North Macedonia will look to abolish the personal income tax in the IT industry by 2023, according to the country’s prime minister Dimitar Kovachevski. The move is seen as an incentive meant to attract young people to the industry, which is one of the fastest growing in the country.
“By 2023, we anticipate a reduction in the personal income tax in the IT sector from the current 10 percent to 0 percent. It will be a strong incentive for young people to focus more on this sector, where more workers are needed day by day”, Kovachevski said.
To implement this measure, in the following year authorities would need to organize public debates on the topic, as well as draft a law that would later be passed in the parliament.
Moreover, authorities are also looking at other measures for the ICT sector, such as tax exemptions for retraining, training, and in-company training.
“Each new job in this industry means a well-paid position, a secure career and youth development, as well as developing the economy and the growth of the living standard in the country”, the prime minister stressed.
For those in the industry however, while such measures would have a positive impact on the IT industry, it could also turn out to be limited.
“First, much of the employment contracts that are made are based on a net salary, which means that most IT workers wouldn’t really benefit from it. Of course, there are some who would benefit from it, but these are mostly people that are working freelance for foreign firms. The measure can also potentially lead to an outflow of traditional employees towards freelance workers”, Skopje-based IT specialist Martin Jovanovski tells The Recursive.
The measure could also prove as an incentive for foreign companies opening offices in the country, or moving their HQs there. According to Jovanovski though, it could also motivate domestic companies to re-register as IT companies.
“Also, there could be an incentive as well as a tendency for existing companies to re-register in the IT sector and benefit from the measure”, Jovanovski tells The Recursive.
Measure that can have many different effects
According to the International Trade Administration, the total ICT market value in North Macedonia was an estimated $1 billion in 2020, with software and IT services as the largest segment of the market with 56%, followed by ICT trade and manufacturing with 27 percent share each of the country’s ICT market. In 2020, North Macedonia’s total GDP was $12 billion, meaning that the ICT market has a share of almost 10 percent in the country’s economy.
While more than thousand jobs in the sector are created each year, the shortage of workforce is also evident. Annually there are only around 600 IT graduates, which makes a shortage of around 500 employees, a report from the North Macedonia’s Chamber of commerce for information and communication technologies (MASIT) shows.
For domestic IT companies, these measures can also be seen as an attempt to keep the remaining IT workforce in the country.
“The zero IT tax is an attempt to keep IT staff in the country, so they can spend their money in the country. IT companies that pay salaries and benefits will see a boost since they won’t need to pay the income tax”, a CEO of an IT company that wishes to remain anonymous tells The Recursive.
However, according to him, authorities could use this measure for different purposes.
“This could also be an attempt to make a list of taxpayers who did not exist in the system before. However, to sum up, short-term, it is a good move. In the long-term, it will depend on what are the authorities main intentions“, he explains.
Experts also argue that while the impact would be positive for the competitiveness of IT companies in the country, authorities also need to consider and address the other reasons over which qualified IT staff is leaving North Macedonia.
“Salaries are not always the main reasons why qualified IT staff are leaving the country. They also do that because of the standard of living and wider economic and social environment in Macedonia, such as quality of education, health, air quality, and so on”, Skopje-based business reporter Igor Petrovski tells The Recursive.
For him, these are the actual issues that authorities need to resolve and keep qualified staff in the country.not only from the IT industry but from other sectors as well..
“Otherwise, we will continue to have a brain drain in all key sectors of the economy, which will prove disastrous for the country. In such circumstances, a plus or minus 10% tax burden won’t make a difference at the end of the day”, Petrovski concludes.