The tax burden is decreased for large taxpayers in 2021

The review of the organization of the directorate of large taxpayers in Albania should be the product of discussion in various forums, where communication through the Tax Council (as political initiative of Government) should be the main part where to regularly address concerns about issues with stakeholders resulting from tax administration.

Discussions are needed as current challenges and areas for improvement need to be explored, with a particular focus about:

• tax risk and security
• compliance, investigations and disputes
• compliance model and cooperation dictated by government market intervention processes through the establishment of Boards for the prices of basic and energy products.

The review, in addition to the recommendations of the international assistance for the structuring of the central tax administration, should take into account the experiences of large businesses in relation to taxes and duties, regardless of the current regional directorate with which they usually interact, and complements the review. the broader Medium-Term Strategic Tax Revenue Framework, which is expected to engage internal discussions between foreign experts, but possibly also business organizations and domestic experts.

In an analysis that the study on the tax burden 2021, tries to orient with its approaches, first has considered the reports of the share of income held by the unit of large taxpayers and the region of Tirana, to see the addressing of resources and capacities in proportion to the share of the other 12 tax regions with geographical spread throughout the country.

From the representation of the share of revenues to the total, the Directorate of Large Taxpayers (DTM) has a decrease of share in tax revenues that does not correspond to the main purpose of its mission. At first glance it can be seen that what share is lost from DTM is found in Tirana.

Thus, just 10 years ago, in 2012, the share of tax revenues collected by large taxpayers was as much as 47% of all tax revenues. Just 5 years later, the share of revenue that has been collected has decreased by 8 percent. While another 5 years have passed, it is seen that in just 1 decade there is a decrease in revenue collection from this directorate by 5 percent less burden than before.

If we take as a comparative threshold the level of over 50% of the total revenue that this unit must collect from large taxpayers, it can be seen that already at least 16% of the tax burden is not paid by large taxpayers, but is distributed, as a tax burden that is paid by medium-sized businesses, self-employed, and individuals through labor taxes.

In fact what should have been the trend of taxation, it would be an increase in the share of each of tax segments from the available resources. But, excluding tax payments that come from extraordinary activities or coincidences, if we look as an additional part of the burden of taxpayers close to the big ones and those operating in Tirana, again it is noticed that large tax directorates work below capacity and reserves to be called as optimal tax revenues.

While the value of turnover declared by large taxpayers is close to 2/3 of GDP, their share to the budget through taxes is about 34% of all budget tax revenues.

The low level of contribution of large taxpayers in the budget, where about 3% of the number large businesses bears a burden equal to 850 million Euros per year (average 900 thousand Euros / year), for all taxes and Taxes (excluding insurance contributions) indicate an indisputably non-functional model, that large businesses in Albania do not carry for years the main weight from which they are also beneficiaries through the work they perform with budget funds.

MoFE and GDT, although they have presented the need to address and strengthen the operations and capacities of Large Taxpayers, seem to be far from distributing the tax burden according to the principle of fair taxation. But, so far this perennial concern is still without the necessary answer, to make the difference.

Addressing the current management model

The organization of the tax administration in the last decade has changed several times, to better mobilize the capacities and functions of the administration towards centralization in some centers, mainly for the functions of tax investigation and collection of tax debts.

In the reality of debt management in 2021, it can be seen that the debt of businesses to taxes increased by 10.2 percent in the amount of ALL 12.5 billion (EUR 100 million).

This debt increase is summarized in over 59% of it in only 2 taxpayers, affecting with tangible consequences the stock of outstanding liabilities at the beginning of 2021, amounting to about ALL 135 billion (about EUR 1.1 billion), from 122.5 billion in 2020.

In the absence of a dedicated analysis in the GDT Annual Report for 2021, it [1] should be seen with an in-depth analysis of the fate of businesses that may be subject to bankruptcy, as well as the supply of large taxpayers with businesses new ones that for a short time, thanks to various policies have grown and should be administered by the capacities of this directorate, for an optimization of tax revenue collection.

