GOA SIMPLIFIES TAX PAYMENT PROCEUDRES

UNCLAS TIRANA 000424 SIPDIS DEPARTMENT FOR EUR/SCE (ERIN KOTHEIMER) PASS TO USAID/ODP/MCC (PETER DELP) PASS TO TREASURY (VIMAL ATUKORALA) E.O. 12958:N/A TAGS: EAID ECON PGOV AL SUBJECT: GOA SIMPLIFIES TAX PAYMENT PROCEUDRES ¶1. On May 12, the Finance Ministry eliminated the rule requiring taxpayers to bring in their accounting records to government tax offices for "verification" every month. Whatever the original intent of this "verification" rule, it was not used as an audit mechanism, as the General Directorate of Taxation (GDT) sometimes pretended. It was mostly a bribery opportunity for corrupt inspectors and a headache for taxpayers. The Finance Ministry, which clung to the rule despite business protests, finally scrapped the requirement in favor of a system of selective audit. This rule change also anticipates the soon-to-be-enacted tax procedures law, which creates a modern audit unit in the GDT, which will select taxpayers for audit based on an objective risk analysis formula -- the international norm and standard for tax auditing. ¶2. "Verification" was also a hindrance to the tax e-filing system created by the Millennium Challenge Account (MCA) Threshold Program designed to simplify tax procedures, reduce corruption and create a friendlier investment climate. The old rule was at odds with the new e-filing system and diluted the benefits of submitting online declarations directly to the tax office, without the "intermediation" of tax officials. "Verification" also deterred business taxpayers from e-filing in larger numbers since taxpayers still had to present their records every month and "negotiate" payment during verification. The result was low usage of the e-filing system, despite small incremental monthly increases. ¶3. With this onerous step gone, there should be an increase in e-filing. In April, there were 200 taxpayer e-filers. In May, tax authorities at GDT are expect nearly 1,000. Whether there will be a corresponding reduction in tax-related corruption remains to be seen. For the new e-filing system to be successful, it must become widely utilized by the public and business community. To date, the tax authorities have been reluctant to publicize the new payment procedures. Post is reaching out to the American Chamber of Commerce and other business associations to spread the word to the business community. ¶4. Comment: Albania was again taken to the woodshed by the World Bank in its most recent Doing Business survey where it ranked 136 out of 178 countries for ease of conducting business. The ranking was almost exactly the same as Albania's placement last year. The new e-filing system should help improve Albania's ranking next year in the tax paying criteria where it ranked 117 and did poorly in part on the basis of the amount of time required to pay taxes. The World Bank survey also relied on data gathered before the introduction of new "one-stop-shop" business registration procedures last fall and the passage by Parliament of Albania's first bankruptcy law this week. Albania ranked 123 and dead last, respectively, under rankings for starting a business (focusing in large measure on the number of days required to open a business) and closing a business. Despite these improvements, however, Albania is still plagued by a reputation as a risky place for foreign investment, largely due to corruption and lack of infrastructure. End Comment. WITHERS