Startups in Albanian economy and effect of fiscal policyALTax
To make comments on the subject it is needed to be answered to some questions.
Firstly, higher taxes or lower taxes? What if a new business?
The perception of Albanian citizens and businesses to a functional economy and fiscal system is largely based on the current reality in Western Europe, but also other developed countries. Although in these countries the fiscal burden is high, it is considered a burden distributed fairly and equitably to the entire population. But we also perceive that there, citizens and businesses enjoy full rights of a better welfare than in Albania or the region.
If you look at their fiscal systems with ‘eye’ of an expert, the first comment is strongly connected with the implementation of fiscal policies with the common mission: greater revenues to be converted in social policy and investment as qualitative as much possible. So, where are high taxes, either the welfare is high.
But is it just that?
The citizens in western and north of Europe and those of developed industrial countries live high standards of living, not only because of high taxes. In fact this is one big reason. But above all, they enjoy this wealth because they knew how to adapt the economy with fiscal system. At the time when their countries had economic development with high rates, their taxes were much lower than they are today for businesses, and even lower from those taxes that are being applied today in Albania and in the region. The tax burden rose gradually and naturally over decades.
Let see this fact in the Nordic countries. Of the 16% that was average this tax burden in the 40s – 50s, today is 37% to 52%. A similar fiscal policy that consist in easing the burden for a fraction of the population and small businesses and growing burden for the richest it was followed from the administration of the former US President Ronald Reagan and mainly from the administration of former US President Clinton.
This will happen to countries of Balkan area, and especially in Albania after a restructuring of the economy and business, according to the degree of evolution of economic relations.
It is a worldwide known fact that shows all of us that tax system with low taxes serves as an incentive for business records. The greater encouragement belongs to border businesses, but also businesses that are looking for new opportunities for high profits are greatly encouraged. But, on the other hand, the same policy is proven that does not encourage informal businesses because not enough fiscal policy to formalize the economy. To be enough it is needed as complementary measures of anti evasion, but also improving the conditions for doing business.
However, if would be encouraged the increase of the number of new businesses (tax base), the economy would have a beneficial effect chain. At the moment when an increase of businesses is the priority of fiscal policy and of the government then the informality it is the only one that narrows and new fiscal climate provides equal terms in the domestic market and the people feel more released from the tax burden and see with optimism the new reality of economy and doing business environment. Subsequent effect begins and increases the participation of citizens in the creation of interest groups to exercise the normal pressure on the government to more effective policies to reduce barriers and facilitate administrative costs. So, the evolution brings in the new phase of business life and social norms.
Secondly, do we have full regulatory framework and incentives for Albanian businesses?
In the history of doing business in Albania, for at least the past 25 years legal initiatives have been undertaken to facilitate the criteria for opening new businesses and stimulate the productive sectors and the entry of foreign capital.
In some cases, tax incentives, e.g. manufacturing sector have temporarily stimulate its segments, but are also used as tax shelters, as are been not part of a vision and goals of policy. On contrary these incentives weren’t accompanied by full measures.
An approach that faced the old routine and managed to the change to stimulate the procedures for new businesses are two important laws (a) for the enterprise Albanian Law on commercial companies, as well as (b) registration law and procedures for the commercial register, both included to be proceeded to the National Business Center.
Both these laws have yielded in business development by increasing administrative culture, by focusing on business governance and organizational structure, as an organized community and economic energy source country.
While fiscal policy toward the enactment of procedures and strengthening of administrative experience since 2008 has increased the opportunities for assistance in business procedures regarding registration and deregistration in tax administration, rights and obligations, and creating structures as Business Advocate to help and protect the interest of business.
From former experience in tax administration observation shows that we have a competitive regulatory framework and the Balkan region, but also in continuous adaptation to the principles of the EU administration.
In Albania, the fiscal system is modeling the administration to be focused in a) expanding the tax base for any tax and the segment, b) adjusting the legislation to the requirements of business and economic conditions; c) strengthening the capacity of tax administration fighting the negative phenomenon of corruption.
The concern is now related to the response to the suggestions of foreign assistance about the reflection of the government toward improving the regulatory framework. Consultancy and experiences should be heard and learned to get the optimal essence of technical assistance. But, the former experience tells that all the tests need the passing confirm from the economic and financial ‘laboratories’ of government and entrepreneurship.
It is valid for the purpose of starting a remodeling of public administration by examples of private organizations. An innovation in the government standard structure organization scheme would be for instance, making part of central institutions the research and development units (like R&D units in big companies).
Thirdly, how policies affect business and competitiveness in the Albanian market?
In these last years, besides the effect of increasing the performance of the administration have gone in favor of citizens a range of tax incentives, such as reductions and elimination of customs fees, tax exemptions of some economic sectors and social activities (exemption of VAT for education, for the medical drugs, equipment and machinery for investment), the tax rate reductions for simplified profit tax and other fiscal ease removal of excise tax and fuel circulation tax on agricultural activity. In the course of fiscal reform in addition to incentives for priority sectors such as education and health were adapted the relief of tax refund procedures for activities that give life economy, those that export local products and those that re export.
Both these business categories are the center of gravity of the reimbursement policy with the mission of making more competitive in the regional market through ‘credit’ being refunded VAT on purchases that have paid all these years. But, besides facilitating exemption or reduction of tax rates had also increased taxes, as in the case of proportional tax on personal income and capital. This fiscal modeling is considered as part of a new system, based on the principle that he, who earns more, pays more.
If taxes are the price we are paying for the development of the economy, then their progression is determining how changing the price of the tax among taxpayers.
Finally, is the administration discouraging with its performance the new businesses and the economy?
Government needs to collect as taxes, as much possible to realize the promises. For that purpose need more funds to be converted in public services and investments. The new start of the new government is going to the right direction based in right decisions for the proper situation. But the image of current administration, no more for her sake, is still in public perceptions as an institution, which still serves the business, according to necessities of budget plan and not to needs of citizens for better services and right collection of taxes.
Obviously, the government needs to shape a fiscal system that focus on services to businesses from a main feature: simplicity in understanding and implementation; simplicity and strengthening of cooperation between citizens and administration.
The challenge of the fiscal system in Albania continues to be the transformation of the fiscal administration in a modern one implementing efficient and modern administrative capacity skills with an increase in fiscal culture for businesses.