In an analysis which we do not find in relation to the answers as to who and how influenced this poor result the questions that may be quite instinctive from a professional point of view are:

Has the selection of really large taxpayers reduced the tax burden?

Are they dealing with wealthy individuals, who are such even though they do not receive dividends?

Has it been worthwhile to implement without objection all the recommendations of foreign assistance?

Has the corruption tax affected, which is found to have a strong impact?

Has the change of managers according to the seasons of the year and the lack of an institutional memory affected the fiscal management?

Numerous and more powerful questions can be asked at other times by other experts. But, the submission today is only an analysis, which can be followed by others, without leaving this situation only in the lap of apathy that has occupied all those who do not have professional sensitivity and lack of responsibility for the role they should have.

Comments and suggestions for addressing

First, the criteria for identifying large taxpayers were first established in 2005 and they have had limited improvements throughout these years. They need to be revised with a sharper approach to include all individuals and businesses that make up the bulk of the economy, as the current approach turns out that some of the really big taxpayers are not included in the same structure, but are administered by the regional director . Really big taxpayers have their dynamics in trying to shift the burden and costs of their business to those areas and cities where taxes and expenses are cheaper. Their monitoring by the state is a legal obligation.

For this purpose, the IMF missions, as well as foreign experts who have closely assisted the directorate of large taxpayers have recommended measures and recommendations, which should be filtered and adjusted according to the current level of administration. The main goal in absorbing the technical assistance and recommendations of the missions that orient the approach of fiscal administration should be their adaptation, where the implementation of those recommendations that have the opportunity to be implemented will prevail. Many of the recommendations that have been proposed by foreign assistance have been unproductive and have not improved administration. For example, The VAT refund structure proposed by the IMF missions, as well as the tax debt collection structure did not justify the recommended expectations even after several years of experience in their operation.

Second, the tax administration work model for large businesses needs to be risk-oriented and also need to further improve the skill levels of its auditors. The existence of a large informal economy makes tax administration difficult and costly. Large taxpayers present various risks and need to be analyzed in relation to compliance, which have been observed to have created large gaps in tax revenues.

Third, tax policy in recent years is disorienting and contains contradictory changes in just a few years. The typical case is the VAT threshold, which has been lowered and raised according to the unclear interests of the politics of the day. Meanwhile, the headline of the fiscal package of 2019 and 2020 included a halving of the dividend tax (from 15 to 8 percent), an expansion of the tax base for dual employment, as well as the process of fiscalization throughout 2021 have created major problems for the clientele of large businesses and the market as a whole.

Tax rate reforms have narrowed the taxpayer base and complicated the way taxes are levied on several other segments. Some of these changes actually complicate the simple tax regime applied by micro-businesses and in turn create opportunities for tax evasion, for example, by shifting higher dividend tax revenues, or manipulating profit tax threshold. This obviously has a direct impact on large taxpayers as well.

Fourth, administration need a very important orientation about leadership and implementation capacities in confront of the advanced skills required by the task they undertake to perform better the tax functions. There are currently few experienced specialists, capable of revenue analysis and forecasting, revenue collection risk, trends and expectations, as well as determining the reasons for significant changes from budget forecasts during the year. Political patronage in the appointment of specialists and cronyism in the selection of senior executives have their impact on the failure to achieve the main objective of the administration: maximizing budget revenues.

Fifth, it is necessary to increase the level and strength of implementation of international laws and various agreements regarding the exposure to risks of border businesses with Albania, but also international ones.

The limited experience with price transfer should change towards an approach that should be based on the preliminary work of risk analysis in the preliminary identification of deviations that come to the budget from the phenomenon of price transfer. All this effort is worthwhile to ensure more complete and accurate decision making by responding to the identified risks.

While we are talking about new and different approaches from the current routine, in fact there should be a priority to quality and productivity, that are no longer values ​​that the tax administration model conveys.