Kupona (Kosovo)

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Kupona 🇽🇰
Kosovo map.png
Location: Kosovo
Definition: Non-registration of transactions or not printing receipts for the purpose of tax avoidance of VAT
Keywords: Creating facades Kosovo Balkans Yugoslavia Europe Money Payment Taxation Tax avoidance
Clusters: Market Functional ambivalence Gaming the system Camouflage
Author: Arianit Tolaj
Affiliation: Alumnus, School of Slavonic and East European Studies, University College London, UK

By Arianit Tolaj, Alumnus, School of Slavonic and East European Studies, University College London, UK

Kupona is a system of tax evasion found in Kosovo and refers to the practice of commercial businesses not registering transactions or printing receipts in order to avoid paying value-added tax (VAT). It is distinct from fraud as it is a consequence of ‘protection racketeering’, which is endemic in Kosovo, allegedly perpetrated by former guerrilla fighters and warlords of the Kosovo War (1998-1999) who have now established themselves as the country’s political elite. Kupona is a practice that allows commercial businesses to generate enough revenue to survive, classifying it as a functional form of ambivalence. The word ‘kupona’ is derived from the singular ‘kuponi fiskal’, the Albanian word for ‘receipt’, which literally translates as ‘fiscal coupon’. However, the term is mostly associated with the informal practice.

The practice of ‘kupona’ seems to be prevalent in the new states emerging from the dissolution of Yugoslavia, in part resulting from their inefficient bureaucracies. It is therefore likely that there are, or previously were, similar practices throughout the countries of the former Yugoslavia exacerbated by their recent statehood. Other analogous practices can be found in the Far East as indicated by the countermeasures employed there, and include the practices of ‘fapiao’ in China and the ‘Uniform Invoice Lottery’ in Taiwan (Wan 2010[1]). In the Taiwanese case, in order to prevent this specific form of tax evasion using receipts, the state prints lottery numbers for the state lottery on receipts, thus effectively transforming the receipt into a lottery ticket. This has the desired effect of increasing the likelihood of a customer not only requesting a receipt, but also retaining it.

According to the typologies of formal-informal institutional interactions (Helmke and Levistky 2004[2]) the ‘kupona’ practice can be considered as a competing practice, although not an institution in itself. ‘Kupona’ is competing against the formal institutions of the state, specifically the tax authorities, in trying to ensure that the businesses retain as much of the income they generate as possible, which in turn then enables them to cover the hidden cost of ‘protection racketeering’.

Historical Developments

The development of such informality can be traced to the current economic situation of Kosovo and its development in the immediate post-war period (1999-2008). In terms of its economy, the Province of Kosovo was the poorest province of Yugoslavia because of its lack of significant natural resources. It was therefore heavily reliant upon Yugoslav federal subsidies. The dissolution of Yugoslavia brought an end to the subsidies and the ensuing war destroyed most of the pre-existing industry, of which there was little. With a lack of natural resources, it was inevitable that the economy would be driven primarily by small commercial businesses. As a result of the development of the commercial services sector as the primary business, it was natural for illegal activities and practices to develop alongside and within them. It is estimated that $200 million per year (Phillips 2010: 8[3]) is generated through such practices, much of it through ‘protection racketeering’.

The illegal practice of racketeering remains one of the primary factors influencing the economy, fuelling practices such as ‘kupona’ as a necessary reaction. Although establishing and conducting business in Kosovo is already difficult due to the high levels of corruption, ‘protection racketeering’ presents an additional ‘hidden’ cost to the business process. Furthermore, Kosovo remains one of the poorest countries in Europe with an average GNI per capita of $3,990 as of 2014 (World Bank 2014[4]). Youth (18-24) unemployment is very high at 61 per cent, with an overall unemployment rate standing at 35 per cent. Those in employment report an average net salary between €300 to €400 a month (Agjencia e Statistikave të Kosovës 2015[5]). Given these statistics, it is unlikely that the running of a commercial business can be considered a very profitable venture, a fact that is irrelevant to the protection racketeers.

The practice of ‘kupona’ was devised in order to cover the hidden cost of business demanded by the ‘protection racket’; this distinction separates it from ordinary fraud and classifies is as a functional practice. The practice is a way of generating additional profit which otherwise would prove impossible for a business that is unable to sustain itself financially through commercial demands alone.

The Informal Practice of ‘Kupona’ and Businesses

As it is a case of tax evasion, Kupona is similar in nature to traditional tax evasion schemes (Iakovlev 1999[6]), which require certain criteria to be fulfilled. The common features are that:

‘1. The transaction is completed in cash (currency).

