TIRANA, May.30- In its weekly Wednesday meeting, the Council of Ministers approved the nation-wide ten percent flat tax, thus creating the foundation on which Albania’s new fiscal package will be built. This package will lower the tax on profits (so-called corporate tax) by 150 percent and the tax on revenues by 130 percent. Prime Minister Berisha commented that with this measure, Albania becomes one of the states with the lowest taxes on businesses and citizens in the world. Berisha further offered guarantees that the tax will not negatively affect employees with low salaries, given the raise in minimum wages as well as the bar of 100.000 lek before an individual is taxed. The government hopes the new tax plan will serve a two-fold purpose: assisting business in Albania and attracting foreign investors. This package will be submitted for approval to the Parliament along with the second term budget. Also approved were the regulatory measures that will place limits on the cash circulating in society and oblige businesses to do most of their transactions through monitored banking channels. Berisha commented that the administration foresees a very positive effect of the new tax plan, coupled with the regulatory measures, which believes will lead to double digit economic growth and put teeth in the fight against informality.
Previous reactions
The International Monetary Fund had often expressed opposition to aspects of the Albanian flat tax proposal, given its effect on the state budget and its mid-year timing. Most recently, during his visit in Tirana, Istvan Szekely, head of the IMF mission in Albania, repeated again that the decision to change the tax system was, at best, hasty.
As far as the decision to limit the amount of cash in circulation is concerned, the support for this measure came largely from the business associations, especially Konfindustria, the nation’s largest business association. Additionally, Gjergj Buxhuku, one of the managers of Konfindustria, has expressed urgent concern about the high rate of commissions that banks charge for transactions, as well as the insufficient staffing at banking facilities. Businesses also fear there is insufficient staffing within Albanian companies to implement this measure, as business cannot transfer all these transactions in one step and may need a more gradual process. The banks also have to adapt to the workload required, as well as extend their market presence, which is predominantly only focused in urban areas
Net salaries reduced
The government decision to tax employee salaries with the flat tax, despite allowances for low salaries, will most seriously impact the living standards of those paid an average wage of 300.000-500.000 leks. Additionally, the fiscal burden on the business sector that has to comply with new minimum salary requirements, is now complicated by the effect on employee wages and, also, changing social security contributions.
