Fishing in the dead sea

Fishing in the dead sea
This article has been written for Albanian Free Press newspaper and

By Sonila Meço

The difference between death and taxes is that death becomes even more painful every time the government decides to do something. All of a sudden, without the slightest transparency, the government has decided to put its hands deeper into the pockets of the Albanian people, while the situation in the country is very critical in terms of crime and informality.

The government needs to fund what society considers as important. Taxation acts as a tool to transfer richness from those who have more money to those who have less. Taxation is the main source of government spending in services and infrastructure. Taxation is important for public spending. It is also a tool of insuring social equality. This said, the public is entitled to know how this money is spent for vital services, such as education and healthcare.

Given the records broken by this government in the previous mandate, the accusations for its involvement in crime, incompetence in managing the economy, the widening of the gap between the rich and poor, the creation of an unfavorable business climate and the shutting down of thousands of businesses in the first nine months of this year, the growth of tax evasion and informality, the public feels alarmed.

Let us be clear on a few things: if the economy doesn’t serve the interests of society, it leads to a catastrophe. I would like to let you in on what they don’t say or they complicate with intricate phrases: You know how the government enjoys hiding behind the International Monetary Fund every time it needs to boast about the wellbeing of society. But, this time the Fund has moved aside and has demanded the government to tell to the Albanian people some things which cannot be justified.

The government has introduced a new tax reform amid debates for another reform, the reform in the justice system.

Changes in the tax policies are regarded as a threat by the Permanent Representative of IMF in Albania, Jens Reinke. According to him, the reduction of VAT threshold, tax concessions for 4 and 5 star hotels and other similar measures in a country which is yet to make a clear assessment about the benefits that these changes may bring, pose a very big threat for the economy.

First, IMF experts have advised the government not to reduce the VAT bracket, because small sized companies make up 50% of the number of businesses in Albania and they’re responsible for only 2% of taxable transactions. So, their burden is so big that their survival is in line, while their contribution to public revenues is very small. What’s more, informality and evasion would grow even more in front of an administration which is unable to cope with the situation. The facts speak for themselves: The most recent report of the IMF says that during the first months of 2017, the amount of accumulated VAT which has not been refunded is 30 million euros. This means that businesses are on the verge of bankruptcy. To add to this chaos some more businesses, when the administration has proven incapable to manage the situation, means that the government is promoting tax evasion and bankruptcy.

At a time when the government says that tourism will be saved through the new tax package, it is not telling us that the true problem with tourism is not related to tax reliefs, but the poor infrastructure and the problems with property ownerships.  How can the government attract a leading company in the world of tourism, when this company is not sure about the foundations of the land where it will build? Not to mention the infrastructure, which, during these years was mainly exploited for the production and the traffic of cannabis.

But, the government’s attempts to speed up public investments do not only include a new tax package which aims at improving finances and PPPs, or better known as projects funded through public-private partnership. Even here, the IMF is very demanding about the government’s transparency, cost-profit analysis and the standards which will be applied.

Most concerning of all is the Prime Minister’s increasing power, the fact that he ignores parliament and causes so much confusion when making so many frequent changes in the taxation system. Those who suffer the consequences are taxpayers.

But, let us continue this analysis: Albania has the highest rate of tax on incomes, 23%. This is the highest rate in the region. Given that the people of this country are strong and can endure more, the minister of Finance, Arben Ahmetaj has announced the introduction of a new bill on progressive taxation on all types of incomes. In other words, this will automatically lead to an increase of tax for high incomes, where all incomes will be added up and a progressive tax will be applied on them. The methods that highly paid individuals use to evade taxes are well-known. They are registered as a small sized business, billing the companies where they work. Tax for small businesses is lower and this facilitates tax evasion. According to the Ministry of Finance, revenues from tax on personal incomes was 3,7% lower than projected in the year to September.

To better understand that the tax incentives launched by the government are not inspired by experience, but its urgent need for cash, we look at a report recently published by UNDP. This organization has analyzed the way poverty in the country has changed and how efficient tax on income, which in 2013 became a progressive system, has been. According to the report, half of households who belonged to the middle class in 2008, in 2014 they moved into the class of people in need and those living in poverty. Meanwhile, 17% of households who had a tendency toward poverty, became poor in 2014.

Today, political debate focuses on fishes, small and large ones, that the judicial system must catch with its torn nets. But if there’s one shark today who can swallow even the fishermen themselves, then this shark is represented by the authoritarian tendency to make economy a tool in the hands of a leader who not only doesn’t know anything about economy, but who is not even willing to learn about it. A leader who in all likelihood will continue to exploit the masses to protect his entourage and in the end, he will find himself living in an island surrounded by a dead sea.

Note: The views expressed in this article are the author's own and do not necessarily reflect Albanian Free Press’ editorial policy


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