Garment and footwear producers demand new incentives as exports drop

Tirana Times
By Tirana Times June 5, 2015 09:14

Story Highlights

  • Lower demand from Italy, Albania's top trading partner and the destination of around 85 percent of Albania's garment and footwear exports, had a major impact in the 2 percent decline in exports of this group in the first four months of this year

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The garment and footwear industry currently employs around 100,000 people in Albania. (Photo: Archive)

TIRANA, June 2 – The increase in the corporate income tax and electricity prices has had a negative impact on the garment and footwear industry, the country’s top exporter and one of the key employers, in the first months of this year.

Data published by the country’s state statistical institute, INSTAT, shows the positive effects of the package of incentives government approved in early 2014 have almost been exhausted and the industry is now struggling to maintain positive growth rates affected by new tax hikes on dividends and fuel and higher electricity and fuel prices.

The garment and footwear industry which has been the traditional top exporter since the early 1990s after Albania’s transition to a market economy and currently employs around 100,000 people, registered a slight decline in exports in the first four months of this year when exports dropped to 28.3 billion lek (€197.5 mln), down 2 percent compared to the same period last year.

Lower demand from Italy, Albania’s top trading partner and the destination of around 85 percent of Albania’s garment and footwear exports, had a major impact.

Flamur Hoxha, the owner of the country’s biggest garment companies, says the recent increases on corporate income and dividend taxes as well as the increase in electricity prices have increased labor costs by 15 to 20 percent.

However, Arben Peçi, the director of the Garment Chamber, has described the current situation as seasonal and expects a boost in demand from Italy.

In its recommendations to the 2016 fiscal package, the American Chamber of Commerce in Albania, representing the largest foreign community, has proposed new incentives to compensate the tax hikes for the garment and footwear industry, locally known as façon.

“It was thought that the façon industry would benefit from tax incentives but this did not happen, instead, some changes aggravating their situation took place. The increase in electricity prices has caused problems for this sector and we propose that VAT on electricity is reduced from a current 20 percent to 6 percent. Many other industries have also been affected by an increase in fuel prices and that’s why we propose a reduction in the circulation and carbon tax levied on fuel,” says the AmCham.

While key taxes such as the personal and corporate income taxes remain unchanged in 2015, defying businesses calls for a return to the flat tax regime after the corporate income tax was raised by 5 percent to 15 percent in 2014, the tax burden has further increase by raising the withholding tax on dividends and rents and capital gains to 15 percent, increasing the circulation tax on fuel and a hike in electricity prices.

Back in April 2014, the government finalized a package of facilitating measures on garment and footwear producers in an effort to give a boost to this sector which has been the traditional top Albanian exporter and one of the key employers in the past two decades despite negative impacts from the Eurozone crisis in the past few years. The move came after the corporate income tax was raised to 15 percent starting January 2014, sparking strong opposition by this business community, worried over losing competitiveness to regional peers applying 10 percent flat tax regimes.

The new package included a series of measures which offer garment and footwear producers, locally known as façon, state facilities for a symbolic rent of only one Euro, accelerate VAT refunds to 30 days, and lift of a series of customs barriers. Government claimed the extra 5 percent from corporate income tax will go back to garment and footwear producers in support policies to promoting employment in these enterprises by paying social security and health insurance contributions for new employees for a certain period.

Back in 2014, garment and footwear exports led the 2014 growth after rising by 24 percent to 86 billion lek (Euro 603 million), overcoming “minerals, fuels and electricity” with a slight difference. The latter dropped by 14 percent in 2014, losing their lead position.

Tirana Times
By Tirana Times June 5, 2015 09:14