Prime Minister Edi Rama met with small business representatives as part of the ongoing dialogue with the small business to explain that the government’s decision to include small business with an annual turnover of 2 million lek in the 20 percent VAT system will not produce negative effects on the small business but it will close existing loopholes for large business tax avoidance activities. The discussion considered a decision to increase the annual turnover threshold to over 10 million lek in order to maintain profit tax on all small businesses at the current rate. Exceeding the annual turnover threshold of 8 million lek was the main concern expressed by the small business representatives during the meeting. Business representatives also raised concerns over the tax administration.
PM Rama: Thank you very much for attending the meeting!
I would like to open a discussion given also the fact that over this period I have had a series of meetings with groups of small business representatives and several of them are also attending the today’s round-table discussion. I don’t know whether you would be ready to tell publicly on camera what you have already told me earlier without the presence of the media. During these meetings, I have come to the conclusion that your main problem is not VAT, but the 8 million lek ceiling in annual turnover, because by exceeding the 8 million lek ceiling you become subjects that then are obliged to pay a tax rate ranging from 5 to 15 percent. This prompts many of you to draft manipulated balance sheets and you admit it. They live in constant stress of formulating false balance sheets just to keep the head under the ceiling, while their annual turnover is over 8 million.
I think the time is ripe to properly address this matter so that no small business is forced to lie. The ceiling of the annual turnover will be increased to over 100 million so that you become state allies to achieve the objective of this movement. The goal is not to take more money from you, but to force big enterprises to issue an invoice for every performed transaction. Big enterprises provide you goods without issuing invoice and on the other hand small businesses ask them not to issue such invoice otherwise they will exceed the 8 million lek ceiling. We are seeking to give a logical and legal end to such practice.
During these meetings, I have come to the conclusion that your main problem is not VAT, but the 8 million lek ceiling in annual turnover, because by exceeding the 8 million lek ceiling you become subjects that then are obliged to pay a tax rate ranging from 5 to 15 percent. Therefore, by launching this discussion and looking forward to seeing you being so open and sincere as you used to be, when we talked together at least, I would like to assure you all that we are even more interested in order to reach the most reasonable and logical solution as of to what extent to over the annual turnover of 100 million it should go in order to ensure that all of you and entire category of small business operators function and breath freely without wasting more time and no longer be under stress about how to lie and then keep shaking when the inspectors visit them, but instead just use the cash register machine anytime doing a transaction. Because in the end it will always be again within a reasonable threshold with small business operators not being obliged to pay more than a 5% tax rate as this is ultimately the logic of this world of lies where we live so long in.
I often hear people saying that the tax burden has been raised. Would you tell me one single tax that has been increased? The truth is that the tax rates have been cut significantly. I am speaking about the national taxes in my capacity as Prime Minister. The municipal taxes and tariffs are something else. If you wish to hold a meeting with the mayors, I am ready to attend a round-table discussion along with local government authorities and discuss various proposals and suggestions on this issue. However, the government I head has cut the tax rates. The small business tax was cut to a zero rate, the double taxation was removed and zero-tax rate is applied on businesses with annual turnover of 5 million lek and five percent rate is applied on businesses with turnover of five to eight million lek. These cuts are considerable.
It is true we have increased tax on oil in order not to impose other taxes. When we took office back in 2013, the country stood on the edge of financial abyss with government risking not being able to pay salaries and pensions at the end of November and December that year. I have repeatedly stated that the International Monetary Fund urged the government to lower pensions and increase taxes.
We have increased tax on oil for a very simple reason. Could you tell me how much you spent on oil in 2005, 2006, 2008, 2009 and 2010. You used to pay more than you pay today. Today, tax is included in the oil price. It is pretty easy to say that oil costs more than in other countries and this is true; oil is more expensive because its price includes a tax on all those who consume oil and it covers all needs for the state budget not to increase taxes on others.
Therefore we should discuss these issues under a general context. A tax-free world would have been absolutely beautiful, but we have already experienced a world without taxes for 50 years long. That’s a tax-free world. The question is how we can do the best for both you and the state become the real winners. It should not be a situation with losers and winners.
The tax administration is today marred by many problems, but it can absolutely beyond comparison with the tax administration up to five years ago. It is absolutely matchless. It is true that parasitic and incompetent inspectors are still part of the tax administration, but they can be easily removed if you really want to fight. It takes just three minutes to write your complaint and access the co-governance platform “the Albania we want.”
A minor number of complaints against tax inspectors have been filed with the platform. Tax inspectors have been arrested or fired anytime their abuses or misbehaviour have been reported. But you should denounce them first. Tax inspectors should learn to show utmost respect anytime they check a business operator. But it is impossible for me and the minister to impose such respect. We are doing whatever it takes to train and advise them that a business is the whole life of the people who have built it and as such they can’t arbitrary interfere in their lives. You should protect you business. You shouldn’t wait to meet the Prime Minister, but just try it. The business association can also do a good job by registering all complaints and denunciations and forward them to the co-governance with the citizens platform and you will receive a response within ten days.
