Tax Agency is facing difficulties with businesses

Tirana Times
By Tirana Times April 7, 2019 17:20

Tax Agency is facing difficulties with businesses

Story Highlights

  • Even though the tax collection reforms have improved by the various strategies the Tax Agency is undertaking, there is still a high amount of unpaid tax liabilities by Albanian businesses, where 56 percent are from passive businesses with no hope hope of debt clearing.

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TIRANA, Apr. 3- The Tax Agency has said that as of October 2018 the overall tax debts by businesses reached around 1 billion dollars. These data was issued by a report from the International Monetary Fund (IMF), which claimed that the majority of these indebted taxes are from passive businesses.

The tax debts were slightly lowered during 2017. In the beginning of the year the overall estimated debt was 111.5 billion lek (999.7 million dollars), but then it was lowered to 95.5 billion lek (856 million dollars) by the end of the year. Throughout 2018 however, the tax debts started to raise by 12 percent, or 7.5 billion lek (67 million dollars). In the debt stock split by tax type, VAT grew by 36 percent, followed by the Taxed Profit by 28 percent, Other by 22 percent, Social Security & Health by 12 percent, and TAP by 2 percent.

The data issued by IMF showed that 56 percent of these taxes are from passive businesses. According to the Albanian General Tax Agency, a business goes passive after it has suspended its activity for 12 months or more, and has not declared any taxes for the same period. These unpaid taxes from the passive businesses are of no hope for clearing debt, and has been delayed from more than two years. These taxes amount to 59.8 billion lek (536 million dollars).

The rest 44 percent of the indebted taxes, or 47.5 billion lek (425.8 million dollars) are from active businesses. The IMF has however pointed out that some reform initiatives to improve the arrears' debt collection function are progressing, regardless of the already delayed payments. Legislative changes have been adopted and are reflected in the 2019 fiscal package.

Changes include the allowance of installment agreements for VAT, PIT, social and health contributions, the elimination of paper-making requests, as well as electronic communication with taxpayers and banks, and the provision to settle uncollectible debts. The Fund notes that the receivable debt stock is continuing a declining trend resulting from the implementation of early intervention strategies. The Tax Agency also adopted a highly organized and professional approach to expanding the VAT register following a reduction in the registration threshold and the implementation of its compliance campaign for the tourism sector.

The state of tax debts has been declining since 2016. The IMF suggests that are required legal changes which include new provisions to settle uncollected tax liabilities. Taking steps to settle uncollectible debts will give the Tax Agency a much clearer picture of the receivable debts.


More businesses go passive with taxes

Even though the strategies that the Tax Agency is following for tax debt collection, the business climate in Albania remains difficult and unattractive for entrepreneurships and already existing enterprises, especially in the trade sector. The Tax Agency said that since June 2018 until February this year the list of bad debtors was expanded by 17 percent, or 4361 businesses. The overall amount of bad debtors has now reached 24.5 thousand businesses.

Most of these businesses were in the regions of Vlora and Tirana. The list of taxpayers with unpaid obligations in time represents the businesses to which the Tax Agency, pursuant to Article 91 of Law no. 9920, dated 19.05.2008 "On Tax Procedures in the Republic of Albania" has decided to take security measures on all assets for the execution of the obligations and that the procedure of their forced collection has begun.

The list is public with the intention that the third parties to be aware of these procedures commencement and that the bodies or institutions that have registered movable or real estate properties of the debtor taxpayers, to register the unpaid tax liability as a burden on this property and to not allow the execution of transactions of transferring these of the debtors until the unpaid tax liability is collected.

Whenever the tax administration ascertains that a taxpayer has not fully paid even on the tax liabilities due date, the tax administration sends a written notice requiring full payment of the tax liability by registered mail. For the notification and the request for payment, the deadlines and procedures foreseen in the Law on Tax Procedure apply. If the taxpayer does not pay the tax liability on the due date, then the director of the regional tax office issues a written order requiring each bank where the taxpayer has personal accounts, to block the amounts on behalf of the tax.


VAT lowering raised business costs

In the International Monetary Fund technical assistance report on revenue management there was a generally positive assessment on the progress in modernizing the administration and the taxation system. The reform initiatives are yielding tangible results in all three administration components, people, processes and technology.

However, the IMF recommends that the pace of change must be maintained in order to achieve the reform objectives. But the IMF has voiced reservations about the effect brought to the budget the reduction of the VAT threshold, the reinstatement of delays in VAT reimbursement as well as recommendations for collecting unpaid business obligations.

In the report, the IMF has paid attention to lowering the VAT threshold for small business from 5 to 2 million lek (44.8 to 17.9 million dollars), which began to be implemented from April 1 last year. The report says that the Tax Agency faced a major challenge in 2018 in managing a major expansion of the VAT register after reducing the census threshold. This reduction introduced about 13,000 small businesses in the VAT system for the first time in April 2018. This represented an increase of almost a third in the VAT register.

The IMF estimates that the Tax Agency faced this challenge in a professional and organized manner. Consequently, the disclosure rates were quite high with 96 percent of the 13 thousand businesses filing VAT declarations. However, the IMF points out that this expansion of the VAT register will have a continuing negative impact on the workload of the Tax Agency and the costs of the costs of fulfilling tax statements for small businesses, without causing significant revenue growth.

The IMF has assessed the taxes for the successful transition of 13,000 micro-businesses to the VAT system in 2018 and it stressed that the management of this group of taxpayers continuously imposes an additional burden on the Tax Agency with a small return in relation to revenue yield. It also brings additional costs to smaller businesses and is unlikely to have any material impact on reducing the tax gap. It should be added that the IMF was initially against lowering the VAT threshold, precisely with the argument that it would increase the burden on taxpayers without increasing revenue.

“The ongoing problem of late VAT refunds needs to be addressed. This is an unnecessary administrative burden for the administration, the main cause of which lies in poor tax forecasting and government money management. The integrity and credibility of the VAT system relies on the lawful lending of VAT, which are payments that need to be refunded quickly. It is worrying that this issue has come up again after addressing it several years ago,” expressed the IMF with criticism on delays in VAT reimbursement.

By October, the VAT liability to be reimbursed was 14.4 billion lek (129 million dollars), an increase of 3 billion lek (26.9 million dollars) only for that month. 26 percent of this obligation is for exporters, while the rest for large projects for the  gas pipeline, hydro power plants and oil.


Tirana Times
By Tirana Times April 7, 2019 17:20