TIRANA, June 7 – At a time when the Albanian government prepares to adopt some tax incentives in an unusual mid-year package that is expected to be approved this month, but not enter into force before next January ahead of the mid-2019 local elections, a local business association has suggested the ruling Socialists should abandon their progressive taxation platform and shift back to the flat tax.
The Konfindustria business association says Albania should follow the example of Italy, Albania’s main trading partner and one of the top investors in the country, whose new populist government has unveiled plans to scrap progressive taxation and adopt a much lower two-tier flat tax, likely at 15 percent on individuals and at 20 percent on companies starting next year.
“The Albanian political decision-making should carefully follow the new Italian government strategy on the implementation of the flat tax on households and businesses. The key changes in the tax policy of Italy, Albania’s main trading partner, will have a direct impact on Albania’s economic developments,” says Gjergj Buxhuku, the head of the Konfindustria business association.
Italy’s new populist government composed of anti-establishment 5-Star Movement and far-right League plans to adopt the flat tax despite worries over Italy’s huge mountain of debt surging at 130 percent of the GDP.
Albania conducts about 36 percent of its trade exchanges with Italy, the Eurozone third largest economy, which is the host of some 500,000 Albanian migrants who are a major source of remittances for Albanians at home.
The business association representing some of the country’s industry and services businesses, says the current progressive taxation and tax burden have not failed to produce positive results since 2014 when Albania abandoned its 10 percent flat tax.
“The average growth of less than 2.5 percent a year in the past five years, public debt that is failing to drop below 72 percent of the GDP, the high tax evasion also reflected on the sharp depreciation of Europe’s single currency against the Albanian lek, Albania being the region’s last in attracting foreign direct investment, higher migration and the blow to the middle class are clear indicators of the need for radical changes in the country’s economic and tax policies,” says the Konfindustria business association in a statement.
Since 2014, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in the country one of the region’s highest and a top concern for the Albanian and foreign investors who also complain of corruption, an inefficient judiciary and non-transparent public procurement procedures.
Finance Minister Arben Ahmetaj says Albanian businesses will benefit lower corporate income tax as well lower value added tax rates on agritourism and exemptions from 20 percent VAT on imports of equipment to build solar power plants starting next year.
However, the ruling center left Socialists have ruled out any withdrawal from the progressive taxation which they say allows those who earn less to pay less in taxes.
Albania currently applies progressive taxation of up to 23 percent on personal income for monthly wages of more than 130,000 lek (€1,000) under a system that excludes the first 30,000 lek (€225) from taxation and applies a 13 percent rate on income from 30,000 to 130,000 lek.
Small businesses are currently stripped of profit tax, medium-sized companies pay a 5 percent rate while big business pay a 15 percent corporate income tax.