As for the widespread speculations over alleged high number of businesses closing down and fall in consumer spending is a world of fantasies, because the today’s number of small businesses is much higher than it was four years and a half ago. Some businesses close down, but many others open. It happens all over the world. At the end of the day, the calculation is quite simple; today there are more businesses operating, whereas consumption is growing. It is not true that consumer spending has fallen. Consumption has been pursuing an upward trend for years now.
Official data show that some 5633 new businesses have been opened during the period from January through March alone. Some 14 thousand new businesses were opened last year. Total number is much higher. This is a fact.
You can keep on protesting but I would like to stress out two things; the protest has failed, because the truth is that an overwhelming majority of businesses know quite well what it is all about. So no one can be fooled by these stories of businesses downing their shutters and shoe-throwing stories. It is quite easy for businesses in municipal markets to down their shutters. So someone goes and tells them lies and they down their shutters. But such businesses have nothing to do with the decision to include small businesses in the VAT system. It is not our problem who you vote for, what you say on TV or who you are affiliated with. This is not our problem.
So I know quite well this government has not increased taxes. Pricing is not a tax. The electricity price is not a tax. As for the taxes, the only tax we have increased is that on big business and the tax on oil and both are fully reasoned. If you can name a third tax then I will agree.
We haven’t increased the property tax, but we have shifted property tax calculation based on current market value. It will no longer be calculated depending on the size and location of the property but on the market value.
Something else has happened. The central government has cut taxes, but local government authorities have increased taxes and tariffs. But this is something else. I admit that local tariffs and taxes have been increased. But realistically speaking, the municipalities have their reasons to do so. But this government has not increased any tax.
I reiterate, if you encounter problems with the tax inspectors and the way they behave, that problem is ten times bigger for me. If you feel insulted, I feel ten times more concerned, because they represent the government. But the remedy is in your hand. Do you wish to discipline them to speak cautiously and do their job? It is quite easy; just access the Albania we want platform and that is the answer.
It is true that by tax inspectors may abuse with their office when controlling various businesses, but this is not always the case. Such controls have been preset and scheduled by the General Taxation Directorate and inspectors cannot exercise controls on their own will anytime they want to do so. We have launched an inspection reform by merging inspectorates in order to reduce number of such inspectorates. This is a process we will push forward.
Let’s go over the issue of including small business in the VAT system again. Our calculation data show that no small business has an annual turnover of 2 million lek. Even those claiming that their turnover is five million lek are not telling the truth. It is a whole world of lies, because if you declare a higher turnover that you pay higher taxes. So this is a stalemate caused by these various turnover thresholds. That’s why we are looking into this issue and we have decided to introduce a turnover threshold of 100 million lek. Whether the exact threshold will be 120, 130, or 140 million lek this has yet to be determined since right calculations are being made. What makes us strategic partners in the efforts to formalize the economy through the small business is not what the state budget can collect more in tax revenue from you. The goal is to prevent big enterprises from attacking the state by using the small business. This is what makes the alliance with small business a strategic one and that’s why we do not plan to enhance forces and energies to control the small business operators. We are seeking to liberate small business from this lies and controls will focus on big businesses. The main problem to the economy in terms of informality is the big businesses since they provide you goods without issuing invoice and on the other hand small businesses ask them not to issue such invoice otherwise they will exceed the 8 million lek ceiling.
I would like to reiterate that the government has increased taxes on big businesses only and no one else. When we say that 97% of the Albanian citizens pay less taxes this is easily verifiable. Even if we consider the fuel tax that is an increased tax, if we compare it to a few years ago when the price was higher, from the point of view of the internal spending of anyone who consumes fuel, the price is still lower we have taken advantage of lower international oil prices to introduce a liability that we would otherwise impose it elsewhere, but we have charged those who spend on fuel and who are and the largest pollutants.
Likewise, we will all together fight to steadily improve the public administration. The administration could improve if we enhance the human resources capacities within the administration and if you limit any misbehaviour or abusive act by the administration. For the latter, I challenge you all to test my word. You have the platform of co-governance, it takes 3 minutes to present the problem and it is not the administration to deal with the problem, but the minister will personally take care of it.
We hold a cabinet meeting each week and at the end of the meeting, the ministers answer in person about the number of complaints and their resolution. This is the way to commit each minister to resolving each problem.
To conclude, we are convinced to raise the annual turnover threshold to over 100 million lek and the decision will be made in the next two months. We have yet to decide the exact figure but the threshold will be raised to over 100 million lek and this is undisputable, so that the small business is no longer fooled by others but becomes a trustworthy ally of the government in order to enforce big enterprises to issue invoices. This is the way to formalize the economy and we ask you to push the cash register’s buttons anytime you carry out a transaction. And naturally there will be no need for controls from the tax inspectors. This process will complete by June before the negotiations open. This is the most important aspect of the today’s meeting.
Meanwhile, I am aware of another problem, the cost of cash registers, the quality of service and their maintenance cost. We are working on an alternative system that doesn’t exclude the use of cash register, but it will make your job easier. You will decide whether you want or do not want to keep the cash register at a lower cost by taking advantage of the technology via “the spy” we all have in our pocket. This is what we are trying to do and I am confident we will finalize this project by the end of this year.
