TIRANA, June 7 – One year ahead of the new general elections, the ruling Socialist Party-led coalition has drafted a new fiscal package that sharply reduces penalties against the business community and facilitates tax procedures. The unusual mid-year package comes after reports of deteriorating business environment by several key foreign and Albanian business associations and after a law envisaging fines of up to €70,000 on tax evasion was turned down by the country’s Constitutional Court earlier this year over “disproportionate” penalties to income and offences committed.
In a meeting with investors last week, the finance minister said the new fiscal package will focus on cutting procedures and bureaucracy rather than taxes, which remain a key concern for investors along with the highly perceived corrupt justice system.
The changes to the law on tax procedures envisage businesses should be notified 45 days before an inspection and that firms can autocorrect with no penalties for a period of up to five years.
The new package also envisages a reduction in fines, their payment in instalments and an extension of automatic VAT refunds for exporting companies. However, businesses with an annual turnover of 5 million lek to 8 million lek (€35,000 to €57,000) who currently face a 5 percent profit tax risk being classified into big businesses and pay a 15 percent profit tax in case of being caught trading without tax receipts.
The Appeals Directorate is also expected to shift under the supervision of the finance ministry and also include business representatives, slightly reducing pressure from the tax administration.
“Some of the elements I would like to stress as extremely important include the enterprises’ right to auto-correct with no penalties for a period of up to five years, the administration’s obligation to notify enterprises 45 days before an inspection, the concept of fiscal precedent on the implementation of legislation and the revision of the appeals structure whose decisions will be final to the tax administration,” Finance Minister Arben Ahmetaj writes in a letter to the country’s business associations.
The new package is also U-turn compared to the late December fiscal package increasing fines by up to 50-fold and some amendments to the Criminal Code replacing fines with imprisonment over tax evasion.
Two recent surveys by the American Chamber of Commerce and the German Association of Industry and Trade in Albania have shown a deterioration in the business climate despite the economy slightly accelerating to 2.6 percent in 2015.
The business community has welcomed the measures, but warns the current high tax burden remains the key concern.
“It is necessary that the Albanian government seriously considers reducing the tax burden which is the highest in the region,” says Nikolin Jaka, the head of the Tirana Chamber of Commerce.
Albania lost 35 places to rank 97th out of 189 countries in the latest Doing Business report published by the World Bank.
Business associations have continuously appealed for a review downward of taxes on profit, dividend and personal income and a return to a flat tax regime of 10 percent as an incentive giving the business community more room to develop and increase registration numbers.
Since 2014, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in Albania one of the region’s highest.
The higher tax burden and the nationwide campaign against informality has also failed to meet government revenue expectations with the budget cut three times in 2015 when sluggish domestic consumption, a sharp cut in international oil prices affecting exports and spillover effects from the crisis in neighboring Italy and Greece, the country’s top trading partners, had a negative impact.
Albania’s total tax rate at 36.5 percent of the commercial profits is the second highest after Serbia’s 39.7 percent which is a much bigger economy. The total tax rate among other regional competitors ranges from 12.9 percent in Macedonia to 23.3 percent in Bosnia and Herzegovina, according to the World Bank’s Paying Taxes report.
The Albanian economy has grown between 1 to 3 percent since 2009 compared to a pre-crisis decade of 6 percent.
