| Countries designed their tax collection systems | | | | and we understand that this is giving rise to the |
| according to their specific needs and traditions, including | | | | willingness of the lower courts to hear tax appeals |
| prepayment or withholding of income and other taxes | | | | without requiring adherence to the statutory escalation |
| prior to lodgment of the income tax return and | | | | process described above. |
| reconciliation of the actual tax payable. | | | | Most business taxpayers utilize the services of |
| The Albanian tax system today does not meet the | | | | professional advisers, and that many tax disputes are |
| equity, transparency and predictability criteria of a well | | | | settled outside the formal appeals process. The costs |
| functioning tax system. It contains significant | | | | for taxpayers utilizing professional representatives as |
| opportunities for corruption, which further damages the | | | | a matter of course in all dealings with the tax and |
| accountability and credibility of the system. Of course, | | | | court authorities are relatively high compared to other |
| that these problems are at the attention of the | | | | countries in the region. |
| Albanian government and the current work of the IMF | | | | The administration of VAT refunds (which is principally |
| (with extensive assistance from German and Sweden | | | | an issue for exporters) is universally acknowledged to |
| consultants) in collaboration with the General Taxation | | | | be a problem. Although the law provides for a 30 day |
| Directorate (GDT) is largely directed to establishing and | | | | statutory limit on the provision of VAT refunds, with |
| implementing a better managerial and reporting system | | | | the payment of interest for delays over that time, the |
| within the GDT to tackle many of the administrative | | | | consensus amongst both taxpayers and the tax |
| defects. | | | | structure officials the refunds are simply not being |
| To assist the government to accelerate the | | | | processed at all. The problem is fully acknowledged by |
| improvement of the tax administration and the | | | | the tax administration. According to the GDT, the |
| investment environment, is the recently assistance of | | | | problem arises mainly because there is no allocation |
| USAID Project for a number of specific issues that | | | | from the budget for the purpose of VAT refunds, |
| are currently perceived as major operating barriers to | | | | whereas the VAT withheld is paid immediately into |
| businesses. | | | | consolidated revenue. |
| In general, large businesses bear a disproportionate | | | | The registration process for new businesses in |
| burden of taxation as compared to small businesses | | | | particular is complex. The relatively low level of |
| and individuals. This is supported by the revenue | | | | registrations in the small business sector (currently |
| figures . Large businesses and their professional | | | | approximately 49.000) is of concern in the context of |
| advisers report a perception of significant non | | | | the relatively narrow tax base and the disproportionate |
| compliance, under reporting and lack of enforcement in | | | | burden that this places on 'legitimate' business, as |
| relation to businesses registered under the "small" | | | | discussed earlier. |
| businesses system. Small businesses can easily 'close | | | | What to do then? |
| up shop' in order to avoid their tax debts, and | | | | Anywhere in the world, a well-functioning tax system is |
| recommence business virtually the next day under a | | | | judged by its: |
| new name. It has also been reported that many | | | | - efficiency (in revenue collection); |
| individual taxpayers are registering as small businesses | | | | - equity (both in the burden of taxation amongst the |
| in order to obtain more favorable taxation rates and to | | | | taxpayer base and in the fair administration of the |
| overcome the withholding requirements for salary and | | | | taxation system); |
| wage income. The revenue shortfall caused by lack of | | | | - transparency (taxpayers are entitled to know what |
| enforcement in relation to small businesses and | | | | the burden of tax will be for a period); and |
| individuals is then met through heavy handed | | | | - predictability |
| compliance and enforcement activity for large | | | | In contrary, the present tax system in Albania fails to |
| businesses. | | | | meet some of these criteria's. The system relies on a |
| Therefore the functioning of the system is perceived | | | | very narrow revenue base, primarily drawn from VAT |
| as arbitrary and inconsistent between different groups | | | | tax payers. The system is geared more to meeting |
| of taxpayers. | | | | monthly and trimester revenue targets than to |
| It appears that the method for setting revenue targets | | | | supporting the broadening of the tax base by |
| for individual GDT employees, and standard targets for | | | | encouraging business activities. The rates and methods |
| audit adjustments by the GDT has contributed to the | | | | of tax collections, particularly the pre-payment of |
| perception of a disproportionate focus on large | | | | profits tax imposed on the start-ups do not encourage |
| business taxpayers. Large taxpayers are an "easy | | | | new business entries and may, in reality, encourage the |
| target" for auditors who are trying to achieve their | | | | expansion of "informal" businesses. The current |
| individual revenue targets through adjustments. Apart | | | | system also seriously lacks transparency and |
| from the quality of audit case selection, conduct of | | | | predictability. Large discretion and arbitration allowed at |
| audits and audit reporting, which is discussed in greater | | | | the operational levels further invite abuse and |
| detail below, the sheer number of audits taking place is | | | | corruption. |
| also creating a compliance burden for business. | | | | It's an important and big issue the VAT refunds. It |
| Business report on average 4 'tax inspections' per | | | | should be reviewed as a matter of urgency, in view of |
| year. There is no official limit on the number of audits | | | | the necessity of encouraging exporting activities, a goal |
| or inspections that may be conducted in a given period, | | | | that Albania gives priority in the upcoming decade. The |
| and it is not uncommon for auditors to be present on a | | | | Albanian tax administration should take immediate |
