In a sign that it was not as hard-of-hearing as it appeared for weeks to the loud cries of small business owners across the country, the Albanian government has proposed surprise and sweeping tax cuts will affect all small businesses and some medium-sized ones.
Some 83,300 small businesses with an annual turnover of up to ALL5 million (€36,000), accounting for 85 percent of total enterprises, will benefit from a zero percent rate of profit tax, Prime Minister Edi Rama said this week. The ones making a little more will see their profit tax also cut. The changes are part of the 2016 fiscal package and come to power on Jan. 1.
The move will likely be welcomed by the business community for what it is — a carrot — following weeks of sticks that have left business owners seething and insecure about the future of their enterprises, whether they are tiny or large.
But government’s surprise sweeping tax cuts for SMEs don’t address root of the business owners’ discontent however.
The anger does not come from high taxes, but rather it originates from the harsh rhetoric by the government, the tough punitive measures that have seen fines go up 10 to 50 fold, confiscation of goods and the repeat (and at times arbitrary) in-person audits by tax officials and the proposal to criminalize relations between businesses, customers and the state by introducing prison terms instead of civil penalties for informal-economy-related infractions.
These are all done in the name of fighting the informal economy, a worthy cause, being often pursued with unworthy tactics that are having a boomerang effect on the state’s finances and the country’s economic well-being.
These tactics and the effects on their businesses were the primary concerns of micro and small business owners who came together in a protest rally in front of the government building this week.
These concerns are also echoed by all business owners in the country who have expressed anger at what they see as an extreme and unfair new law that gives the government the power to put out of business any company in the country at any time through fines that many businesses simply can’t afford to pay.
In addition to the protests of small business owners, larger businesses and trade associations, which have the resources to better fight the government legally, are seeking to void the law at the Constitutional Court.
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.
Another element to this story is that 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. So the zeroing of the tax will not mean much.
As such these new tax cuts also appear to be populist political rhetoric aimed at fighting the opposition, which is trying to capitalize on the growing apolitical discontent from business owners by offering tax cuts of its own.
Prime Minister Rama is trying to sell the latest tax cuts as a positive result from the fight against informality, estimated at around 30 percent of the GDP before the anti-informality campaign began. He said that winning the overall fight will give Albania the opportunity to increase wages and lower taxes.
The government has softened its rhetoric some this week, but as long as it continues evading lengthy public discussion of fiscal changes and legislative amendments, it will continue to harm the business climate in the country – hurting the overall macroeconomic parameters of an already ailing economy.
