TIRANA, Jan. 18 – While businesses are not having approved the full tax amnesty they’ve been pushing for since almost one decade, they can still increase their capital under a 10 percent tax for money they had not previously declared. This was confirmed this week by Sybi Hida, a deputy of the ruling Democratic Party, who said that under the new Finance Ministry ordinance, businesses are given another opportunity to increase capital, which despite its advantages cannot be called a tax amnesty. The ordinance which has become effective after being published on the Official Gazette this month foresees that companies can legalize their undeclared money under a 10 percent profit tax. The changes to the profit tax were made last year in an effort to unfreeze new capital for the economy which was suffering from lack of liquidity.
Last year, Albania passed a law placing a 10 percent tax on any money that firms used to increase their capital, but had not previously declared.
“The law covers cases when owners, partners, shareholders increase the capital in their businesses. When this capital has not been earned through economic activities, then they will pay a 10 percent tax,” Finance Minister Ridvan Bode said earlier.
The tax will be applied to “monetary proceeds for the increase of capital coming from outside the company, which have not been previously taxed and which are not accompanied by official documents proving their origin.”
The report accompanying the law argued that the tax administration had come across cases when companies increased their capital without declaring its source.
Figures from the Institute of Statistics show the black economy accounts for 28 percent of GDP while international organizations put it at around 40 percent.
Failure to establish the administrative court system and implement a tax amnesty reform were the two big disappointments with Albanian politics for the Tirana Chamber of Commerce and Industry in 2010.
Tax amnesty
Finance Minister Ridvan Bode reiterated two months ago government’s stance in favour of carrying out the tax amnesty as a very positive measure for the country’s economy and financial system. However, he said the amnesty cannot be implemented without the opposition’s consent because the bill requires a qualified majority of 84 votes. According to Bode, the approval of the bill would first require the amendment of the country’s Criminal Code and that’s why government cannot implement the reform under a simple majority vote.
Bode said that the legalization of the informal business would produce positive results for the economy, unfreezing some USD $3 billion. The opposition and some experts are also skeptical of the reform the Albanian government wants to make, considering it an effort and good opportunity to collect money in a time of crisis.
The International Monetary Fund has warned that a tax amnesty should nevertheless be only considered as a last resort, as it threatens to undermine future tax compliance and the credibility of the tax system.
