The government’s sudden decision to remove small business taxes has put
in question the fifth and sixth agreement of the IMF, reached on
November 10th after difficult and tense negotiations between the
parties.
But this agreement was on a technical level. For completion, it should be approved by the IMF Board of Directors in Washington, which would make way for the next loan.
IMF and the Ministry of Finances said the board would approve the agreement with Albania in the next meeting, which is foreseen in January 2016.
But only two days after the agreement was reached in a technical level and the IMF had left the country, PM Edi Rama declared that the small business tax threshold would be removed from 5 million ALL to 8 million, and it would be removed for businesses with an annual turnover up to 8 million.
This decision caught the IMF off guard. The concern of this institution is that the exclusion of 100.000 businesses from this tax would damage the tax system integrity. The news for the new situation created between the government and the IMF was confirmed even officially by Jens Reinke, resident representative of the IMF to Tirana. He said for Top Channel that the decision will cause problems with the stability of the tax system and will encourage evasion.
But why did this insignificant change to the budget (1.3 billion ALL) made the IMF nervous? The first reason is that it damages the honesty of the tax system, since those who earn through businesses will not pay taxes, and those who receive salaries will be forced to pay. But more than the honesty element, IMF says it damages the tax system.
The 5 million threshold that has zero taxes on profit will make many businesses manipulate their books to try and stay below this level. Even the Tax Office, according to the IMF, will not be focused on businesses with less than 5 million of turnover.
Besides evasion, the tax reduction for all small businesses leaves space for tax evasion. One example would be that big businesses would divide their activity into several small businesses. Individuals with high revenues would declare as if they have less. Every business owner with 40.000 ALL monthly revenues will pay no taxes.
“We are discussing with the government to reduce the consequences and we hope that the reviewing of the agreement will be reached based on the results”, said the resident IMF representative for Top Channel.
The government admits they have been discussing with the IMF for this matter, but the Economic Development Minister, Arben Ahmetaj said that the government will reflect this change in the successful agreement with the IMF.
The parties are contacting and discussing to find a solution to this stalemate, but there is nothing final yet.
Top Channel