2. Traditional tax evasion is common for self-employed people or small, non corporate businesses. 3. Part of the operation of the business with customers is illegal. 4. Tax evasion is strongly linked to underreporting total revenue in order to conceal the profits of the business before tax. 5. All transactions are real.’

Source: (Iakovlev 1999: 6[7])

While Kosovo has a high number of credit and debit card users, the majority of transactions are still cash based due to the limited adoption of point-of-sale terminals necessary to process credit and debit card transactions. This is especially marked in the services sector of the economy, which is comprised in the main of small, non-corporate businesses. In 2015, the overall value of all transactions in Kosovo amounted to €3.6 billion, of which only €18 million were through card transactions; the rest consisted of payments in cash (Central Bank of the Republic of Kosovo 2016[8]). This allows a widespread informal economy to exist in the country, containing within it a large number of different informal practices, including that of ‘kupona’. As of 2014, the informal economy is estimated to represent 30 to 35 per cent of the country’s $7.8 billion GDP - this amounts to a total of approximately $2.5 billion (European Commission 2014[9]).

Currently, VAT represents 49 per cent of Kosovo’s tax revenue (European Commission 2014[10]), making it one of the primary sources of income for the government. It can be assumed (although it is in no way corroborated), that VAT evasion generates the majority of the estimated wealth of the informal economy through practices like ‘kupona’. It is likely that such practices make up a large percentage of the informal economy. Not only do black market transactions form a large part of the informal economy, but also the simplicity of the practice makes it widespread and functional in a struggling economy.

Non-cash transactions are generally immune to the basic versions of tax evasion, such as the ‘kupona’ practice, because the records created by the transactions are kept by third parties. Tax evasion on cash transactions on the other hand is elusive, especially in cases where indirect taxation is involved, and in instances where tax is collected by the business, such as value-added tax (VAT).

For the government to collect indirect taxes themselves and in essence transform them into direct taxes would require access to all transaction records, which would be costly in terms of implementation, as well as in terms of control and general supervision (Wan 2010[11]). Given the unlikelihood of such a system being adopted, asymmetrical information in regards to indirect taxes will always exist between the governmental tax authorities and businesses, with the asymmetry favouring the latter.

The current monitoring system for indirect tax collection is through random tax inspections at the place of business. As a result of these random tax inspections, the ‘kupona’ practice has shown certain flexibilities in its application that allow successful evasion of these formal inquiries. During the tax inspectors’ normal working hours in the day, when activity in commercial businesses such as restaurants or cafés is usually slow, it is more difficult for businesses to avoid invoicing transactions or printing receipts. In order to circumvent this obstacle, transactions are invoiced and given a receipt, but show only one item on an order containing multiple goods. During peak hours of business, the sheer number of customers and orders provide the business with enough cover to avoid the need to resort to subtle deception. Furthermore, and more importantly, the night hours when business is at its peak in restaurants and cafés are outside the working hours of the tax inspectors.

The implications of the ‘kupona’ practice and its effect on society is evident by its development as a functional form of ambivalence and a survival practice. It is a product of the economic environment of a country facing a growing trade imbalance, high unemployment and a low average wage - factors exacerbated by the corruption from the informal economy that permeates throughout the state structure.


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  2. Helmke, G. & Levistky, S., 2004. Informal Institutions and Comparative Politics: A Research Agenda. Perspectives on Politics, 2(4), pp. 724-740.
  3. Phillips, D. L. 2010. Realizing Kosova's Independence, New York: National Committee on American Foreign Policy.
  4. World Bank, 2014. Kosovo Data.,http://data.worldbank.org/country/kosovo
  5. Agjencia e Statistikave të Kosovës, 2015. Rezultatet e Anketës së Fuqisë Punëtore 2014 në Kosovë, Prishtina: Agjencia e Statistikave të Kosovës.
  6. Iakovlev, A. 1999. Black Cash Tax Evasion in Russia: Its Forms, Incentives and Consequences at the Firm Level. BOFIT Discussion Paper No. 3. Helsinki, Bank of Finland.
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  8. Central Bank of the Republic of Kosovo, 2016. Monthly Report (January 2016) on Cash and Non-Cash Instruments., http://www.bqkkos.org/repository/docs/SistemiIPagesave/Raport%20Mujor.xlsx
  9. EuropeanCommission.2014.KosovoProgressReport,:http://ec.europa.eu/enlargement/pdf/key_documents/2014/20141008-kosovo-progress-report_en.pdf
  10. EuropeanCommission.2014.KosovoProgressReport,:http://ec.europa.eu/enlargement/pdf/key_documents/2014/20141008-kosovo-progress-report_en.pdf
  11. Wan, J. 2010. The Incentive to Declare Taxes and Tax Revenue: The Lottery Receipt Experiment in China. Review of Development Economics, 13(3), p. 611–624.