TIRANA, Jan. 22 – The value added and personal income tax thresholds are one of the main causes leading to tax evasion in Albania, a survey has shown.
About 38 percent of companies surveyed by the Albania Investment Council, a government advisory body, rated the turnover thresholds that Albania applies on businesses to be included in the 20 percent VAT system and the progressive taxation the country applies on wages as the main two factors leading to tax evasion, one of the top concerns facing Albanian and foreign businesses operating in the country.
Albania currently excludes businesses with an annual turnover of less than 5 million lek (€37,262) from the VAT system and applies progressive taxation of up to 23 percent on personal income for monthly wages of more than 130,000 lek (€968) under a system that excludes the first 30,000 lek (€224) from taxation and applies a 13 percent rate on income from 30,000 to 130,000 lek.
The changes on the personal income tax were introduced in 2014 after the ruling Socialist Party lifted the 10 percent flat tax the country had been applying on both companies and households and introduced a 15 percent rate corporate income and progressive taxation on wages, triggering concerns of a higher tax burden on businesses and high-income earners.
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 and a key concern for foreign and local investors.
Starting April 2018, the 20 percent VAT threshold on businesses will be lowered to an annual turnover of 2 million lek (about €15,000), down from a current 5 million lek (€37,000) in a move which is expected to have a negative impact on dozens of thousands of small businesses, already facing tough competition by supermarket chains and shopping centers. The move could also trigger higher informality as small businesses will try to keep their annual turnover below the new threshold.
The apparently strict enforcement of tax procedures and confidential relations with the tax administration were rated as the top two factors promoting tax evasion for 2017, according to the survey conducted by the Albania Investment Council, an advisory body serving as a linking bridge between the business community and the government set up in 2015 with support by London-based European Bank for Reconstruction and Development.
About a quarter of respondents said businesses’ corruption culture and their political affiliation is the number one cause that encourages informality.
The poor capacity of both the tax and customs administration was rated as the second most important issue for businesses in their informality concern.
Respondents also cited the politicization of the tax administration and recruitment being made on political affiliation rather than professionalism as a major problem in relations with the tax administration.
The politicization of the tax administration has been an ongoing issue in Albania’s public administration during the past quarter of a century of the country’s transition to democracy, costing taxpayers millions of euros in court compensation for unfair dismissals.
“Young graduates with a minimum of 1 to 2 years of work experience can never be part of the tax inspection department and inspect professionals who have been operating for years,” a business representative was quoted as saying on condition of anonymity.
The late 2017 survey with some 150 Albanian and foreign-owned businesses operating in the country showed perceptions on relations with the tax administration, the tax evasion phenomenon and VAT refunds have considerable improved compared to 2015 when the government launched a rather aggressive nationwide campaign against informality, estimated at about 30 percent of Albania’s GDP.
The reduction of the administrative red tape, the enhancement of the administration’s professionalism but also incentivizing the companies which comply and invest in the country are some of the main business requests to promote formalization of the economy and private investments, showed the Investment Council survey.
A late 2016 survey by the same advisory body showed VAT refunds, ongoing reference prices at customs points and relations with the tax administration are some of the key concerns facing businesses in Albania.
