“The essential reforms should be in the direction of an attempt to deal with the gray economy which is unfair competition of the registered entities, which would first achieve fair taxation from the aspect that anyone who performs activity in the Republic of Macedonia has the same obligation to pay taxes, and not only those who are registered, so that we can talk about introducing a progressive tax, with an assessment of the moment and when it is most appropriate to do the same, “Arsovska said in an interview with Capital.
Although the business community demanded a delay in tax reform, it appears that the government will start with these changes to the tax regime without the support of the business community. What message does this send to companies?
The biggest shortcoming of starting a process of such serious reforms is the speed at which the legal solutions are brought. Any amendment to the legislation affecting the private sector should follow the recommendations of the European Union and the Council of Europe for the involvement of relevant stakeholders in the process of drafting the legal solutions that directly affect them. These recommendations are key to many aspects, but most of all, in this case, the private sector will be able to give their constructive suggestions in order to avoid serious problems in the implementation of the legislation that is being created or changed. Rapid changes to laws are never recommended, and especially in such a short time before starting with the application, as is the case with the new decision of the Draft Law on Personal Income Tax, because such rapid changes contribute to uncertainty among companies, having in mind that they already have adopted business plans and budgets for subsequent years in which these changes in taxation announced at the end of the current year are not calculated.
Such changes may result in refraining from new projects, as well as with some tax evasion in the longer term, as the private sector is continually facing the competition from the gray economy, which is a constant pressure that seriously affects the struggle of companies to survive on the market. At the same time, it is continuously appealed that by registering and taxing the gray economy, a greater effect will be achieved for contributing to the budget than any planned single tax increase.
You are a representative of many small and medium-sized firms in Macedonia, so can you tell us by their name what will be the biggest changes in this segment of companies and what kind of burden they will cause?
Small and medium-sized enterprises do not have a significant increase in productivity in the past years, and there is an increase in operating costs. For this reason, the focus of the reactions is mostly in the increase of the tax for the fees based on a contract of a work which as an expense is not foreseen in the operations of the companies, but there are no less reactions to the increase of the lease tax, the insurance taxes and the capital gains, such as dividends and securities trading transactions, and in particular increase the tax on income from the sale of own agricultural products. At the same time, any increase in the nominal rate for legal entities means an increase in the total tax burden on companies because they are carriers of the obligation to pay the personal income tax. In particular, the economic entities are those who, as payers, are obliged to pay personal income tax, not only on the basis of salary, but also in case of payment on the basis of a contract for temporary or temporary performance of services, copyrights, property and property rights , winnings from games of chance, etc. From the same it is evident that rates have been increased not only for high salaries, but also for other categories of income, which increases the tax burden on economic entities.
What were the main arguments of the business community, why it was required to postpone these tax changes. What are the analyzes that will be the consequences?
The business community, ie the chambers of commerce, as representatives of the private sector after the announcement of the tax reforms, emphasized that they need to be postponed for a period of at least 5 years, during which it is necessary to consult with all relevant stakeholders and jointly by establishing public private dialogue and opening wide debate, to create appropriate tax solutions that will reflect the goals of fairness from progressive taxation, but will also support the growth of the economy and the eco omijata general. Essential reforms should be in the direction of an attempt to tackle the gray economy which is unfair competition of the registered entities, which would first achieve fair taxation in terms of that everyone who performs an activity in the Republic of Macedonia has the same obligation to pay tax, and not only those who are registered in the work, and then to be able to talk about the introduction of a progressive tax, with an assessment of the moment and when it is most appropriate to do the same.
At this point, any new burden that the private sector will have, and in this case, on the basis of tax reforms, only the ones who are registered will work on the market.
From the key factors for the growth of the Macedonian economy, the focus should be on increasing the productivity of the companies, which would have an effect in the two most important segments, ie reducing unemployment and increasing foreign trade, ie export.
For a long time, you stress that a fight against the gray economy is needed, which is estimated at about one third of the gross domestic product. What problems creates the gray economy for businesses?
The suppression of the shadow economy will definitely yield results in the growth of the overall economy, as according to the reports of the relevant international financial organizations, it is about 30% of the overall economy in the Republic of Macedonia. The commitment to the solution of the gray economy is also the main challenge for providing a favorable business environment and enabling equal and fair treatment of all market participants who are performing the activity.
According to the analyzes from the Chambers of Commerce of Macedonia Chambers of Commerce, those who do business without formal registration of their activity, ie without a company, are more than 50% more competitive on the market than the registered companies, because they do not contribute with the obligation to pay of VAT, social and pension insurance contributions, the current costs are much lower because they have an obligation as natural persons instead of paying industrial tariffs, thus not only damaging the budget, but also offering prices for pro C ONCLUSIONS and services on the market which are significantly lower prices registered business that pays all the taxes can not achieve because the higher costs must be calculated in the final cost.
