Gov’t revenue miss target by €60 mln in year’s first half

Tirana Times
By Tirana Times August 2, 2018 17:00

Gov’t revenue miss target by €60 mln in year’s first half

Story Highlights

  • The value added tax and excise duties, the two key taxes that account for about half of total government revenue and serve as indirect indicators for consumption, significantly underperformed in the first half of this year, according to a finance ministry report

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TIRANA, Aug. 2 – Albania’s government revenue missed the year’s first half target by a considerable amount, triggering a mid-year budget cut that was also influenced by a sharp strengthening of the Albanian lek against Europe’s single currency trading at a 10-year low.

Finance ministry data shows government revenue rose by a mere 2.2 percent to a total of about 217 billion lek (€1.7 billion) in the first half of this year, but missed the target by a considerable 3.4 percent equal to 7.5 billion lek (€59.6 mln) for the January-June period.

The value added tax and excise duties, the two key taxes that account for about half of total government revenue and serve as indirect indicators for consumption, significantly underperformed in the first half of this year.

VAT, which is levied at a fixed 20 percent rate on almost all products and services, rose by a mere 3.1 percent in the first six months of this year, but failed to meet the target by 5.4 percent or 1 billion lek (€8 million).

Excise duties collected from the so-called luxury items were down by 2 percent compared to same period last year due to lower tobacco and coffee imports.

Fuel imports in the first half of this year rose by a huge 59 percent, but the hike in imports was triggered by domestic oil refining suspended in early 2018 and only partially activating in the second quarter of the year with no significant impact due to excise duties collected at the same rate for both imported and domestically produced fuel.

The profit tax levied under a three-tier system that applies zero, 5 and 15 percent rates depending on businesses’ annual turnover, also missed the revenue target by about 1 billion lek (€8 million) in the first half of this year, apparently triggered by lower profits by exporting businesses hit by euro’s free fall against the Albanian lek during this year.

The underperforming revenues forced the Albanian government to pursue a tight spending policy that also affected public investment which although higher compared to the same period during the first half of the 2017 general election year, failed to meet targets by a huge 4 billion lek (€32 million).

The first-half performance ended in modest surplus amid a careful spending policy as the government tries to bring public debt down from its current 70 percent of the GDP, a high level for the Albanian developing economy and estimated to pose a key threat to the country’s public finances due to the high servicing cost.

The mid-year budget cut that the Albanian government approved last week slashed central government spending by about 4.5 billion lek (€35.5 mln), but left the budget deficit unchanged at 32.3 billion lek (€256 mln), at about 2 percent of the GDP as part of a public debt reduction agenda targeting to bring debt down to a more affordable 60 percent of the GDP by 2021.

The Albanian government expects growth to recover to 4.2 percent this year following a 9-year high of 3.8 percent in 2017, but international financial institutions predict GDP growth could slow down to 3.5 to 3.7 percent in the next couple of years as two major energy-related conclude their investment stage by the end of this year and no major project replaces them.

GDP in the first quarter of this year grew by 4.45 percent but growth was largely fuelled by the rainfall-fed hydropower sector escaping the 2017 crisis triggered by a prolonged drought and domestic electricity generation meeting the country’s needs and resuming exports.

Tirana Times
By Tirana Times August 2, 2018 17:00