ANALYSIS
The Tax System in
Theory vs. in Practice
By Chris Deliso
According to regular studies like
the World Bank’s Doing Business
reports, Macedonia is among the
world’s leading economic reformers. Issues surrounding taxation
are generally presented to international investors and institutions in
the context of a competitive advantage over other possible investment
destinations. “A favorable tax policy
has been a critical pillar of the country’s pro-FDI strategy,” noted the
IMF in a September 2015 report,
describing Macedonia’s “attractive”
tax environment to investors “on
top of a highly competitive wage
environment and a stable currency
exchange rate.” PWC’s Paying Taxes
2016 report estimates that the time
required to comply with Macedonia’s tax legislation is just 119 hours,
the lowest in the Central Asia and
Eastern Europe region, with Bosnia
& Herzegovina being the worst at
420 hours.
Despite this, companies working
here say there is room for improvement in a number of areas of the
Macedonian tax system. The gap
between these two opinions is likely
due to differences between the
local tax system in theory (formal
policies) and in practice. Assessing what is objectively happening in
practice is extremely challenging,
due to factors like a lack of comprehensive data and overlap with
other, more studied dimensions
(such as the gray economy or tax
evasion).
Thus, the leading global tax environment reviews named above have
not taken post-filing compliance
activities (e.g., paying tax refunds,
18 Spring 2016 Issue 49
PWC’s Paying Taxes 2016
report estimates that
the time required to
comply with Macedonia’s
tax legislation is just 119
hours, the lowest in the
Central Asia and Eastern
Europe region, with Bosnia
& Herzegovina being the
worst at 420 hours.
tax audits, and tax appeals) into
account when assessing the world’s
tax systems. Once they do, their
findings are likely to be more in
line with feedback given by business
people working in those environments. Yet until such information
becomes available, some degree of
opacity will continue to characterize the issue.
When it comes to the Macedonian tax system in practice, companies operating locally tend to
point out certain specific issues. A
significant one is the frequency of
changes to key tax laws, sometimes
without prior consultation with
business representatives. The following table shows 5 key tax laws,
their date of original adoption, the
number of times they have been
amended since, and the last year an
official consolidated version of the
law (including all amendments) was
published.
Based on these data, the country’s key tax laws are changed on
an average of once per year, while
companies and citizens haven’t had
access to an official, holistic version of these laws for 7 years, on
average. This means companies
must work from unofficial versions of laws that are manually
pieced together with amendments,
either by private service providers or company employees. Potential implications of these practices
include unnecessary legal risk exposure for companies, and a de facto
favoritism towards large organizations that have the resources to
manage this difficult process.
Companies also have noted that it
is common procedure for Macedonia’s Parliament to adopt laws that
enter into force immediately; this
Frequency of changes to key tax laws
Originally
adopted
# of times
amended
Consolidated
text published
VAT Law
1999
23
2014
Profit Tax Law
1993
19
2006
Personal Income Tax Law
1993
17
2006
Excise Duties Law
2005
16
2015
Property Tax Law
2004
9
2004
Source: AmCham Macedonia analysis of www.sobranie.mk