Small Businesses Avoiding New VAT Threshold

TIRANA, March 21, – The Albanian Confederation of Industries, Konfindustria, has called on government to work harder to stop small businesses from avoiding the value added tax (VAT) scheme, warning that many businesses were intentionally declaring bankruptcy and being registered under a new name. The phenomenon has been observed since January this year when the new VAT threshold for small businesses entered into force decreasing from 8 million lek of annual turnover to 5 million lek.
“Current Konfindustria data show we are facing a phenomenon of self-closure and intentionally going bankrupt by thousands of small businesses nationwide in order to continue working as new ‘small business’ subjects not previously controlled by tax institutions under the new threshold of 5 million lek,” said Konfindustria’s administrator Gjergj Buxhuku.
Konfindustria says this also is leading to tax evasion because small businesses are not intentionally issuing tax receipts to stay below the new threshold of 5 million lek, causing a tax evasion of 3 million lek of receipts annually.
According to Konfindustria, the decrease in the VAT threshold risks increasing not only tax evasion, but also corruption by tax institutions. The tax evasion will also considerably influence local government revenues.
Last year, some business organizations, especially the owners of supermarket networks, lobbied government to lower the VAT threshold for small businesses claiming that groceries were unfairly competing with them because of not paying the VAT on the final price.
The new VAT threshold is also creating problems for businesses in Tirana. This was confirmed by the Tax Director in the Municipality of Tirana, Belinda Ikonomi, in a meeting held on Tuesday with the American Chamber of Commerce.
Ikonomi warned that a considerable number of businesses had closed down their activities to reopen new ones only to escape the new VAT threshold of Lek 5 million.
“Some 38 percent of businesses which submitted the self-declaration of revenues in 2009 have submitted a lower revenue than in 2008 and this is a negative signal for the budget plan of the Municipality of Tirana,” said Ikonomi.
A circular issued by the General Tax Directorate obliges all businesses which submitted balance sheets declaring an annual turnover of over 5 million Lek in 2008 to be automatically included in the VAT scheme this year.
Meanwhile, operative data by the National Registration Center show 3,600 businesses have filed requests to deregister.