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News 12 Oct 17

Pledge to Extend VAT Worries Albania’s Small Businesses

Government plans to extend VAT to small businesses – to curb the informal economy – have left many of them fearful about the future. 

Fatjona Mejdini
New Bazaar in Tirana. Photo: BIRN/Ivana Dervishi 

The Albanian government’s plan to extend VAT to many of the country’s small businesses has created confusion among business owners over the impact on their administrative costs and raised concerns about likely higher prices.

Opposition parties have slated the initiative, calling it a threat to the existence of many small businesses.

“We are going to present our own proposal to stop this madness, which is going to cause a rise in the price of consumer products and decrease the budget income,” the leader of the opposition centre-right Democratic Party, Lulzim Basha, said on Wednesday.

However, Finance Minister, Arben Ahmetaj has already presented proposals to extend VAT to small businesses that Prime Minister Edi Rama has supported.

Ministers say the change is needed to curb “informality” – invisible cash-only transactions in the economy – and that the change will come into force in January 2018.

Up to now, businesses with an annual profit below 5,000,000 lek [37,000 euros] were excluded from having to pay VAT.

The Finance Minister claims that the exemption has encouraged the untaxed grey, or informal, economy to grow, while many businesses, he claimed, were declaring smaller profits than they actually earned in order to escape the taxes.

Despite that, the government has yet to prepare a draft detailing the proposals and explaining exactly how many businesses will be affected. Experts believe that the number of affected businesses will be around 91,000. 

Economic experts broadly welcome the idea but urge the government not to rush it through and study it thoroughly, in order not to create administrative costs that will be too heavy for small businesses to handle.

Zef Preci, director of the Albanian Center for Economic Research, told BIRN that small businesses needed time to learn the new practice and calculate the costs.

“If the government rushes it, many of these small businesses might either end up bankrupt or just raise the prices of their goods and services,” he said.

Many owners of small businesses are not clear how this initiative is going to affect them.

The owner of a small fast food shop in Tirana who did not want to give their name told BIRN that she was clueless about how the initiative might affect her business. “We need to look at the draft and then we can speak about it,” she said.

Another owner of a shoe shop was more worried and told BIRN that the initiative could wreck their livelihood. “We have two options: close the shop or raise the prices of the products that we sell,” she said

Bledar Spahiu, the owner of a jewelry shop in Tirana, told BIRN he did not oppose the initiative as long as it applied to everybody. “It will only be effective if it’s applied to everybody in the same way,” he said.

However, the government has already announced that VAT will not be imposed on craftsmen and small traders who sell in the municipal-run markets.

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