The corporate income tax, a top concern for the fa谮 industry, will remain unchanged at 15 percent, the same to all medium-sized and big enterprises after Albania abandoned its 10 percent flat tax regime to replace it with progressive taxation starting 2014.
TIRANA, April 21 – Government has finalized a package of facilitating measures on garment and footwear producers in an effort to give a boost to this sector which has been the traditional top Albanian exporter and one of the key employers in the past two decades despite negative impacts from the Eurozone crisis in the past few years. The move comes after the corporate income tax was raised to 15 percent starting January 2014, sparking strong opposition by this business community, worried over losing competitiveness to regional peers applying 10 percent flat tax regimes.
The new package includes a series of measures which offer garment and footwear producers, locally known as fa谮, state facilities for a symbolic rent of only one Euro, accelerate VAT refunds to 30 days, and lift of a series of customs barriers. However, the corporate income tax, a top concern for the fa谮 industry, will remain unchanged at 15 percent, the same to all medium-sized and big enterprises after Albania abandoned its 10 percent flat tax regime to replace it with progressive taxation starting 2014.
Government says the extra 5 percent from corporate income tax will go back to garment and footwear producers in support policies to promoting employment in these enterprises by paying social security and health insurance contributions for new employees for a certain period.
“The extra 5 percent contribution in corporate income will go to all those companies which introduce concrete extension, development and employment plans,” said Prime Minister Edi Rama introducing the package on Monday, assuring that USD 5 million has initially been made available to support new jobs in this sector.
“This package is the reflection of a new model for the country’s economy, which is completely different from the previous growth agenda based on remittances or public debt. The new economic model which is being installed, is replacing these factors with new economic factors,” said Rama.
“The bases of this new model are domestic production, foreign direct investment and the return of the economy to efficiency to guarantee normal development of the economy based on government-enterprise partnership,” he added.
Economic Development and Entrepreneurship Minister Arben Ahmetaj said the new package will also eliminate abuses by reducing barriers on VAT refunds and facilitating procedures on obtaining certificates of origin.
Government expects garment and footwear exports to increase by 80 percent in the next three years.
“We expect exports from this industry to increase from 495 million euros currently, to 900 million after three years,” said Ahmetaj.
Government says it will support enterprises hiring new employees with the payment of social security contributions and health insurance for one year and four monthly wages.
Worried about negative impacts from the new fiscal package, the fa谮 industry had warned the increase of the corporate tax to 15 percent risked making Albania less competitive compared to other regional countries applying 10 percent flat tax regimes. They had even threatened of transferring their capital abroad, bringing the example of Macedonia which offers special tax incentives for investments in technological-industrial development zones including personal and corporate income tax exemption for the first ten years.
Garment and footwear producers had requested government to freeze the increase in the minimum wage for a period of up to five year, arguing that spending on wages accounts for 80 percent of their operating costs.
Producers also requested that the VAT-free list on imports of machinery and equipment is extended and that the corporate income tax on the industry is lifted.
Albania 1 Euro
Last February, The Socialist Party-led government approved the Albania 1 Euro initiative, offering state-owned assets for a symbolic rent of 1 Euro in return for investments and job creation. The “Albania 1 Euro” initiative had been launched by former Prime Minister Sali Berisha back since 2006 but proved unsuccessful in attracting foreign investors in these kinds of investments.
The decision foresees that state run assets with an area of 500 m2 and more can be given for 1 Euro under tender procedures for investments of Euro 10 million in manufacturing industry and in the garment and footwear industry for which government has not set any investment threshold.
A list of available facilities for rent has already been published, but most of them are in dilapidated conditions due to abandonment.
Back to top exporters
Garment and footwear products are back on top of the Albanian exports list. After losing their top position in 2012 and 2013, garment and footwear products, the traditional top Albanian exports during the past two decades of Albania’s transition, regained their lead in the first couple of months of 2014, overcoming “minerals, fuels and electricity” which were Albania’s top exports in the past two years.
Data published by the country’s state institute of statistics, INSTAT, show exports of garment and footwear grew by 26 percent to around 14 billion lek (Euro 98 million) in the first two months of 2014 compared to the same period a year ago.
Exports of garment and footwear products, the traditional top Albanian exports until 2011, overcame the slight shrink in 2012 fuelled by crisis impacts from EU partners despite difficulty in entering new markets. Garment and footwear exports, whose overwhelming majority of more than 80 percent has Italy as its destination, grew by 11 percent to around 70 billion lek (Euro 485 million) in 2013, overcoming the 3.2 percent shrink in 2012.
Overwhelmingly dependant on demand from crisis-hit hit top trade partner Italy, the destination of 50 percent of total Albanian exports and 85 percent of garment and footwear products, the fa谮 industry, which accounts for 30 percent of total exports, expects 2014 to be more positive in terms of employment and manufacturing.
Data show some 470 textile companies operate in Albania currently employing around 100,000 people. Diversification of markets, considering that the majority 80 percent of these products go to Italy and the remaining share mainly to Germany and Greece is another concern for textile producers.
Some of Albania’s advantages compared to other regional and European countries include the low tax burden, minimum wage and its young population.
