Articles
DOI DOI: 10.5281/zenodo.18442483

Tax Compliance Costs and Business Formalization in Kosovo: Firm-Level Evidence and Policy Implications

Lutfi Nuredini1
  1. 1 UBT College, 10000, 56 Rexhep Krasniqi Str., Pristina, Republic of Kosovo; nuredin.lutfiu@ubt-uni.net

Abstract

This study examines how tax compliance costs shape business formalisation and ongoing
tax compliance among micro and small firms in Kosovo. Compliance costs are treated as a
multidimensional burden, including direct monetary costs (e.g., paid accounting services
and filing-related expenses) and indirect costs (e.g., managerial time, uncertainty, and
administrative complexity). The empirical design combines firm-level survey evidence
with institutional context from Kosovo’s tax administration reforms and compliance
diagnostics. Kosovo’s business environment data indicate that senior management spends
a non-trivial share of time dealing with government regulation (10.4% on average) and
that a large share of firms report being visited or required to meet with tax officials
(82.9%), suggesting a compliance environment where administrative interaction is
frequent. Complementing this, tax registry-based diagnostics document persistent late
payment behaviour in the VAT system, where late payments are described as endemic,
and, conditional on paying, more than 90% of taxpayers submit payments after the
monthly due date. Results are interpreted through the lens of capacity constraints: firms
with limited administrative capability are more sensitive to perceived complexity, while
adoption of digital tools and professional accounting support can offset burden and raise
compliance propensity. This interpretation aligns with Kosovo’s ongoing digitalisation
agenda in revenue administration, including mandatory e-filing and e-payment reforms
introduced in 2022 and the rollout of a taxpayer portal to facilitate online declarations
and payments. Policy implications emphasise simplification, clear guidance, and
targeted support for micro and small firms, particularly through standardised reporting
procedures, practical taxpayer education, and digital uptake incentives.

How to Cite

Nuredini, L. (2026). Tax Compliance Costs and Business Formalization in Kosovo: Firm-Level Evidence and Policy Implications. Transnational Academic Journal of Economics, 2(2), 120–128. https://doi.org/10.5281/zenodo.18442483
Endnote/Zotero/Mendeley (RIS) BibTeX

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