Unfair competition from the shadow economy is one of the main challenges that enterprises face and needs to be a priority and focus on the institutions and committed to taking action to combat it.
Our recommendations are to start implementing the practice of the Law on Prohibition and Prevention of Unregistered Activity, which would regulate the work in the gray zone.
If mechanisms for intensifying the control and collection of undeclared taxes from the so-called gray economy will achieve a larger effect on the basis of budget inflows and will create an ambient for the preparation of reform measures by policymakers would be directed towards social equity and providing better quality living conditions.
The World Bank analyzes show that the participation of companies that are faced with unregistered or informal activity in Macedonia is 55.5%, or most in the region before Montenegro with 52.4%, Croatia with 48.2%, Albania with 40, 2%, Serbia with 37.5% and Slovenia with 26.5%.
Do you have any concrete proposals on how the state should deal with the shadow economy?
With the Public Revenue Office we signed a Memorandum of Cooperation on July 11 this year, precisely in the direction of acting on the registration of the subjects performing activities that do not have a registered company, in order to reduce the gray economy and unfair competition. The solution is simply the purpose of the inspection services it is necessary to be detecting and introducing into the system of unregistered entities, more precisely to enable those who work unregistered to register in order to become equal in the market with the rest It is legal entities. The goal is to formalize the informal economy and according to a precisely defined system and rules, companies have equal opportunities and conditions to compete in the market.
Macedonia has been facing a prolonged political crisis in the past three years, which has resulted in a slowdown in economic activity. What are your estimates for the Macedonian economy? Can we expect more economic growth?
Political uncertainty and frequent election cycles are a factor that affects the economy and the growth of the economy. It is understood that political stability is indispensable for starting or increasing investment activities, since the private sector is always reserved for venture when there is an increased risk. Generally, despite the good policies for increasing investment activities such as the adoption of the Law on Financial Support for Investment, which in the context of certain investment guarantees for the next 5 years, companies still refrain from taking steps for larger investments, projects do not start or start extremely carefully to minimize the risk.
Most importantly, in order to achieve the desired economic growth, as well as to enable the development of companies, predictability is needed, which would be the basis for long-term planning of companies for their future business activities and for developing investment strategies. Certainly a challenge is how to ensure economic well-being, increasing standard, advancing in all fields and developing human capital. From the key factors for the growth of the Macedonian economy, the focus should be on increasing the productivity of the companies, which would have an effect in the two most important segments, ie reducing unemployment and increasing foreign trade, ie export.
What policies and measures do you think would help boost economic growth?
The implementation of the necessary structural economic reforms in the country should be a national priority and an established strategy that will be implemented in the long run, in order to demonstrate a movement in the direction of improving the stability and increasing the legal certainty. Political stability and ensuring the rule of law are a prerequisite for achieving sustainable economic development. This will ensure investor confidence and will enable improvement of the overall business environment in the country, which should simultaneously be based on providing reliable sources for financing companies, support for increasing exports and competitiveness, developing the industry. Higher economic growth can only be achieved with a purposeful national strategy for the development of the private sector, and in cooperation with all stakeholders in society, government institutions, the non-governmental sector, the academic community, business organizations, guided by the common goal, a longer-term economic stability and prosperity for future generations.
More than 20 thousand companies from Macedonia are members of Macedonian Chambers of Commerce. What are the biggest problems they face in running a business in Macedonia?
The Macedonian Chambers of Commerce are members of companies that are members of chambers divided by sectors and additionally by regions. Each sector has its own challenges, starting from the current shortage of skilled personnel, especially in construction, industry, tourism, services, and private health. All sectors have their own specificities, but they are jointly challenged to monitor the changes in the legislation, dealing with inspection controls, and definitely the biggest challenge is to tackle unfair competition from the shadow economy. In terms of legislation, especially small and medium enterprises do not have financial and human resources to follow the frequent legal changes, causing them additional problems in the implementation of these regulations, as well as during inspection controls. It represents stress and pressure in their everyday life because they emphasize that they work not knowing if and to what extent they are in compliance with all positive regulations.
The economy should be given the opportunity to self-regulate, while for small and medium-sized enterprises, especially for entrepreneurs and start-up companies, it is necessary to provide greater support in order to provide education for removing certain technical irregularities in the operation as a replacement for the fines.
At the international level, on this occasion, I would like to emphasize my appointment in the leadership of the World Chambers Federation, based in Paris, and I believe that with this great success for the Republic of Macedonia, where for the first time since the establishment of the World a federation in 1919 we have a Macedonian representative, we will give maximum efforts for positioning our country as a center for entering new investments in the country and the region, for building reliable partnerships for domestic businessmen in order to increase exporting and we will have access to first-hand information on world economic developments with our participation in the United Nations Organization, the G20, the World Trade Organization, and the European Bank for Reconstruction and Development. The opportunity is given, we need to use it wisely.