Increase tax compliance through prevention of money laundering
Strengthening tax compliance and domestic revenue mobilization has been a priority of Albanian fiscal policy for at least over a decade.
Although the vision has been adapted for an increase in the compliance model in function of a healthy environment for doing business, as well as for a greater fiscal space, the progress in practice is still far from the objectives set in the strategic documents of the tax administration [1] and the Ministry of Finance and Economy[2].
All this situation has affected firstly the budget result, where fiscal revenues are no longer able to protect families and businesses in times of crisis, as the tax base has remained the same for a decade and the budget money has not been collected by tax evaders but from the pockets of Albanian consumers. Secondly, it has influenced the culture of business and administration as well as the creation of conditions for the growth of the culture of corruption, since dirty money has the cost of corruption in its objectives
On the other hand, Albanian politics has encouraged the deterioration of this situation. In the decisions and with its approach to reducing taxes and differentiating and discriminatory tax exemptions, it has oriented the fiscal policy towards the unexpected and setting obstacles for the achievement of strategic objectives in all these years, disorienting the model of tax compliance and the fight against evasion.
In fact, even though there are convincing arguments (from experts with local and foreign experience) for not following through with ineffective exemptions and unstudied tax facilities, it is observed that this harmful approach has not stopped. Thus, e.g. even in the last month, incomprehensible relief was approved without any in-depth analysis and little discussion with interest groups for those who are considered digital nomads[3]. For this category of taxpayers, a special residential status is proposed for the purpose of exemption from taxes in Albania, affecting the reduction of tax vigilance for foreign individuals with and without criminal precedents. In this case, we mention this not to show that this is the biggest problem of the tax system. This serves to illustrate that while experts and individuals who analyze the economic world advise based on their experience, government experts are still few and far between to contribute to not repeating mistakes in the way of governing according to the old mindset, which continues in its journey of misusing local resources and capacities, but also foreign ones according to certain cases[4].
In this analysis we note that improving tax (and customs) compliance can indirectly help to mobilize domestic revenue without the need to raise taxes, which can dampen growth and the fragile economic recovery, for a fairer tax system.
But designing and implementing the tax compliance strategy properly and on time helps to maintain economic stability and increase debt sustainability.
At a time of economic slowdown and the need for disinflationary macroeconomic measures, this form of domestic revenue mobilization is equally important and should be coordinated with a fresh effort to close the tax gap and help manage inflation.
One of the effective means of strengthening tax compliance is the greater use of available anti-money laundering (AML) measures.
The use of AML/CFT measures can increase tax compliance and contribute to the treatment of tax crimes, which are below the expectations of the compliance strategy, noted the results presented in the administration’s performance reports.
Tax crimes (evasion), along with drug trafficking and other criminal activities, as well as corruption are widely recognized as the main offenses that pose money laundering risks (FATF, 2022).
In the practice observed by experts in the fiscal and economic sectors, it has often been mentioned that money laundering and tax crimes exist together and are difficult to distinguish and separate from each other.
Money laundering is often an integral and calculated component of a successful tax crime. It is facilitated by professional opportunities that offer “packaged” legal, accounting and tax services.
Some of the most successful approaches to the performance of the small administration of the General Directorate for the Prevention of Money Laundering (GDPML) have come precisely from an effective interaction with the tax department.
However, if it is seen in the last report of General Directorate of Preventing Money Laundering (GDPML)[5] and General Directorate of Taxation (GDT)[6] it can be seen that there is little interaction between them that has served for common and special purposes. Meanwhile, this cooperation seems to have not been realized more than what is reported by the Coordination Committee of the War Against Money Laundering (Committee), as the highest body responsible for determining the directions of the general state policy in the field of war prevention against money laundering and terrorist financing.
The fight against money laundering and fiscal and economic crime needs a new push and a mindset from leaders with a history and professional culture that gives the necessary guarantee for maintaining the integrity of the fight that is still at basic levels.
Without intending to continue with the evidence of inefficient work towards money laundering, although with a direct impact on the advancement of taxpayers’ compliance with the legislation, we think it is necessary to start precisely from what has not been done to date, such as and when required by strategic objectives.
