Experts oppose application of progressive profit tax rates

TIRANA, May 2 – A government initiative to raise profit tax rates by up to 30 for big companies operating in Albania has sparked mixed reactions among the country’s leading business associations.
The Tirana Chamber of Commerce and Industry says the new measure would ruin the plans of big investors, especially foreign ones.
“After contacting some big domestic and foreign investors and informing them on the government plan, the Tirana Chamber of Commerce and Industry faced fierce reaction because these investors have made their mid and long-term plans on the current fiscal system, more concretely on the application of the flat tax regime,” said Nikolin Jaka, calling on government to review its initiative.
Meanwhile, industrial businesses represented by Konfindustria have hailed the government initiative saying that a progressive profit tax regulates that segment of the market which operates under monopoly conditions.
“I think the government initiative is acceptable and I must say delayed,” says Konfindustria administrator Gjergj Buxhuku, adding that profit rates of more than 20 percent are observed only in sectors operating under monopoly conditions.
Meanwhile, Luan Bregasi of the newly established Business Albania association says the progressive increase in the profit cannot serve as a tool to lower tariffs for consumers. According to him, its implementation could bring informality and invasion even in banking and telecommunications, which are the most regulated sectors of the economy.
Government says it is drafting a new law that will raise profit taxes for big companies up to 30 percent, changing the 10 percent flat tax system it has applied since 2008 into a progressive profit tax. Finance Ministry sources say the 10 percent profit tax will remain in force only for companies with a profit rate of up to 20 percent. The profit tax for companies with profit rates from 20 to 30 percent will be 20 percent, while companies with a profit rate of more than 30 percent will be taxed at 30 percent.
The measure comes few months after Prime Minister Sali Berisha warned his government would move to raise taxes for mobile phone companies and banks charging unjustifiable high fees and tariffs on Albanian consumers.
A study by the Finance Ministry shows that 15 companies out of 100 big companies operating in Albania apply profit rates of more than 20 percent. Data show 6 of the surveyed companies had profit rates from 20 to 30 percent while 9 others applied profit rates of more than 30 percent.
Experts have described the measure to increase taxes at this moment when businesses are still recovering from the crisis as a wrong decision making Albania less attractive for potential investors.
Asked about the effects the initiative would bring, central bank governor Ardian Fullani said the Bank of Albania had not been informed on the proposal but urged about well-studied policies increasing the competitiveness of the Albanian economy to make it more attractive for foreign investors.
“This would translate into low costs, help the competitiveness increase and preserve the standards of an economy that produces, exports and invites the foreign investors to raise domestic capacity utilization rates,” said Fullani.