TIRANA, Nov. 21 – The renewed nationwide campaign against tax evasion that the Albanian government has launched will focus on the country ‘big fish’ starting next January when the so-called ‘double standard balance sheets’ and underreported wages that private sector companies commonly employ to avoid paying taxes will be the tax inspectors’ new target.
Prime Minister Edi Rama says nearly half of the country’s 800 largest enterprises underreport wages and double balance sheets is a common phenomenon when it comes to borrowing from banks and reporting to the tax authorities.
“Companies operating on double balance sheets will receive a severe blow next January as the government will only recognize the balance sheets that these companies have submitted to banks,” Prime Minister Edi Rama said this week, warning that the story of companies boasting to banks about how much they possess when it comes to borrowing and complaining to tax authorities when they have to pay taxes will soon come to an end.
The Prime Minister says tax authorities have unveiled that 42 percent of employees working in the country’s largest 800 private sector enterprises are reported with tax authorities as being paid at only 30,000 lek (€222) a month, something which he says is intolerable when it comes to social protection benefits and contribution to the state budget.
Since mid-2017, Albania’s minimum wage on which compulsory social security contributions and health insurance is calculated has increased to 24,000 lek (€177), yet remaining one of the region’s lowest.
Due to the low number of contributors and big number of pensioners, Albania suffers a huge pension gap of more than 300 million euros annually.
The Prime Minster’s comments came at a time when a renewed nationwide campaign against informality has been in place since last October after Prime Minister Edi Rama’s Socialist Party was reconfirmed for a second clearer term of office in last June’s general elections.
The renewed campaign against informality comes after a rather aggressive late 2015 nationwide operation accompanied by a sharp increase in penalties, later turned down by the country’s Constitutional Court as “disproportionate” to income and offences committed. The campaign, mainly focused on small businesses, formalized thousands of businesses previously operating informally and lifted thousands of workers out of informality, but failed to bring a considerable increase in tax revenue.
Along with high taxes and inefficient justice system, informality or unfair competition is one of the top concerns facing businesses in Albania, especially foreign investors.
International financial institutions and independent experts estimate Albania’s informality to be at about 30 percent of the GDP, one of the region’s highest.
At about 28 percent of its €11 billion GDP, Albania’s has one of the region’s poorest tax collection rates despite applying one of the highest tax rates among the six EU aspirant Western Balkans countries, unveiling the inefficiency of the tax administration and high informality rates.
Earlier this month, Prime Minister Rama also announced nationwide campaigns to fight organized crime, reform the tap water system and discipline river quarrying to prevent further soil erosion and flooding
The campaigns come at a time when the political situation in the country has been tense over a probe into former Socialist Party Interior Minister Saimir Tahiri, one of Rama’s closest allies, over alleged links to some distant cousins arrested over drug trafficking in Italy and a cash amount of €835,000 found in the car of 25-year-old businessman who also carried two speedboat driving licences belonging to the former interior minister.
Starting April 2018, the VAT threshold on businesses will be lowered to annual turnover of 2 million lek (about €15,000), down from a current 5 million lek (€37,000) while the property tax will be collected on a value-based formula applying a 0.05 percent rate on homes and 0.15 percent on business facilities starting next January, according to the 2018 fiscal package.
Wage, GDP growth paradox
The Albanian economy grew by a 6-year high of about 3.4 percent in 2016, but average wages in the country’s private and public sectors registered a paradoxical decline, hinting Albania’s post-crisis growth of 1 to 3 percent annually is failing to produce much-needed welfare in one of Europe’s poorest countries.
Recent data published by state statistical institute, INSTAT, shows gross average wages in the private and public sector, dropped by 2.1 percent in 2016 when the economy grew by 3.4 percent. The wage decrease is bigger considering an annual inflation rate of 1.3 percent.
Albania’s average gross wage (net wage + social security and health insurance contributions as well as personal income tax) slightly fell to 45,845 lek (€336) in 2016, mainly as a result of a decline in wages by foreign-owned and joint ventures between Albanian and foreign companies.
The gap between wages paid by the public sector and foreign-owned companies, almost twice higher compared to wages paid by Albanian-owned businesses unveils the high level of informality in the Albanian economy despite a tough late 2015 nationwide campaign to tackle widespread tax evasion.
Experts estimate Albania’s economy needs to grow by 6 percent annually in order to produce obvious welfare for its households who have taken to massive migration in the past couple of years, applying for apparently ineligible asylum in EU member countries, mainly in Germany and France.
The Albanian economy is on track to grow by 4 percent this year, fuelled by some large energy-related investment such as the Trans Adriatic Pipeline and a big hydropower plant.
The country’s GDP has been growing by an average of 1 to 3 percent annually since 2009 following a pre-crisis decade of 6 percent annually, the growth rate estimated to bring welfare to the EU aspirant Balkan economy.
