denars annually, based on current consumption of approximately 1.2 billion liters per year. The Ministry of Finance estimates that the price elasticity of diesel demand could partially offset the revenue loss through a 5-7% increase in consumption, but the net fiscal impact remains negative in the short term. Fuel retailers must update their excise reporting systems by the effective date to apply the new rate, and the Customs Administration will monitor compliance at wholesale depots.
- Temporary Reduced VAT Rate on Fuel: In a parallel measure, the VAT rate on diesel (and possibly gasoline) will be cut from the standard 18% to a reduced 10% for a period of six months, subject to parliamentary approval. This reduction is expected to lower pump prices by an additional 4-5 denars per liter, providing immediate relief to consumers and the logistics sector. However, the VAT loss is estimated at 2-3 billion denars over the six-month period, exacerbating the budget gap. The government has signaled that the reduced rate may be extended if global oil prices remain elevated. Businesses in the fuel supply chain must adjust their invoicing and VAT return preparations to reflect the new rate, and the Public Revenue Office will issue detailed guidance on transitional rules for stocks held at the date of change.
- Offsetting Measures and Fiscal Risks: To contain the deficit within the IMF program ceiling, the budget revision includes expenditure cuts of 4 billion denars, primarily through a freeze on non-essential capital spending and a hiring freeze in the public administration. Revenue-side measures include accelerated collection of tax arrears and a one-off solidarity surcharge on high-income earners (income above 60,000 denars monthly). The IMF mission, scheduled to visit Skopje in November 2026, will assess whether these measures are sufficient to keep the deficit target credible. Failure to meet the target could jeopardize the PLL arrangement and affect the country’s sovereign credit rating, currently at BB- by S&P. Multinational companies operating in North Macedonia should monitor the parliamentary debate for potential amendments to the corporate income tax regime, as the government may seek additional revenue sources.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement