TIRANA, Dec. 8 – While the ruling majority has already approved in principle the 2016 budget and some amendments to the Criminal Code envisaging prison time on tax evasion, the business community has expressed its concern over the increased tax burden on some sectors and lack of incentives which would improve the business climate in the country.
In a hearing with the parliamentary economy committee this week, representatives of Albanian and foreign business community said they were worried the government’s failure to revise downward key taxes and increased costs on some domestic industries such as beer production, tourism, car insurance and social security contributions on self-employed professionals will have a negative impact on the economy which has been striving with sluggish growth rates of 1 to 2 percent in the past three years.
Business representatives say government’s latest concession to strip small businesses with an annual turnover of up to 5 million lek (€36,000) from the profit tax could also promote tax evasion among big businesses with their breakup into smaller enterprises.
“The package should serve the sustainable growth of the economy and enterprises. It’s easy to say we are stripping small businesses of taxes but which businesses. This could leave room for abuse,” said Nikolin Jaka, the head of the Tirana Chamber of Commerce and Industry.
Representatives of the domestic beer industry have also opposed government’s decision to increase the excise rate on domestic production and reduce it on imported beer.
“The business climate in the domestic beer production is not favorable and that’s why there is a lot of import. With these policies foreigners are not attracted into investing in Albania but they’d rather bring their products to Albania,” said Stefan Pinguli, the head of the Association of Beer Producers, adding that Albania is the only country where beer imports account for almost half of domestic consumption.
The domestic beer industry, which employs about 3,000 people, says the new fiscal package favors imports and will further affect domestic beer production.
Starting January 2016, the government will impose a 400 lek (€2.85)/hectoliter excise rate on domestic beer production, up from 360 lek (€2.57)/hectoliter currently. Meanwhile, the excise rate on imported beer will drop to 600 lek (€4.3)/hectoliter, down from 710 leke (€5)/hectoliter currently.
The tourism and car insurance industries have also opposed increased tax burden.
Tourism representatives say government’s failure to review the 20 percent value added tax and the introduction of a new Euro 1 accommodation tax risks further reducing the competitiveness of one of the country’s key industries.
“Today we find ourselves 35 places behind Macedonia in the [tourism] competitiveness report which a catastrophe for the Albanian tourism industry,” said Zak Topuzi of the Albanian Tourism Association.
The travel and tourism industry, which employs around 41,000 people and accounts for 5 percent of the GDP, says the high VAT rate is damaging the competitiveness of the country’s most promising industry considering that regional competitors apply differentiated VAT rates of 5 to 8 percent.
Albania’s tourism competitiveness lost considerable ground in the past couple of years on deteriorating travel and tourism policy and enabling conditions. The Adriatic country ranked 106th out of 141 countries in the 2015 Travel & Competitiveness Index, losing 29 places compared to the 2013 report.
Car insurance companies have also warned the latest tax increase will also be accompanied by increase in insurance rates. The tax rate on insurance premiums is expected to increase to 10 percent in Jan. 2016, up from 3 percent currently with a positive effect of 700 million lek (€5 mln) to the state coffers.
The strongest reaction to the 2016 fiscal package has come from the self-employed professionals whose social contribution rates are set to increase five-fold.
“We will go on strike and suspend all trials. There will be a boycott to all trials unless the bill is amended,” the National Bar Association has warned.
Associations representing pharmacists and dentists have also opposed the increased tax burden as putting them at risk of bankruptcy.
The government expects the highest extra income for 2016 to come from the increased tax burden on a series of self-employed professionals such as lawyers, notaries public, doctors and engineers. Starting January 2016, they are expected to pay social security contributions at a maximum wage ceiling of 97,000 lek (€692) compared to starting from a minimum of 19,400 lek (€138) currently, with tax authorities hoping to collect an extra 1.1 billion lek (€8 mln). Experts expect the hike to translate into higher service fees for consumers.
New fiscal package
The annual fiscal package proposed by Albania’s government for 2016 would considerably reduce the tax burden on businesses, but slightly increase it for households and self-employed professionals, with the package foreseeing higher tax rates on cars, property as well as higher social security contributions.
The Albanian government expects to collect a mere €19 million from new tax hikes on both households and businesses in 2016, a small amount compared to the 2015 fiscal package when it forecast an extra €112 million.
Starting January 2016, personal five-seater vehicles with a cylinder volume of more than 3,000 cm3 will for the first time be considered as luxury cars and have to pay a registration fee of 70,000 lek (€500) and an annual tariff of 21,000 lek (€150).
The lift of the profit tax on some 70,000 small businesses is the major concession the government has made for 2016 as a tough nationwide campaign again tax evasion is under way. The government expects the concession to have a negative effect of 1.3 billion lek (€9.4 mln) on the state budget.
Some 70,638 small businesses with an annual turnover of up to ALL5 million (€36,000), accounting for 80 percent of total enterprises, will benefit from the removal of the profit tax. Another 2,332 businesses with a turnover threshold of ALL5 million to ALL8 million (€57,000) will also have their profit tax reduced to 5 percent, down from a current 7.5 percent starting Jan. 2016.
Currently, micro businesses with an annual turnover of up to ALL2 million (€14,370) pay a fixed annual figure of 25,000 lek (€180) in profit tax, compared to 7.5 percent for a turnover of 2 to 8 million lek (€14,370 to 57,484) and a corporate income tax of 15 percent for a turnover of more than 8 million lek.
Key taxes such as the corporate income tax and the withholding tax on dividends, rents and capital gains will remain unchanged at 15 percent after their increase by 5 percent in the past couple of years, defying business calls for a return to the 10 percent flat tax.
