TIRANA, Feb. 21 – Legal changes applying a two-tier value added tax on agricultural products starting January 2019 have placed Albania’s agribusiness industry into difficulty and made the country’s exports uncompetitive due to increased costs.
Business representatives say the situation is a result of legal changes approved in late 2018 as part of a 2019 fiscal package that lifted a unified 20 percent VAT that Albania applied on agriculture products to switch to a differentiated 6 percent on VAT applied during the purchase of products from farmers and a 20 percent VAT applied during sales. The two-tier taxation has led to a 14 percent gap in VAT refunds for businesses that will either be covered through lower prices applied on farmers or higher consumer prices.
Producers and exporters of agricultural products say the new taxation, which they strongly opposed since the beginning, is a step backward for Albanian agriculture, due to increasing costs and favoring imports whose VAT is at 20 percent.
Calling on the government to revise the tax and apply a unified VAT on both purchases and sales, agribusiness representatives say the current situation could lead to a hike in informality rates and hamper food safety in the country.
While the lower VAT was intended to help farmers, due to the high informality in Albania’s agriculture sector, producers say the 6 percent VAT is harmful both for farmers who will be forced to sell their products at cheaper prices and the industry itself due to increased costs.
In order to benefit VAT refunds, Albanian farmers need to be registered with tax authorities, but only a tenth of some 450,000 farmers nationwide pay taxes.
Albania had some 36,520 farmers paying social security contributions and counted as active enterprises at the end of 2017, in a key barrier that prevents them from VAT refunds and application for subsidies, in addition to failure to get access to key health services and future retirement benefits.
Tax incentives on the agriculture sector for 2019 included the lift of VAT on imports of machinery for traders and lower taxes on the emerging agritourism industry.
Albania’s agribusiness industry is dominated by producers of canned fish, medicinal plants, fresh vegetables, meat and milk.
