TIRANA, Nov. 16 – A few days after a new law increasing fines on tax evasion by up to 50 times entered into force, Albania’s business community is considering filing a complaint with the country’s Constitutional Court over the law’s compliance with constitutional principles, with business representatives complaining the penalties are “disproportionate” to income and offences committed.
Two of the country’s leading business associations, the Tirana Chamber of Commerce and Industry and the American Chamber of Commerce in Albania, say the new law which increases fines on tax evasion by up to 50-fold violates the principle of proportionality.
“We are organizing to structure our request and address the Constitutional Court. We will carry out a thorough analysis of the fiscal system in Albania because we face a lot of problems with the by-laws whose implementation stands above law,” said Nikolin Jaka, the head of the Tirana chamber, in a recent business forum opposing high taxes and frequent legal changes.
The American Chamber of Commerce, representing some of the major foreign companies operating in Albania, said the chamber is also considering the possibility of taking the law to the Constitutional Court.
AmCham has also appealed for a cut in key taxes to make Albania more attractive to foreign investors after the corporate tax and the withholding tax on dividends, interest rates and rents have increase by 5 percent to 15 percent in the past couple of years.
“Taxes must apply under the country’s economic and social context. The key to success for a strong economic growth is working to bring new investors to Albania and not increasing taxes,” says Mark Crawford, the president of AmCham Albania.
The business community has also strongly opposed new amendments to the Criminal Code which replace fines on tax evasion with prison time. The amendments, which need a qualified majority of 84 votes in the 140-seat parliament, have also been opposed by some majority MPs as not helping improve the business climate.
Albania’s business climate suffered a major setback in the past year, losing 35 places in the latest World Bank Doing Business report to rank 97th on a sharp deterioration in dealing with construction permits
The Tirana Chamber of Commerce says the government’s legal action comes at a time when 35,000 businesses previously operating informally have registered with tax authorities.
“The tax procedures law has multiplied fines without taking into account the proportionality of the violation by enterprises and without previously going through a stage that would qualify, educate and sensitize entrepreneurs on the way of doing business,” says Jaka.
The Constitutional Court can be addressed by the president, the prime Minister, not less than one-fifth of MPs, local government units, political parties, other organizations and individuals.
The principle of proportionality in the new Administrative Procedures Code adopted after the establishment of the administrative court system envisages that “every administrative action, which because of protecting public interest or other people’s rights, can limit an individual right or infringe legitimate interests, will be carried out in compliance with the principle of proportionality.”
An administrative action is considered proportional only when it achieves its goal with the measures that least infringe the party’s rights and legitimate interests, when it is deemed suitable to achieve the goal envisaged by law and is in proportion to the need dictating it, says article 12 of the Administrative Procedures Code.
The new changes to the tax procedures law envisage fines of up to 10 million lek (€71,000) on big businesses operating in the wholesale trade for not issuing tax receipts, compared to a previous 200,000 lek (€1,411). Fines on small businesses have also increased 10-fold from 50,000 lek (€353) to 500,000 lek (€3,529) starting Nov. 12.
The ruling Socialist Party-led coalition has also proposed some harsh amendments to the Criminal Code removing fines on smuggling and informality and envisaging only imprisonment of up to ten years for imports, exports and transit of illegal goods. The draft law, which has failed to be adopted to date, has also sparked fierce reaction by business representatives who describe the new measures as aggressive and not helping improve the business climate in this time of crisis when businesses are facing poor demand and rising costs due to higher taxes.
“Carrying out illegal commercial activity or conducting commercial activity not registered with tax authorities, failure to declare employees and issue fiscal receipt is a criminal offence and is punishable by up to three years in prison,” says the new article 180/a proposed as an amendment to the Code. This week majority MPs at the legal affairs parliamentary committee proposed the reduction of the sentence for failure to issue tax receipts to one year in prison, from an initial three years.
The much-rumored nationwide campaign against tax evasion with thousands of businesses previously operating informally registering with tax authorities had a boomerang effect on government revenue in its early days. The tax and customs administrations failed to collect 4 billion lek (€28.7 mln) last September, with the revenue for this month only 0.6 percent higher compared to September 2014.
Prime Minister Edi Rama has labeled the fight against informality, estimated at around 30 percent of the GDP, a battle which will give Albania the opportunity to increase wages and lower taxes. The business community has also hailed the campaign but expressed concern over its aggressiveness especially on small businesses, which account for 90 percent of total enterprises in Albania.
Experts say the new fines could take to bankruptcy most businesses at a time when consumption has considerably reduced and businesses are struggling to avoid bankruptcy.
Sotiraq Dhamo, a renowned accountant and finance professor, has earlier described the fines as exaggerated because of being unaffordable by most businesses.
“Fines are not meant to ruin but prevent and be affordable to pay. Otherwise, we will be under a situation when the imposed fines will be impossible to be collected,” Dhamo has said.
Luan Bregasi, the head of Biznes Albania Association has also opposed the high fines set in the new law, as promoting corruption among tax inspectors and the business community.
