In a modern state, taxation fairness means everyone must pay their dues. As such the notion of fighting economic informality is fair and just.
Any Albanian government that makes everyone pay their dues in a formal manner is helping in modernizing this country — a laudable goal.
As such, the government’s aim with its latest campaign against economic informality is to be applauded. However the proposed methods are a cause for concern. In fact, the campaign has so many possible negative side effects on the economy, it raises serious doubts about whether the gains will be able to cancel the losses.
Taking a page from the previous campaign to target electricity theft and lack of payment, the government has created 600 groups of tax inspectors backed by police officers to carry out field inspections on businesses to see if they are properly registered with authorities and whether they are complying with fiscal regulations. These will include inspections on things like whether they are issuing proper fiscal receipts to customers, whether the employees are registered with the tax authorities and whether excise goods have all the stamps.
If they are found in violation of the rules, registered businesses face stiff fines on the first instance and confiscation of goods on a second offence. In the case of unregistered businesses, all the goods are confiscated on a first offense and any further business activity banned. The government is also looking into amending the criminal code again so what are currently administrative offenses can become criminal offenses and those responsible can be arrested and sent to jail.
A survey carried out by the economy ministry has shown around a third of businesses operating in Albania are not registered at all, do not have cash registers or do not use them at all. Half of the businesses operating in Albania do not issue tax receipts.
The government says it will fix all that and collect about 330 million dollars from the nationwide campaign in the next 300 days. It will likely see some success, based on its track record, but there will be costs.
For example, the government collected 112 million dollars in unpaid power bills with a similar campaign last year. However, the country’s central bank noted the forced payment lowered general household consumption, hurting the economy. There was a lot of anecdotal evidence the power campaign was a catalyst for thousands of the poorest Albanians deciding they wanted to migrate to Western Europe.
The costs of this latest campaign to collect more taxes could be higher, particularly if the government again targets those least able to withstand the pressure.
The government’s main problem is timing. It needs the money, but it can’t go further into debt or raise taxes, so it wants to collect from those who have not been paying. But the economy is too weak at this time for what it is attempting to do. It risks increasing unemployment, lowering the purchasing power of residents and hurting the economy all in one go.
Businesses in Albania come in two types – the tiny subsistence-level family operations and the others, which tend to be bigger and more formalized.
In the first group — the guy selling cigarettes on a corner, the part-time neighborhood hairdresser and the vegetable vendor — they are all unregistered. They also barely make ends meet. If punished, they could have to give up work, leaving thousands of families without an income.
Long queues have already been reported with regional national registration centres with business owners either registering or deregistering their businesses.
Lots of informal small businesses say they will close down claiming they cannot afford buying costly tax registers and pay more taxes. Others are registering to avoid their goods and shops being confiscated.
The larger businesses, where informality is even more costly for the state, will either start following the rules if they don’t do so already, or close up shop entirely. The largest businesses and chains are likely to come on top as they are already very formalized — but even among these, the risk of corrupting tax officials and evasion remains high, experts note.
In the worst case scenario, if these costs all add up, and Albania goes into the recession, the money the government collects will be simply cancelled off by the money lost due to a decline in economic activity.
The government might have good intentions, but all the ingredients are there for this campaign and its proposed punitive measures to do as much harm as good in macroeconomic terms. Authorities should proceed with caution.
