IMF Opposes Lowering VAT Threshold Permanent IMF representative to Albania Jens Reinke.

The International Monetary Fund has expressed its opposition against the Rama government’s initiative to lower the VAT threshold to include small businesses with an annual turnover between 2 and 5 million lekë per year, which so far had been excluded from VAT duties.

In an interview with Monitor magazine, permanent IMF representative in Albanian Jens Reinke stated:

After many evaluations of our tax experts, we have forcefully advised against the lowering of the VAT threshold below the current level.

We don’t see any problem with the current VAT threshold. Constant changes in tax policies should be avoided because they complicate tax administration and can confuse tax payers. As a result, we recommend to keep the VAT threshold on its current level, while the administration has to focus on the large tax payers.

Reinke explained that the proposed change would place “a heavy burden on the resources of the Tax Department,” in exchange for a small, barely noticeable effect on the state budget:

Small businesses make up half of all businesses, but they only bring 2% of taxable transactions. The broadening of the VAT system would place a heavy burden on the resources of the Tax Department. Informality and tax evasion may increase and the efficiency of the tax administration risks dropping. Small businesses are also confronted with an additional burden of requests for reports.

The proposition of the Rama government to lower the VAT threshold is part of its 2018 budget and fiscal reform proposal. It is expected to be discussed and voted in Parliament in December.

A few days ago, defending his proposed policy, Prime Minister Edi Rama declared:

After an attentive hearing process not only with interest groups but also with local and international experts, we have arrived at the conclusion to lower the VAT threshold up to businesses that have an annual turnover of 2 million lekë per year.

We have decided to leave it at 2 million to make it as easy as possible for the smallest, but on the other hand for those small ones that are in fact big ones, it will be from now on impossible to continue to be small in the service of those very big ones that use them and do as if they are small to evade [taxes].

In other, the argument of the government is that small businesses are used by large businesses to evade taxes, and therefore they need to be taxed too.