| company's premises for many months at a time. | | | | measures to ensure the availability of the funds to |
| Albania operates under a civil legal system which does | | | | facilitate the VAT refunds. The tax structures, in the |
| not rely on precedent for applying past decisions. In | | | | meantime, should establish an effective system for |
| many civil jurisdictions, for the purposes of interpreting | | | | examining the refund claims and having them |
| statutes, Ministerial directives and similar documents | | | | processed in a timely manner for all VAT taxpayers. |
| that reveal the intention of the legislature and the | | | | In Albania, the rate of prepayment is more frequent |
| meaning of specific provisions are often issued and | | | | and the method for variation of installments of profits |
| are considered to be more a primary source of law | | | | tax is also very cumbersome. In particular, as a general |
| (and therefore more influential than in Common Law | | | | approach, it should not be necessary to go through an |
| jurisdictions). | | | | appeals process in order to vary the amount of tax |
| In relation to the work of the GDT generally, changes | | | | installments. An acceptable basis for varying |
| in policy, and amendments to the law, there is no | | | | installments should be agreed in consultation between |
| regular forum for consultation or discussion between | | | | business and professional representatives and the |
| the GDT and taxpayers and their representatives. This | | | | GDT (for example, it is not clear why accounts |
| can lead to frustration for all affected parties, since | | | | prepared by suitably qualified persons should not be |
| taxpayers feel they are not properly consulted or | | | | acceptable to the tax administration at first instance, |
| considered in the development of new laws that will | | | | given the existing penalties for the provision of |
| directly affect them and the drafters may find that | | | | misleading information). |
| their laws become subject to policy review after the | | | | In general, bank accounts should only be frozen after |
| drafting process has been completed . | | | | initial collection procedures (letter and formal demand) |
| As the tax system matures and legislation inevitably | | | | have been exhausted and the debt has been overdue |
| increases in volume and complexity, it is just the time | | | | for more than 30 days. The current system of |
| to fulfill the need for a comprehensively redrafted | | | | enforcement, particularly the application of the power |
| code. This process is undertaking by the government, | | | | to freeze bank accounts, is not working towards its |
| carefully managed and has the broad support of the | | | | goals. The inconsistent and heavy handed application |
| business community to avoid the imposition of ad hoc | | | | of enforcement powers, compounded by the |
| "policy" during the drafting process. In this regard, but | | | | delegation of the power to local directors can |
| also as a general proposition, business and taxpayer | | | | discourage companies from using the banking system, |
| consultation needs to be better managed. | | | | while providing an opportunity for abuse of power and |
| The profits tax (applicable to businesses with a | | | | corruption. At a minimum, the increased focus on |
| turnover of over 8 million lek) is levied prospectively on | | | | taxpayer education by the tax structures should |
| a monthly basis. For this purpose, a new business will | | | | include publicizing the circumstances in which |
| be required to estimate its profit for the following 12 | | | | enforcement powers will be exercised according to |
| months. Businesses have complained that it has not | | | | the law and the form that this will take. In this context, |
| been acceptable in practice to quote 'nil' for the first | | | | the appeal and review provisions should also be |
| year profit, even though it is not unusual for a business | | | | publicized so that taxpayers are aware of their rights |
| to make a loss in its first year of trading. According to | | | | and to encourage officers of the tax administration to |
| the GDT, a nil profits estimate should be acceptable if | | | | exercise their powers appropriately. There should be a |
| it is supportable by the taxpayer. This suggests | | | | streamlined administrative process for the review of |
| another example of inconsistency between the law | | | | enforcement proceedings since the usual 30 day |
| and the implementation. Businesses also report | | | | period under the current appeals process is not |
| difficulty in having their estimated profits varied on the | | | | appropriate for a taxpayer who may not be able to |
| basis of their un-audited accounts. If it is the case that | | | | trade during the period (due to frozen accounts or |
| profits are to differ from the estimated profits for the | | | | seizure of goods). |
| current year, it is necessary to go through the formal, | | | | The tax administration should speed up the |
| costly and time consuming appeals process in order to | | | | establishment of regular consultative forums between |
| have the estimated profits varied for the purpose of | | | | GDT, the Ministry of Finance and interest business |
| determining the amount of installments payable each | | | | groups. Such forums will play an important role in |
| month. | | | | collecting inputs from all parties and building consensus |
| In relation to tax appeals, the law requires that within | | | | for reforms. In the longer term, a comprehensive |
| the court system, an appeal be heard by the Tax | | | | redraft of the tax codes by specialist legislative |
| Appeals Tribunal at first instance. The decision of the | | | | drafters in the MOF and the GDT may be warranted. |
| Tribunal may then be reviewed by the Appeals Court. | | | | But, the Government must ensure that sufficient policy |
| The main complaint from the business community in | | | | consultation takes place before the drafting of |
| relation to the appeals process is the current | | | | legislation starts. With the understanding and support of |
| requirement that 100% of the disputed tax must be | | | | all parties affected, the passage of the legislation will |
| paid before the appeal will be heard. The Constitutional | | | | become more certain, and its implementation will be |
| Court has ruled that this requirement is unconstitutional | | | | more likely. |