AML/CFT measures can help improve tax compliance starting with the transparency of taxpayers’ fiscal and financial situations. Although legal changes have been approved to prevent abuse by criminal groups that operate in the market and launder dirty money, there seems to be a lack of periodic and necessary transparency related to the work of Taxation, Customs, Economic Crime and Financial Intelligence units on the results from the checks that they must perform in the field according to the management of risk cases. This is their daily work, but although there may be efforts to operate in the direction of the war against evasion, the few, partial, and ineffective reports on the results of this war give the conclusion that this war is truly little and misdirected to consider that it may affect the fiscal criminal elements.
Meanwhile, due diligence (careful and persistent work or effort) towards risky cases, oriented according to the AML framework, can help identify risky taxpayers, their taxable income, wealth, and assets. While integrity checks will include identifying and verifying account holders and their beneficial owners, as well as gathering a variety of other relevant information, including the nature of the business and where necessary the source of funds and assets, this it would be the first positive news in a long time that the financial and fiscal institutions are finally actually implementing the strategies that have been adopted.
An integrated fiscal and financial control between the institutions would be highly appreciated as the result would be the detection of fiscal evasion, not occasionally, but in bulk, as it would move from the anti-evasion method of “catching with hooks” to the method of “catching with nets“.
This different approach is based only on close inter-institutional cooperation and exchange of information from the AML authorities with the tax authorities, where the process should support the detection of tax crimes, help assess the risks of tax non-compliance, better target tax audits and contribute to sharpening the risk profile of uncooperative and evasive taxpayers.
As part of the duties of public institutions in the AML[7] is cooperation with private financial institutions, businesses, and other professions, such as: lawyers, accountants, auditors, real estate agents, etc., who are obliged to report activities and suspicious transactions to the GDPML authorities, but do not have the necessary culture and motivation to fulfill their obligation. If this information is processed according to financial intelligence techniques and coordinated with the economic crime and tax authorities, then all the commitment could be worthwhile fulfilling the objectives of the joint programs, but also the objectives of these institutions. So, the law would finally be applied by each party participating in the AML/CFT.
There is a need for coordinated actions, analyzed and thought through in detail, as criminal groups are quite organized and efficient and have managed to benefit from the passivity of institutions by applying corruption, fraud, blackmail, but also weak organization based on a political will with low integrity.
With the new initiatives, the enforcement mechanisms under the AML framework can reinforce and complement the powers already available to the authorities responsible for the investigation and prosecution of tax offences. Thus, the framework of the AML/CFT by filling legal gaps of the past leaves no room for justification, as it provides for comprehensive mandatory measures, including a framework of civil and criminal liability that extends to service providers that facilitate tax crimes, broad powers investigations, freezing orders, confiscation, measures to combat corruption of public officials, i.e. Politically Exposed Persons (PEP) and extensive international cooperation (including in asset recovery).
The willingness to establish the AML/CFT framework to support tax compliance is an irrefutable argument from any level of corrupt official, as delays and inaction in time can no longer be used as a means of mitigation for fiscal criminals. Beyond the political and legal challenges, however, there are still operational challenges that may have an impact on bringing together synergies between GDPML and GDT and others requiring the Committee to work with operational units to overcome issues of low capacity and lack of prioritization in it. the same level by law enforcement agencies.
These barriers of a conceptual nature and old-minded business cultures are practical issues that need to be managed through additional guidance, enforcement and pressure through accountability and extending cooperation beyond institutional frameworks using the principle of inclusiveness according to the role that everyone should play each actor in Albanian society.
[1] https://www.tatime.gov.al/shkarko.php?id=108
https://www.tatime.gov.al/shkarko.php?id=715
[2] https://financa.gov.al/wp-content/uploads/2020/07/Strategjia-Sektoriale-per-Menaxhimin-e-Financave-Publike_-Permbledhje-2019-2022_ALB.pdf
[3] https://www.konsultimipublik.gov.al/Konsultime/Detaje/615
[4] https://www.imf.org/-/media/Files/Publications/WP/2023/English/WPIEA2023083.ashx
[5] https://fiu.gov.al/wp-content/uploads/2023/06/RaportVjetorFinal2022.pdf
[6] https://www.tatime.gov.al/shkarko.php?id=13268
[7] https://altax.al/shqiperia-forcoi-transparencen-dhe-permiresoi-rregullimin-dhe-mbikeqyrjen-por-nuk-mjafton-per-ta-hequr-nga-lista-gri/
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