5th December 2022, Skopje – Tax reform concept is based upon fairness, i.e. expanding the tax base by revising the tax exemptions and combatting the informal economy. As regards our tax system, huge amount of tax exemptions can be noticed, as well as a long list of goods and services being taxed with preferential tax rates, some of them dating back to a long time period ago, serving their purpose and becoming ineffective. Nowadays, they are only additional costs for the Budget and an unjustified privilege for certain taxpayers, thus creating a market distortion. This was indicated by Minister of Finance, Fatmir Besimi in his most recent column dedicated on the tax reform, which is to bring about additional EUR 70 million in the Budget next year in support of fiscal consolidation, as well as greater fairness in the tax system.
“Tax expenditures are the systemic difference in the tax treatment of certain categories of taxpayers or activities, at the expense of which, less taxes are collected in the Budget. Simply put, it is a matter of a financial support for certain categories of citizens and companies, through certain tax exemption or a lower tax rate than the regular one, so as to accomplish some social, economic or social purpose for a certain period of time. Over time, after these indirect budget transfers have served their purpose, they become an unnecessary burden to the budget, while making certain category of citizens and companies unnecessarily privileged over the other ones. In that case, the damage caused by these exceptions is double, both upon the budget and the other taxpayers, thus increasing the chances for unequal treatment of certain categories under the tax system”, Besimi wrote.
Minister further indicated that most of the Organization for Economic Co-operation (OECD) and the European Union (EU) countries, as part of the budget process, require preparation of reports on tax expenditures on annual basis and cost-benefit analysis thereof. Under the new Organic Budget Law, and by following the suit of the OECD and the EU, systemic solution was introduced, i.e. an obligation to prepare annual reports on tax expenditures and their revision as per the impact thereof.
Legal changes are foreseen under the tax reform concept, pertaining to the Profit tax Law, Personal Income Tax Law and Valued Added Tax Law, as well as provisions in the related laws, aimed at expanding the tax base. Under this concept, progressive taxation is abolished, which was supposed to enter into force as of next year.
Tax reform concept was prepared via inclusive process of broad consultations with the social stakeholders, as well as the experts, the academicians, the business community, the political parties, etc.
Under his column, Minister pointed out that during the public debate about the draft Tax Policy Reform Concept, many social stakeholders put forwards proposals for imposing extra profit tax. He thereby announced that further discussion about this matter will be opened with the chambers of commerce
He furthermore analyses the concept of taxes on extra profit, being applied by increasing number of countries since the onset of the crisis onwards.
“Extraordinary taxes are a practice many countries around the world apply by imposing temporary taxes amid exceptional circumstances so as to fix the market distortions. Logic behind such taxes in economic theory and policy is based on redistribution of part of the windfall gain certain companies generate as a result of the market conjuncture or other exceptional circumstances. Similar initiatives exist even now amid energy crisis, whereby some countries propose so-called extra profit tax. New UK Government announced the increase of energy profits levy to 35% for the period 2023-2028 for the energy firms. In May 2022, Hungary announced extra profit tax in the energy sector, the financial sector, the commercial airlines and the retail trade in the period 2022-2023, with the tax rate in the energy sector reaching 65%. In November, Croatia announced extra profit tax for all companies generating revenues higher than EUR 40 million annually, on a profit increase higher than 20% of their annual average in the period 2018-2021. Last week, Italy announced extra profit tax of 50% on energy companies’ profit higher than 10% of the average income in the period 2018-2021, to be applied in 2023”, Besimi wrote.