These days the new tax law of the government will enter into force, obligating any business with an annual turnover of more than 1 million lekë (~€7,50) to pay a VAT tax of 20%.
Many small business associations have objected against the introduction of the lower threshold, which will increase consumer prices.
Also the IMF has opposed the lower VAT threshold, which it considers a favor to larger corporation that would like to root out competition from smaller neighborhood shops and supermarkets, which used to pay no VAT.
The opposition has declared that this taxation measure will lead to the bankruptcy of many small businesses, especially those that do not have the option of raising their prices, and will therefore be unable to cover the financial burden of the new VAT regulations.
The government, spearheaded by Minister of Economy and Finance Arben Ahmetaj, insists that there will be no price increases for the citizens because the price level would be set by the market, and the prices between small and large businesses should not differ.
But at the same time the government maintains that most taxes will be lowered, a ridiculous argument that shows that neither the minister nor the majority deputies have understood anything about how the VAT is calculated.
Their reasoning is that the VAT paid over purchases will deducted from the VAT paid over sales, which means that the netto payment to the state will be relatively low, and no additional burden for small businesses.
This line of reasoning doesn’t hold from both an economic and an arithmetical point of view.
In fact, if a small business is obliged to pay VAT over its sales, there are three possible scenarios (or a mix between them):
- The sales price of the product doesn’t change. The tax office imposes the new VAT, lowering the profit margin of the business. As a result many small businesses are forced to close down, depriving many families of their source of income.
- The sales price of the product goes up. The tax office imposes the new VAT, the profit margin stays the same. The Albanian citizens pay for the VAT increase.
- The sales price of the product doesn’t change. The tax office’s imposition of the new VAT fails, instead increasing the bureaucratic burden on small businesses and the level of corruption within the tax office. Accountants find new ways to make sure businesses remain below the VAT threshold. State income doesn’t rise, while it spends more money on bureaucracy.
So if the imposition of the lower VAT threshold is successful, the costs will fall to the Albanian citizens – either to the small businesses, their clients, or both.
The only other reason behind increasing the workload of an already overburdened taxation office is to later justify a very profitable concession for VAT collection, an old plan of the Rama government.
