New real time billing system worries Albania businesses over potential extra costs

Tirana Times
By Tirana Times September 4, 2018 12:37

New real time billing system worries Albania businesses over potential extra costs

Story Highlights

  • Albania has one of the region’s highest tax burden, but collects only about 27 percent of its GDP in tax and non-tax revenue, the second lowest amount among six EU aspirant Western Balkans countries.

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TIRANA, Sept. 4 - A new e-system that Albania's tax administration is planning to apply on cash registers has worried Albania's business community over potential extra costs despite assurances by authorities that the upgrade of the billing system will have no costs for them.

The concern comes after the tax administration has called a Sept. 21 tender to select a company that will upgrade the current billing system by providing real time information on business to consumer and business to business transactions. The winning company is expected to upgrade the current system for about 1.87 billion lek (€14.7 million) in costs that will be handled by the state budget for the next five years until 2022.

Tax authorities say business owners will not have to purchase new cash registers and that they will have their current cash registers upgraded at no cost, but business owners fear their maintenance costs could sharply increase and some experts say the real time system could make it compulsory even for small businesses to have internet access and a computer in order to transmit tax receipt information in real time.

The current cash register system was made compulsory in 2010 and transmits information manually at the end of a business day, but tax authorities complain the system does not identify tax receipts in real time and only manages to transmit the real turnover and the number of receipts printed by each cash register every day.

Business owners, especially in the suburban and rural areas, commonly avoid issuing tax receipts in order to escape higher tax burden and being included in the value added system. The annual turnover threshold for a business to be included in the 20 percent VAT system was more than halved to 2 million lek (about €15,700) last April, triggering protests by some 10,000 business owners who warned of bankruptcy over a hike in tax burden and tougher competition from shopping chains and supermarkets already in the VAT chain.

"The current billing system also lacks a detailed risk management and control analysis because of failing to identify business-to-business and manually issued VAT receipts because of failure to declare them by sellers and buyers, which are key elements for the efficiency of the tax administration," says the finance ministry, adding that the new system will improve tax collection efficiency and reduce tax evasion.

The Albanian economy is highly cash-based and tax evasion is estimated at about 30 percent of the country's GDP.

Meanwhile, business associations have warned they will accept no extra costs over new cash registers or their maintenance.

"We cannot afford changing the cash registers. If the government decides to apply a new program allegedly to inspect the tax receipts, then it will have to handle costs on its own," says Albert Nasto, the head of the small and medium-sized business association.

The association also strongly opposed an increase in the tax burden for some 10,000 small businesses that were included in the 20 percent VAT system earlier this year after the annual turnover threshold was lowered, staging a series of protests by downing shutters.

Accounting experts say businesses could face extra maintenance costs at no real benefit for public finances.

"This procedure does not bring added value to the tax system. The real benefit it brings is the establishment of an integrated data system between the tax, customs and insurance administrations," accountant Agim Binaj is quoted as saying by local media.

Other experts say businesses could also have to operate a computer and have good internet access in extra costs in order to make the real time data transmission.

Back in 2015, Albania spent about €16 million on a system enabling e-communication and e-filing between the business community and tax administration.

A cash register currently costs between €300 to €500 while annual maintenance costs are estimated at €70.

More than 100,000 cash registers are currently operational throughout Albania while only a small number of small businesses such as street vendors, local government-run markets, self-employed professionals and farmers are excluded from the obligation.

VAT, which is levied at a fixed 20 percent rate on almost all products and services, accounts for about a third of total tax revenue, but only about 1 percent of it is collected from small business transactions.


High tax burden, poor collection rates

Albania has one of the region's highest tax burden, but collects only about 27 percent of its GDP in tax and non-tax revenue, the second lowest amount among six EU aspirant Western Balkans countries.

The data indicates widespread informality in the Albanian economy, estimated at about 30 percent of the country's GDP and the inefficiency of the country's tax administration.

Since 2014, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in Albania one of the region's highest.

Albania's tax burden slightly increased in 2017 while paying taxes remained one of the region's most time-consuming, according to the latest Doing Business report published by the World Bank.

The 2018 report shows Albania's total tax and contribution rate measured as a percentage of profit slightly rose by 0.4 percent to 37.3 percent in 2017, when it remained the second highest among the six EU aspirant Western Balkans economies.

Albania 2018 Paying Taxes ranking remained unchanged at 125th out of 190 countries with a medium-sized company having to make 35 payments a year and spend 261 hours a year, 32 working days, considerably above the Europe and Central Asia average.

Foreign business associations describe Albania's tax system as too complicated and bureaucratic, especially for small businesses


Thousands of businesses closing

Thousands of businesses have switched to passive status during this year, at a much faster pace compared to last year, in a situation apparently triggered by an increase in the tax burden for small businesses and rising competition from shopping centers and supermarket chains.

Data published by Albania's tax administration shows the number of businesses shifting to passive status in the first eight months of this year rose to about 9,600, a 50 percent hike compared to the same period last year.

As a rule, businesses switch to the passive register in case of not operating or not submitting tax statements for 12 months or declaring the suspension of commercial operation with the National Business Center for a period of more than 1 year or indefinitely.

The higher pace in business closures comes at a time when the tax burden for more than 10,000 small businesses significantly increased following their inclusion in the 20 percent VAT system and competition has become much tougher amid sluggish consumption.

In a U-turn, last June the Albanian government approved lower corporate income tax and incentives on agribusinesses as part of a mid-year fiscal package in changes that are not expected to become effective before next January ahead of the upcoming mid-2019 local elections.

Some 10,000 businesses currently paying a 15 percent profit rate are expected to pay a reduced 5 percent corporate income tax as the turnover threshold for the new 5 percent profit rate increases to an annual 14 million lek (€110,000), up from a previous 8 million lek (€ 63,000).

The emerging agritourism sector is also set to benefit from several tax incentives, including a 5 percent corporate income tax, a reduced 6 percent VAT and exemption from the infrastructure tax on investment.

Tirana Times
By Tirana Times September 4, 2018 12:37