The decision to include small businesses with an annual turnover of more than 2 million lekë in the VAT tax scheme that went into force in April 2018 seems to have had a negative effect on the overall business climate, leading to the increase of informality and tax evasion
In a Monitor article Ledina Loga interviewed big and small entrepreneurs regarding how the inclusion of small businesses in the VAT scheme has influenced the overall business climate.
Among other things, Loga found:
While small businesses say that the lower VAT threshold has made things difficult for them, large businesses, especially the country’s processing industry, have begun feeling a decline in their selling abilities, as small businesses, in a boomerang effect, have proved increasingly resistant to receive receipts.
The majority of the country’s processing companies, who sell wholesale goods to small businesses, say that they are encountering resistance on the part of small businesses, who will not accept any receipt goods. The processing industry is being affected as a chain, from the accumulation of milk, to its processing, the egg and beer production industry.
Saimir Begaj, head of the Erzeni company that produces, processes, and sells milk and its products says that lowering the VAT threshold has affected his company negatively. “Even though we have tried to be fair, the lower VAT threshold has harmed us.”
Luis Ndreka, a representative for the company Lufra, says that they have begun feeling resistance on the part of small businesses to buy goods with a receipt. According to Ndreka, this is happening at a moment when tax officials are focused on inspecting businesses on the shoreline, and aren’t paying attention to the small businesses.
Meat processing companies also admit that they encountered difficulties when trying to sell their products to smaller sellers. Nesti Tarusha, CEO of FIX, says: “Small businesses are trying to avoid surpassing the VAT threshold, that is why they are refusing receipts.”
While big businesses are encountering difficulties in trying to sell receipted goods, small businesses complain of fictional billings, that make them unable to unload the VAT in their sales.
Accountant and fiscal expert Ahmet Gjinishi says that, in his experience, some importers declare lower prices for goods at the customs, and give smaller salesmen fictitious bills. “Some small businesses cannot charge high VAT” Gjinishi stated.
Elona, even though she has operated a small boutique for only a short time, was still included in the VAT scheme. Her main problem with the VAT is her furnishers’ fictitious bills. “A shirt I buy for 1200 lekë is billed as a 500 lekë purchase by my furnisher. Besides charging an incredibly low VAT, this makes my business look as though it has high profit margins. If there were to be a control from tax officials, this would get me in trouble,” she tells Monitor.
Still, besides low billed prices, Elona says that, a lot of times, even what she buys is not completely declared.
“Now that I’m included in the VAT scheme, it is in my interest to get an accurate receipt for the goods I purchase. However, wholesalers don’t agree. If we ask for real receipts, they won’t sell us anything,” she adds.
Elona says that she tries not to make out receipts for sales exceeding a certain amount, as she was told by her accountant, who does her yearly balance sheets. Though it is acknowledged that this is in violation of the law, this is mainly done out of fear of bankruptcy.
“If I declare everything, my tax obligations will be so high that I won’t be able to pay them and other mandatory expenses, let alone actually make a profit.”
This is the same justification given by the owner of the cafe next to Elona’s store. He says that coffee wholesalers do not give out accurate receipts. The owner admits that he has willingly chosen to take this risk, as he cannot get by otherwise. “If I declare every coffee I sell, I can’t make ends meet. Our rent is very high, even though the contract states a much lower rent.”
Besides large businesses and wholesalers failing to give out true-to-life receipts, small businesses, trying to keep from passing the VAT threshold, won’t accept those receipts. Sources have admitted that lowering the threshold has lead to the increase of this phenomenon, that is, small businesses buying the very minimum to keep from reaching the 2 million lekë threshold.
The IMF and financial experts had already warned that the VAT threshold would lead to a rise in informality within the country.