North Macedonia will seek to abolish personal income tax in the IT sector by 2023, according to the country’s Prime Minister Dimitar Kovachevski. This decision is seen as an incentive intended to attract young people to this sector, which is one of the most dynamic in the country.
“By 2023, we plan to reduce personal income tax in the IT sector from the current 10% to 0%. This will provide a strong incentive for young people to focus more on this sector, where more and more workers are needed every day,” Kovachevski said.
To implement this measure, the authorities would have to organize public debates on the subject the following year, as well as draft a law which would then be adopted by parliament.
In addition, the authorities are also considering other measures for the ICT sector, such as tax exemptions for retraining, training and corporate training.
“Every new job in this industry means a well-paid position, a secure career and the development of youth, as well as the development of the economy and the increase in the country’s living standards,” the Prime Minister stressed.
For those in the industry However, while such measures would have a positive impact on the IT sector, this could also prove limited.
“First, most employment contracts are based on take-home pay, which means most IT workers won’t really benefit from them. Of course, some would benefit, but these are mainly people who freelance for foreign companies. This measure can also potentially lead to an exodus from traditional employees to self-employed workers,” Martin Jovanovski, an IT specialist based in Skopje, tells The Recursive.
This measure could also encourage foreign companies to open offices in the country or set up their headquarters there. According to Jovanovski, this could also encourage domestic companies to re-register as IT companies.
“In addition, there could be an incentive as well as a tendency for existing companies to re-enter the IT sector and benefit from the measure,” Jovanovski tells The Recursive.
A measure that can have many different effects
According to the International Trade Administration, the total ICT market value in North Macedonia was estimated at $1 billion in 2020, with software and IT services making up the largest segment of the market with 56%, followed by ICT trade and manufacturing with 27% each of the ICT market in North Macedonia. country. In 2020, the total GDP of North Macedonia was $12 billion, which means that the ICT market has a share of almost 10 percent in the country’s economy.
If more than a thousand jobs are created each year in the sector, the labor shortage is also evident. Each year there are only about 600 computer science graduates, which represents a shortfall of about 500 employees, a report of the Chamber of Commerce of Information and Communication Technologies of North Macedonia (MASI) watch.
For home computing companiesthese measures can also be seen as an attempt to keep the rest of the IT workforce in the country.
“The zero IT tax is an attempt to keep IT staff in the country, so that they can spend their money in the country. IT companies that pay salaries and benefits will see a boost since they won’t have to pay income tax,” an IT company CEO who wishes to remain anonymous told The Recursive.
However, according to him, the authorities could use this measure for different purposes.
“It could also be an attempt to compile a list of taxpayers that did not exist in the system before. However, to summarize, in the short term, it is a good decision. In the long term, it will depend on the main intentions of the authorities,” he explains.
Experts also say that while the impact would be positive for the competitiveness of the country’s IT companies, authorities must also take into account and address other reasons why qualified IT personnel leave North Macedonia.
“Salaries are not always the main reason why qualified IT staff leave the country. They also do so because of the standard of living and the broader economic and social environment of Macedonia, such as the quality of education, health, air quality, etc. Igor Petrovski, a Skopje-based business journalist, told The Recursive.
For him, these are the real problems that the authorities must solve and keep qualified personnel in the country, not only from the IT industry, but also from other sectors.
“Otherwise, we will continue to experience a brain drain in all key sectors of the economy, which will prove disastrous for the country. In such circumstances, a tax burden of plus or minus 10% will ultimately make no difference,” concludes Petrovski.