Wholesale trade is an intermediate stage in the trade. The wholesale trader neither produces goods nor exercises retail trade. However, considering the form of product distribution to consumers, even a producer can be considered as a wholesaler for the goods he produces. Usually a wholesaler sells products to retailers, whereas distributors are included in the category of wholesalers and are likely to sell to retailers.
Importers of trade product ready for consumption exercise the activity by ensuring goods from abroad in order to meet special consumptions orders which tend towards rapid consumption. This rapid consumption can be explained by the very nature of the product, which is an authorized right (sale of Peugeot, BOSCH tools, Legea sports materials for the Albanian national soccer team etc.), or in the case of franchise (the right to use the trade mark/name, e.g. McDonald). In other words, they are wholesalers or intermediaries. Other business activities involve producers, retailers and commercial users, even private individuals who can import goods. However, a commercial importer exercises this as the main activity.
There are two main categories of import traders
- Buyers of raw materials for domestic sale in the industry section
- Buyers of commercial goods can be combined with purchase of domestic goods for re-sale purposes
Commercial import can also be run from a small office. Imported products are stored in a separate storehouse or often submitted to the client directly from the port, airport, or land border points. A commercial importer should keep sufficient data to know:
- What kind of products is stored?
- Which are the incoming and outgoing movements of product in the storehouse?
- What is the situation in the cash registry account, i.e. how much his clients owe him?
The general costs of this business are relatively low as compared to the value of traded goods. However, these costs include:
- Office administration and management cost;
- Storehouse maintenance (including insurances);
- Re-packaging and labeling cost;
Submission of a product to the client can be organized by the importer and even if this is added to the price, it represents a business cost. Although an importer can perform additional services such as re-packaging, labeling in Albanian language, etc., this does not change the fact that a commercial importer buys imported goods for re-sale in the domestic market, excluding transit goods or goods re-sold in other countries. Form a tax audit perspective, the only difference between the wholesaler and importer is the nature of purchase documents. Audit procedures are similar in all other respects.
Wholesale trade can be run and managed by a single individual, or by several individuals exercising their trade activity i question. They are mainly agents, although not formal agents, and not individuals which have contact with the goods in the market. Their circulation is the total of everything as is the case with every other wholesaler.
There are relations between purchases and sales, which, in the case of wholesale purchases or importers, have to do with the mark-up price on goods. The trader can refer to this as a threshold which helps him to draw the line between his profit and the sale price. Manuals (Difference between price and cost) deals with this phenomenon in more details.
During the interview, the auditor should know what trader's policy apples to common sale levels. Not having a very value, eggs or other large quantity products will have a smaller price increase than another product (car) which sells less. Delicate products will have a high inventory flow, whereas other goods (cars) will have a slower flow. That wholesaler would not keep a car in store for as long as a retailer would. The more we understand how various activities function, the easier it will be for us to detect the mistakes that have been made and the ways that are used for hiding them.
As mentioned above, sales will either be ordered in advance for certain clients to be re-sold at a previously agreed upon price or they will be casual, which means that goods will be purchased without any previously thought client, although it is very likely that the wholesaler or importer can have regular buyers. In such case, the goods are sold in the open and competing market at a better price than the one offered by the importer.
In the case of previously ordered sales there can be documents on the price agreed upon with the buyer, through contracts prepared between parties for various purposes.
When they do not have definite clients, although there can be data on the eventual sale price, this price should not be previously determined. Of course, it is possible for an importer or wholesaler to sell a certain shipment for a smaller profit margin in order to do away with the slowly flowing inventory, thus increasing their capital for further trade. Rarely, it can happen that, for the same reasons, a certain sale can even result in losses.
Nevertheless, continuous sales at small profit margins should be considered very carefully. There are two possibilities: a) the importer or wholesaler is a poor businessman (including his living standard) whose business is on the verge of bankruptcy; b) real sale prices are hidden and in such case we have to do with tax fraud.
Wholesalers use two different sale systems. E.g. a wholesaler selling through his people moving all around has different series for each of the sellers in order to be able to better identify each sale. The total of all sales is the total used for tax purposes.
A wholesaler of liquors, for example, can combine the shipment of his product to the wholesaler plus retailers who get their goods from the wholesaler's storehouses. Each directly employed seller can work on commission or a salary or a combination of both. It is important to exactly determine what happens, since it is possible to determine the sales level from the commissions that have been paid.
It is possible that sale price for retailers, in cases when the buyers themselves ship the goods, is lower than the price for goods when they are sipped to the retailer's premises by the wholesaler's staff. It is important to understand what the structure of the sale price is (analysis of components per unit).
In Albanian Customs taxes and VAT are paid according to a list of reference prices which is administratively considered to be closer to the real declared value. The first argument is that domestic market is protected form by free imports and the second argument is that, as regards VAT, the artificial price increase is avoided.
The bottom prices established for some goods are applied during imports and this is a means to make sure that import taxes, VAT, import excise, etc., be fixed to a competing level in order to protect the domestic market. After the goods have entered the country and start selling in the domestic market, VAT should be calculated and taxed on the quantity of goods that are actually sold.
While it is difficult to generalize, the profit rate should be sufficient to make sure that the majority of importers are able to pay VAT. Since VAT is refundable, this has no significant influence on the profit, except for a small increase of the tax obligation, which in account books is presented as a cost.
Purchases should be registered in the purchase register, possibly a separate diary for the cash account, which registers incoming and outgoing payments. Registrations of sales have to do with operational business costs and those for imported goods. These include invoices for utilities, rent, phone, fax, internet, paper, insurances for offices and storehouses, advertisements, personnel (if any), cleaning, transportation of goods, customs agents for importers, etc. The auditor should also take into account purchases on which no VAT is applied
The trader should register all purchases and sales, not only the VAT ones. It is easier for a trader to hide his sales if the purchases are not identified and evidenced. A check on the stock of purchase invoices can discover, for example, stock of invoices that have not been calculated through the invoice system.
The principal requirement is to issue an invoice for every sale and this should comply with the rules specified in the Minister's Instructions on VAT or Law. As with everyone else, wholesalers should keep sufficient data to meet the requirements of tax authorities on the accuracy of their accounts and declarations prepared for tax purposes.
The owner of a business also has personnel working for him and in certain aspects; his needs are similar to those of the tax authorities: he does not trust others to handle his business without first making some checks in order to make sure that losses from theft are minimum. The owners' requirements are almost similar even in terms of risk elements and for incomes this aspect is treated in more details.
