TIRANA, Oct. 7 – Courts, frequent changes in legislation and tax procedures and their clarity, informal competition, corruption and investment stimulation policies are the top five concerns for foreign investors and their joint ventures with Albanian partners in Albania. The findings are unveiled in a survey issued by the Foreign Investors Association of Albania (FIAA), a non-profit organization which has been active in Albania for 15 years and represents the largest share of foreign investors with about 1.5 to 2 billion Euros in FDI and 30,000 employees.
Speaking at the launch of the report, Silvio Pedrazzi, the president of the FIAA, urged the Albanian government to systematically fight tax evasion, but warned the campaign that has been undertaken should not be accompanied with arbitrariness and aggression toward the business community.
On a 0-100 scale with 100 as the severest issue the five top concerns were rated between 58 to 68, showed the survey conducted in March-April 2015 with 91 face-to-face interviews.
Political instability and tax rates were also valued as severe problems with 54 and 50 points respectively.
The poor performance of the newly established administrative courts, crime theft and disorder, the central tax administration and road infrastructure are not rated as severe problems but yet are valued at 45 to 50 points.
Albania’s best indicators in the survey include business licensing and permits, access to electricity and finance, labour regulations, relationship with local government units and telecommunication rated at 16 to 30 points.
Half of the respondents (51 percent) think the current conditions of doing business in Albania are unfavourable, compared to 31 percent who consider the climate normal and only 18 percent favourable.
When asked specifically about their own business performance, only one out of four respondents described the business conditions in their own enterprises as favourable in the first half of 2015.
Prospects for the second half of 2015 appear more optimistic with another 6 percent expecting the situation in their own businesses to improve.
Interestingly enough, 78 percent of the respondents said they had never heard of the Investment Council, a newly established government agency with a target of promoting investments, and are unaware of its functioning duty to bring together business, government and financial institutions in order to address investment barriers and improve the business climate.
The perception of FIAA members is that only about half of tax inspections and audits are carried out for legitimate reasons while bribes along with political connections are a game changer when it comes to tax audits findings or dealing with tax penalties and fines.
Only about one out of three surveyed businesses think that tax audit findings are accurate and in compliance with the law. They consider additional tax dues or related penalties and fines as generally not fair.
“Businesses operating in various sectors seem to agree with each other over the fact that giving bribes and using political connections can significantly change the results of an audit. In terms of tax compliance, foreign investors believe it is not hard to administer the process of paying taxes on their own, but at the same time admit that the tax legislation and tax procedures are often complicated and unclear,” shows the survey.
Foreign-owned enterprises operating in Albania are often under pressure by tax authorities whether in case of a possible tax appeal, which is directly followed by an increase in inspections/audits, or when it comes to tax collection and the government seeing these big businesses as “low-hanging fruit” in this regard, adds the survey.
It is also telling than when talking about corruption, FIAA respondents would in general be willing to pay more taxes if corruption levels were lower.
VAT refunds from tax authorities are also estimated as very tough with over 65 percent of respondents describing it as the top concern for tax-paying businesses in Albania, especially when competing against the problematic informal sector that has less or no actual tax burden.
Almost half of the interviewed foreign investors in Albania claimed to have reduced prices of their main products during 2014 due to price reduction by their domestic competitors.
“This is a clear indicator of the Albanian market’s lack of instability and struggle by Albanian competitors in 2014 leading to price reduction for their products/services,” says the survey.
In addition to this, more than a third of foreign investors claimed to compete against unregistered or informal firms and rate the practices of these competitors as a severe obstacle with 85 points on a 0 to 100 scale.
The informal sector of the market is seen as a major issue faced by foreign investors in Albania, but is often placed on a secondary level in the chain of issues due to the fact that other key elements that need to be assessed and dealt with first to bring an end to the informal sector.
The government is to be held responsible in the fight against informality as much as in creating a fair and equally competitive business environment, foreign investors say.
