The government needs to come clean with the people: More than a source for fuel, the pump in Albania today serves as a tax collection tool, but state income generation through fuel could ultimately hurt the economy more than other taxation methods.
TIRANA TIMES EDITORIAL
The persistent high price Albanians pay to fuel their vehicles despite the rapid fall of the oil global prices has led to public anger and political debate over the role of taxes and market domination by three companies that are accused of keeping the prices artificially high.
Albania is a small market with lack of refining capacity, which means fuel prices will run higher than those in more developed European countries, so let’s compare apples to apples. International fuel price data show that this week a litre of diesel in Albania costs €1.21, a figure that is higher than neighbours with similar economies — Macedonia’s €0.88, Montenegro’s €1.03 and Serbia’s €1.17.
The key actors in the domestic fuel prices — the government and the oil importing companies — are blaming each-other for the difference. The fuel importers have come under fire by politicians and are likely to face an investigation by the competition authorities, who suspect an oligopoly agreement. On the other, hand the fuel companies accuse the government of loading their product with taxes, which make the ultimate price climb to among the highest in Europe.
The reality is that they are likely both right. But it is the government that must take action on two fronts to fix the situation. First, it must work to increase market competition the same way previous governments did with the cellular telephony market, giving incentives to more companies to enter the market and bringing in competition that today has sent rates to record lows.
But, perhaps most importantly, the government must come clean with the Albanian people and tell them that the most important reason oil prices are so high: The government is unable or unwilling to collect taxes in other ways and is using fuel as a primary taxation tool. Fuel is a low-hanging fruit because it is virtually all imported and can be taxed at the point of entry into the country, without running the risk of evasion down the road. Instead of running proper programs for tax compliance, state officials choose the easy way — racking up everything on oil instead.
The problem with oil prices being heavily taxed is that they tend to have a strong ripple effect on the economy. They affect every aspect of production, leading to less consumption and lower economic growth. While taxing certain sectors or groups in the economy might not immediately affect others, fuel is one thing that affects poor and rich alike. It’s not about whether you have a personal vehicle or not. It is whether the bottle of milk in the supermarket costs more or less because it takes fuel to get it produced and transported to the shelve.
Let us be clear. This is not a trend started by the current government. All governments in Albania have chosen this easy path to taxation and have been too cosy with the dominant fuel suppliers, ignoring persistent high fuel prices, which makes some of the opposition’s accusations this week a bit hypocritical. However, the current government has rapidly increased the toll of taxes on fuel over the past two years further entrenching the policy set by their predecessors. It must halt, or, better yet, reverse such policies, which do more harm than good the Albanian economy and ultimately to the state coffers themselves.
