Business community warns new tax hikes to have negative effects

“The new package mostly affects regular taxpayers. Under conditions when the tax evasion continues remaining high, the increase in these taxes, apart from placing a new burden on businesses, gives another incentive to informality to continue remaining at high levels,” says an AmCham representative.
TIRANA, Nov. 12 – With the new fiscal package already under discussion in Parliament and due to be okayed by the majority, the business community has reiterated its stance against the newly introduced taxes as harmful to the economy and damaging foreign direct investment.
In its 2015 fiscal package, government plans to increase by 5 percent to 15 percent the withholding tax on dividends, interest rates on loans and deposits, income from copyright or intellectual property, games of chance as well as other rewards. The fuel circulation tax will increase by another 10 lek (12 lek VAT included) (Euro 0.084) taking fuel prices to among the highest in Europe. The excise rate on cigarettes will also undergo a new hike.
In a hearing with majority MPs at the parliamentary economy committee this week, Genti Daci, the vice president of the AmCham of Commerce in Albania, said the increase of the fiscal burden would give a stimulus to the informal sector, already widespread and accounting for around a third of the GDP.
“The new package mostly affects regular taxpayers. The fiscal burden is placed on regular taxpayers and this is a great concern to our members. Under conditions when the tax evasion continues remaining high, the increase in these taxes, apart from placing a new burden on businesses, gives another incentive to informality to continue remaining at high levels. We will strongly demand that the withholding tax and the tax on dividends is not affected,” said the AmCham representative.
The Tirana Chamber of Commerce has also expressed its concern over the impact the new taxes would have on the attraction of foreign direct investment, already in decline this year after the corporate income tax was raised to 15 percent affecting the competitiveness of the Albanian economy considering that most regional countries apply flat tax regimes of around 10 percent.
“This package cannot be considered new because it repeats itself with the increase of taxes in 2014. There is no attention to domestic production which generates employment or clear strategies on how we can have a sustainable economy. What I can notice is that the Ministry of Finance has focused on its easiest job, that of increasing the fiscal burden but its impacts have not been analysed,” said Jaka.
The Konfindustria Association has demanded the return to the 10 percent flat tax on personal and corporate income, a request supported by all business associations since the flat tax regime was abolished in January 2014.
Gjergj Buxhuku, the head of the Konfindustria has also requested the unfreeze of construction permits, warning that the measure is taking the construction industry, trade in construction materials and employment in this sector to collapse.
The Business Albania Association also expressed its concern that the perennial request on reducing VAT on tourism, currently at 20 percent, had not been taken into account in the new package. The association claims that the region’s average VAT of 7 percent on tourism is considerably affecting the competitiveness of the Albania’s promising tourism industry.
The business community has also demanded the review of tariffs applied under the concession on fiscal stamps by Switzerland-based Sicpa which back in 2011 was awarded a 10-year concession to produce and establish a tax stamps control system on tobacco, alcohol and pharmaceutical products.
Garment and footwear producers, one of the country’s biggest producers and employers, have also demanded the acceleration of VAT refunds, as one of the measures adopted in the support package to this industry earlier this year.
The Finance Ministry argues the new tax hikes, decided in cooperation with the IMF, are necessary to improve the public finances and bring down public debt, currently hovering at 70 percent of the GDP.
“We have committed to reduce public debt from 71 percent of the GDP currently, to 65 percent of the GDP in 2017. The debt reduction eases the burden of the state budget because of reducing its cost and risks to the economy,” says Finance Minister Shkelqim Cani.
Opposition worried
The opposition Democratic Party which has warned it will stage a protest against the new tax hikes on Nov. 22 said the new fiscal package would curb economic growth and affect every Albanian.
“This is a fiscal package which ruins economic growth, ruins hopes that SMEs and corporations can invest to increase their production capacities and open up new jobs,” said opposition Democratic Party leader Lulzim Basha. According to him, every Albanian household will be taxed an extra 67,000 lek (Euro 472) annually under the new fiscal package.
112 mln in tax hikes
Albanians will pay an extra 16 billion lek (around 112 million Euros) in higher taxes on non-wage income, fuel and tobacco in 2015, according to the 2015 fiscal package government has just announced.
While key taxes such as the personal and corporate income taxes will remain unchanged, defying businesses calls for a return to the flat tax regime after the corporate income tax was raised by 5 percent to 15 percent in 2014, the fiscal burden will further increase by raising the withholding tax on dividends and rents, increasing the circulation tax on fuel and imposing higher excise rates on tobacco.
Government says it has allocated 1.6 billion lek (Euro 11.3 million) in compensation to people in need for the expected increase in electricity prices in 2015 but has not announced the new unified rate yet after confirming it will lift the 300 kWh threshold charging lower tariffs. The reform would affect around three-quarters of Albanian households with a monthly consumption of 300 kWh.
As support measures, government says it will lift the circulation and carbon tax on fuel for the fishing sector, including the already lifted excise which would reduce fuel prices by 67 lek/litre (Euro 0.47) for this industry. Government will also lift the 20 percent VAT on compulsory non-life products dominated by auto insurance but impose a 3 percent tax on gross insurance premiums and reduce the royalty rate on domestically processed minerals.
The government also plans to lift the 2 percent taxes on the import of raw materials for industry and livestock such as wheat, food for livestock and lift the 10 percent customs tariff on wheat.
The excise rate on natural bitumen, currently at 5 lek/kg will be lifted while the customs tariff on crude oil will also be removed. Contributions in the emerging private pension market will also stripped of personal income tax benefiting more than 8,000 members of the private pension funds. The customs tariff on new tires will also reduce by 5 percent to 10 percent. Meanwhile, the lift of the excise duty on energy drinks proposed for 2015 has sparked debates even among majority MPs who oppose such a measure.