The crisis-hit garment and footwear industry will have VAT on machinery imports lifted for any kind of purchase
TIRANA, Oct. 29 – Government has introduced a new fiscal package that lowers the tax burden for importing industries and strengthens measures to fight tax evasion. In a meeting of the Business Consultative Council held last weekend, government representatives unveiled the new measures which lift excise tax on unroasted coffee, and remove VAT on imports of machinery and equipment as well as cement and steel for construction of hydropower plants. Government also proposes an increase by five times in the fines imposed to employers who do not pay insurance to their employees. Another stricter measure, includes the introduction of a 30 percent fee on timber exports in an effort to prevent wood cutting.
“The goal of this initiative is to improve the business climate, increase competitiveness among producers, promote new investments and employment among Albanians,” said Economy Minister Edmond Haxhinasto.
The Finance Ministry proposes that the 20 percent VAT on imported machinery and equipment will be lifted only for investments of Lek 50 mln (Euro 351,000) or more. However, the garment and footwear industry, the country’s top exporter which this year has been suffering crisis impacts from lower demand by crisis hit EU partners Italy and Greece, will have VAT on machinery imports removed for all kinds of purchases. Visiting a footwear manufacturing company on Tuesday in Kamza, outside Tirana, Prime Minister Sali Berisha announced government will remove VAT on imports of machinery and equipment for the garment and footwear industry, locally known as fa谮, in the next two weeks and the industry will be excluded from the Lek 50 mln threshold imposed on other industries.
“The fa谮 industry will have no threshold, you can import any machinery you need for manufacturing and it will be excluded from VAT,” said Berisha.
The excise rate on imported unroasted coffee, currently at 30 lek/kg will also be lifted in an effort to promote the domestic coffee processing industry.
Clash over timber tax
Economy Minister and deputy PM Haxhinasto, who represents the Socialist Movement for Integration in the ruling Democratic Party-led coalition opposed the Finance Ministry initiative to impose a 30 percent on Albanian exports of timber as not helping promote exports and increase competitiveness. Calling for the review of this tariff, minister Haxhinasto said the “introduction of this tariff on timber exports does not lead to the protection of woods or the elimination of illegal activity in the sector, because our goal is to increase the competitiveness of this industry, increase exports so that it becomes a competitive industry.”
However, deputy Finance Ministry Alfred Rushaj said the tax on the timber industry was aimed at protecting woods. “When I refer to timber I mainly refer to firewood being exported, which has statistically increased by 2.5 times from 2008 to 2011,” said Rushaj.
Informality
The new fiscal package also foresees an increase in fines imposed to employers who do pay social security contributions and health insurance to their workers by five times to 500,000 lek (Euro 3,500). “We have cut costs for both employers and employees and we will not tolerate all this minimum cost not to be paid,” said Rushaj. Social security contributions currently stand at 24.5 percent, of which 15 percent is paid by employers and 9.5 percent by employees. Meanwhile, health insurance contributions are at 3.4 percent, shared by 1.7 percent between employers and employees.
In its 2002 progress report on Albania, the European Commission notes there has been little progress in the fields of social policy and employment. “The labour market continues to be shaped by high informality, low participation of women, and relatively high youth unemployment,” says the report.
Small business tax
The Finance Ministry has also proposed that the central tax administration takes over the collection of the small business tax, stripping local government units from this duty in an effort to improve the business climate. While revenues will go to municipalities and communes, the central tax administration will keep a 3 percent commission. The Municipality of Tirana led by right-wing Mayor Lulzim Basha has hailed the government initiative as a solution to the efficient administration of the revenues and the fight against informality.
“The collection of the small business tax gives an end to the overlapping of duties between the two administrations and brings reduced presence of tax officials in small and medium-sized business. This reform also enables local tax officials to focus more on the local government priorities such as the collection of property and advertisement tax and support to central tax administration bodies to collect personal income, profit tax and VAT,” says the Tirana municipality.
Meanwhile, opposition Socialist Party leader Edi Rama has pledged his party will remove the small business tax as soon as it comes to power to reduce the tax burden for businesses in these times of crisis.
