TIRANA, Oct 24usinesses with an annual turnover of 5 million Lek (36000 euro) or above will be classified as Big businesses. The decision was made by the Ministry of Finance after the request from the Tax Authority to lower the turnover threshold regarding payment of the value added tax (VAT) by businesses. The new decision will increase by many times the number of businesses that will qualify to pay VAT. As a result, government’s budget revenues will also increase.
Almost a month ago, the Albanian Tax Authority proposed to the Ministry of Finance to lower the threshold, currently set at 8 million Lek (58000 euro). The Tax Authority proposal was to set the new threshold at just 4 million Lek, therefore slashing it by half.
After much debate, the Ministry decided to set the new threshold at 5 million Lek, which is still a significant change in the classification of big businesses.
Fiscal evasion
The Tax Authority has investigated for a long time businesses in Albania concluding that a considerable number of companies cooked books to declare an overturn lower than the 8 million Lek threshold. According to the investigation report they were found to have a higher turnover than 8 million Lek per year, but they were declaring a lower turnover. Differences between real turnovers and declared ones moved around 2-3 million Lek. According to the Ministry of Finance, the new classification threshold will be a good measure to stop business from reporting cooked balance sheets, distribute the fiscal burden among more business in Albania, and improve competitiveness in the market.
In need of revenues
What ever the reason behind the new threshold, it is clear the government will greatly benefit in revenues from the current measure which will enter in force beginning January 1, 2010. Announcing the budget-draft for 2010, the government has forecasted an increase in budget revenues by 15%. Chances are a good part of the increased revenues will be provided from new additions in the big business classification. Government spending in Jan-Aug 2009 has increased by 24% compared to the same period last year. Meanwhile, budget revenues have only increased by 6% during the period.
Given the current rate of spending, which the government is adamant to continue in 2010, desperate measures are needed to increase revenues. With the biggest chunk of state companies already privatized, the only real source to boost revenues are to increase taxes on businesses, and the lowering of the big business classification threshold means exactly that.
