Gov’t okays lower corporate income tax, incentives on agribusiness in pre-election package

Tirana Times
By Tirana Times June 21, 2018 17:45

Gov’t okays lower corporate income tax, incentives on agribusiness in pre-election package

Story Highlights

  • Some 10,000 businesses currently paying a 15 percent rate are expected to pay a reduced 5 percent corporate income tax as the turnover threshold for the new 5 percent profit rate increases to 14 million lek (€110,000), up from a previous 8 million lek (€ 63,000)

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TIRANA, June 21 – The Albanian government approved lower corporate income tax and incentives on agribusinesses this week as part of a mid-year fiscal package in changes that are not expected to become effective before next January ahead of the upcoming mid-2019 local elections.

The major change is related to the two-tier 5 and 15 percent profit tax that Albania currently applies with the hike in the turnover threshold benefiting thousands of businesses who starting next year will pay less.

Some 10,000 businesses currently paying a 15 percent profit rate are expected to pay a reduced 5 percent corporate income tax as the turnover threshold for the new 5 percent profit rate increases to an annual 14 million lek (€110,000), up from a previous 8 million lek (€ 63,000). The beneficiary businesses currently report annual turnover between 8 million to 14 million lek and pay a 15 percent tax rate.  Meanwhile, small businesses with an annual turnover of up to 5 million lek (€40,000) will continue remaining stripped of the profit tax.

Businesses with an annual turnover of more than 8 million lek (€63,000) will also continue to pay a 15 percent corporate income tax.

The changes to the profit tax are aimed at curbing tax evasion among businesses reporting lower than real turnover in order to avoid paying the 15 percent rate and pay a reduced 5 percent rate or pay no profit tax at all by not issuing tax receipts.

Finance ministry officials say the changes to the corporate income tax will have a modest 400 million lek (€3.1 million) negative effect on next year’s budget, hopeful that lower informality will offset the gap.

The new incentive which favors medium-sized companies currently paying a 15 percent corporate income rate, comes after the tax burden on about a dozen thousand small businesses nationwide has sharply increased after their inclusion in the VAT system.

Some 10,000 small businesses have been included in the VAT system starting April this year after the turnover threshold was lowered to 2 million lek (about €15,000), down from a previous 5 million lek (€39,000), sparking nationwide protests by small businesses, already facing tough times amid tighter competition by supermarket chains and shopping centers.

The emerging agritourism sector is also set to benefit from several tax incentives, including a 5 percent corporate income tax, a reduced 6 percent VAT and exemption from the infrastructure tax on investment.

Businesses engaged in agritourism will also benefit a reduced 5 percent corporate income tax for a 10-year period in case they get the status of ‘certified agritourism operator’ until late 2021.

The incentives are aimed at giving a boost to agro-tourism, currently in its initial steps in Albania with few restaurants, wineries, bee and fruit farms offering tourists authentic local products.

The mid-year fiscal package also includes exemptions from the 20 percent VAT on imports of equipment to build solar power plants in a bid to diversify domestic electricity generation, currently wholly hydro-dependent and putting it at risk of adverse weather conditions such as last year’s prolonged drought.

The Albanian government has recently offered tax incentives for luxury hotels and resorts for investment between €8 million to €15 million in new accommodation units to handle rising demand by foreign tourists and develop elite tourism in addition to rapidly growing mass tourism.

The proposed legal changes which could undergo further review before their final approval by Parliament come at a time when the International Monetary Fund has warned the Albanian government it will have to increase current tax rates and offer no exemptions in case it wants to go on with its fiscal consolidation efforts and reduce public debt, currently at about 70 percent of the GDP, a high level for Albania’s stage of development.

The tax incentives are set to become effective next January only six months ahead of the upcoming June 2019 local elections when the ruling Socialists target preserving the big municipalities they currently run.

The high tax burden, high levels of informality as well as corruption and an inefficient judiciary are the main barriers facing local and foreign companies in Albania who also complain of frequent tax changes making the country’s tax system unpredictable.

Tirana Times
By Tirana Times June 21, 2018 17:45