VAT reform took 13,000 businesses to bankruptcy, association says

Tirana Times
By Tirana Times September 26, 2018 17:31

VAT reform took 13,000 businesses to bankruptcy, association says

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  • "Some 13,000 businesses have closed down from January to July 30, around 2,500 more compared to the same period in 2017. We had strongly warned that the VAT system would increase costs for businesses and that has already happened," says Albert Nasto, the head of the small and medium-sized business association

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TIRANA, Sept. 26 – Albania business representatives say more than a dozen thousand businesses have gone bankrupt this year following legal changes increasing the tax burden and more are about to close down amid an unaffordable increase in costs, bureaucracy and alleged corruption.

The warning is issued by Albert Nasto, the head of the small and medium-sized business association that strongly opposed an increase in the tax burden for some 11,000 small businesses which were automatically included in the 20 percent VAT system earlier this year after the annual turnover threshold was lowered, unsuccessfully staging a series of nationwide protests by downing shutters.

“Some 13,000 businesses have closed down from January to July 30, around 2,500 more compared to the same period in 2017. We had strongly warned that the VAT system would increase costs for businesses and that has already happened. Some 90 percent of businesses hire accountants to handle VAT filing and that costs them 8,000 lek (€63) to 30,000 lek (€236) a month,” Albert Nasto, the association’s head, told reporters this week.

The annual turnover threshold for a business to be included in the 20 percent VAT system was more than halved to 2 million lek (about €15,700) last April, triggering protests by some 10,000 business owners who warned of bankruptcy over a hike in tax burden and tougher competition from shopping chains and supermarkets already in the VAT chain as well as a decline in the purchasing power.

The small and medium-sized business association also warns the new VAT system has led to a hike in tax evasion and failed to produce higher government revenue and that more newly included VAT businesses will close down by early 2019 after their fourth quarterly reports with tax authorities in April 2019.

“The state budget has suffered a 9 percent decline in revenue and that means this reform is a complete failure. Prices have also increased from 4 percent to 32 percent,” said Nasto, attributing the situation to a hike in tax evasion as both big and small businesses commonly avoid issuing tax receipts.

Earlier this month, business representatives warned the lower value added tax threshold that the Albanian government introduced this year in a bid to formalize the market has increased tax evasion among small businesses and created problems for big companies amid growing refusal by vendors to accept VAT receipts for their supplies.

Local milk processors, egg and beer producers say small businesses commonly refuse supplies accompanied by tax receipts in order to avoid switching to the VAT system, something which has damaged them and favored competitor suppliers trading products informally.

VAT, which is levied at a fixed 20 percent rate on almost all products and services, accounts for about a third of total tax revenue, but only about 1 percent of it is collected from small business transactions with many economists and even international financial institutions questioning the government’s latest reform affecting family-run small businesses.

Official finance ministry data shows the legal changes lowering the VAT threshold were not reflected on higher government revenue during the first seven months of this year after small businesses filed their first quarterly VAT statements last July.

Data published by Albania’s tax administration also shows the number of businesses shifting to passive status in the first nine months of this year rose to about 11,200, a 60 percent hike compared to the same period last year.

As a rule, businesses switch to the passive register in case of not operating or not submitting tax statements for 12 months or declaring the suspension of commercial operation with the National Business Center for a period of more than 1 year or indefinitely.

A new real time e-system that Albania’s tax administration is planning to apply on cash registers has also worried Albania’s business community over potential extra costs despite assurances by authorities that the upgrade of the billing system will have no costs for them.

 

 New tax incentives

While the Albanian government has not unveiled its 2019 fiscal package yet, local media have unveiled the government is considering a cut in the dividend tax, currently at 15 percent, following requests by foreign business associations.

Earlier this year, representatives of the American Chamber of Commerce in Albania, asked authorities to revise down the dividend tax as a measure that would provide a positive effect on boosting investment and create more favorable treatment for employees.

Since 2014 after Albania abandoned its 10 percent flat tax, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in country one of the region’s highest and a key concern for the business community in the country.

In a U-turn, last June the Albanian government approved lower corporate income tax and incentives on agribusinesses 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.

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 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.

Higher taxes compared to regional competitors, corruption, high levels of informality and unfair competition as well as an inefficient judiciary are the main concerns for foreign and Albanian investors in the country, according to surveys.

 

 

 

Tirana Times
By Tirana Times September 26, 2018 17:31