Luan Bregasi, the head of the Business Albania Association says the changes will serve as a borrowing tool for government at a time when in these difficult times government must think of offering facilitation to businesses
TIRANA, May 8 – A draft law foreseeing the prepayment of the 10 percent profit tax every three months starting from January 2013 has angered the business community which claims they will face extra costs in these times of crisis. Nikolin Jaka, the head of Tirana Chamber of Commerce and Industry says we expect from the Finance Ministry the ease of the tax burden and not its aggravation. “What’s been proposed, violates the principle of fair relationship,” Jaka told reporters, adding that the Chamber will strongly lobby against the proposal.
Experts say the prepayment of VAT and more recently also that of excise taxes further increases the tax burden in these times of crisis.
Alban Zusi, the head of the Exporters Association says “the increase in consumption will first of all come from the increase in investments and if we strip businesses of the opportunity to invest by preliminary taking from them unfulfilled profits, we have not achieved anything but curbed economic growth. Prepayment on a quarterly basis means the profit tax is no longer 10 percent but 12 or 13 percent if interest rates are taken into account.”
Luan Bregasi, the head of the Business Albania Association says the changes will serve as a borrowing tool for government at a time when in these difficult times, government must think of offering facilitation to businesses. According to him, profit tax should be paid after the profit is made.
Meanwhile, the Finance Ministry claims the draft will reduce profit tax payments from 13 in a year to only 5. “The main reason of this draft law is related to the improvement of Albania’s indicators in the annual World Bank ‘Doing Business’ reports. Under the current income tax law, businesses make 13 payments on profit tax, 12 of which are prepayments in instalments and one is related to the annual declaration. The draft law is expected to enter into force on Jan. 1 2013,” says the ministry.
The ministry claims the new scheme is flexible to respond to fluctuations in revenues for businesses especially in periods of economic difficulty.
“The compulsory collection of these instalments in advance denies taxpayers the opportunity to use funds that would have great importance for their survival but the tax administration will have to reimburse them in the future,” says the draft law. Poor performance in the profit tax collection is another reason government has proposed the new scheme. Latest Finance Ministry data show businesses are facing tough times in early 2012 after profit tax registered a sharp 21.8 percent shrink at the end of the first quarter.
Albania has been implementing the 10 percent flat tax on salaries and corporate taxes since 2008 in an effort to improve business climate and attract more foreign direct investment.
However, data show the implementation of this tax has had minor impacts on tax revenues during the past few years since government revenues from this tax have increased by only 8 percent in the 2008-2011 period.
The services sector, which accounts for 60 percent of the GDP and employs around 36 percent of the population, was the biggest profit tax contributor in 2011 with 7 billion lek, followed by manufacturing and trade with 5.2 billion lek and 4.3 billion lek respectively.
The construction sector which has been in crisis since 2008 paid 2.9 billion lek in 2011, down 20 percent compared to 2010, according to Finance Ministry data.
The Total Tax Rate in Albania, at 38.5 percent is below the world average of 44.8 percent, but it is a more difficult compliance environment, with more hours needed for tax compliance and more tax payments, according to the latest World Bank’s latest Paying Taxes report. Albania ranked the world’s 88th in the report, far worse than neighbouring Kosovo, Montenegro, Macedonia. In Albania, businesses need to make 44 tax payments a year ranking the country the world’s 148, taking them 371 hours.
The opposition Socialist Party which has proposed a progressive taxation system to replace the 10 percent flat tax in an effort to lower tax burden for people with low income has opposed government’s initiative. Meanwhile, the IMF has recommended raising the flat tax to 15 percent if Albania wants to keep public debt, currently hovering at around 60 percent of the GDP, in check.
