“The profit tax on big businesses will be at a higher rate compared to the current level in order to reflect the principle of fair taxation and the need for big companies to contribute more than small businesses which operate through self-employment,” says government in its 2013-2017 programme.
TIRANA, Oct. 4 – Albania’s business community opposes the new government’s intention of applying progressive taxation on big businesses, supporting the current 10 percent flat tax on personal and corporate income. Representatives of business associations argue the increase of corporate income tax would make Albania less competitive compared to other regional countries on the attraction of foreign direct investment. The business community argues that progressive taxation, which is the key reform in government’s economic program, could be imposed on some sectors with higher profits.
“A change in the 10 percent tax rate on corporate income will absolutely not be supported by the business community,” said Nikolin Jaka, the chairman of the Tirana Chamber of Commerce and Industry at a recent meeting with representatives of other business associations. Jaka says local Albanian enterprises support the current tax system, the 10 percent flat tax on personal and corporate income, considering the developing economy which needs stimulus and reforms in the fiscal system.
The Konfindustria business association has earlier advised that that progressive income tax should be implemented only on companies which operate under conditions of limited competition because of exclusive licences and higher profits than the average.
Since 2008, Albania has been applying a 10 percent flat tax on personal and corporate income, one of the lowest in the region, helping Albania increase foreign direct investment.
FDI, which in 2012 ranked Albania as the second largest recipient in South-East Europe, continued positively performing in the first half of this year. During the first half of this year, FDI rose to 446 million euros, up from 397 million euros in the first half of last year, registering a 12.3 percent increase, according to Bank of Albania data.
In its 2013-2017 government programme, the Socialist Party-led left wing coalition says profit tax on small businesses will be twice lower compared to profit tax on big businesses while the tax on small businesses will be lifted.
“The profit tax on big businesses will be at a higher rate compared to the current level in order to reflect the principle of fair taxation and the need for big companies to contribute more than small businesses which operate through self-employment. Personal income tax will be changed into a progressive scheme, by increasing the fiscal burden on higher wages and lowering it for the lower and mid-wages. There will also be new legislation regarding transfer pricing in accordance with OECD models,” says the government in its 2013-2017 programme.
In a recent conference with the business community, Prime Minister Edi Rama described the business climate, and fight against corruption and bureaucracy, as more important than the 10 percent tax in the decision of foreign companies to invest in Albania.
Foreign businesses operating in Albania also seem to favour the current flat tax. Anette Kasten, the director of the German Chamber of Commerce in Albania, says German businesses consider the flat tax as very favourable and attractive for foreign investors. “But if the Albanian government considers progressive taxation as a fairer form of taxation and will later take measures to lower public debt and balance the budget, we will accept it. In case there are changes in the taxation system, the government should give time to our companies in order to manage to adopt the new system and later involve it in the business plan,” Kasten told local media this week.
Economic experts and business representatives say the key to success in these times of crisis is not changing the tax system, but fiscal consolidation and the adoption of a series of measures as suggested by the IMF and the World Bank.
Zef Preci, the director of Albanian Center for Economic Research, says the taxation system does not need major changes but only reviews.
Gjergj Buxhuku, the administrator of the Konfindustria business association, says Albania is surrounded by countries applying low and flat taxes aimed at attracting as much foreign direct investment as possible and cannot make a difference under this situation.
During the electoral campaign, Socialist Party leader Edi Rama clarified that the Socialist Party intends to apply progressive taxation only on personal income tax and dividends but not on company’s profits.
The Socialist Party also says it will lift and reduce the 20 percent value added tax on a series of basic products and reduce VAT on agricultural inputs.
Ahead of the June 23 general elections, the Democratic Party lifted the 10 personal income tax only for people receiving monthly wages of up to 30,000 lek (Euro 210) but said it would continue applying the 10 percent flat tax on personal income and corporate taxes as a successful reform increasing the country’s competitiveness.
The new progressive taxation project and the transparency over privatization and concession contracts will be the first targets for the Socialist Party.
“We will act quickly to apply the new taxation project by shifting into fair taxation which will reduce taxes for 95 percent of Albanians and lift taxes for small businesses. We will act fast with a facilitating package on farmers to reduce their production costs, remove VAT on basic products and medicines, and reduce household electricity prices. We will also launch a transparency process on concessions and privatizations suspected of favours at the expense of Albanians,” Prime Minister Edi Rama has earlier said.
The Socialist Party has promised to create 300,000 jobs in the next four years focusing on the manufacturing, agriculture and tourism sectors.
