Government reacts with punitive measures

After the incorrect calculations on the tax base, the business community has perceived the government’s draft laws on fines and the increasing rate of minimum wages as measures to punish business avoiding paying taxes. In fact, the hard-line measures to tackle informality have been very controversial as they have created a hostile climate towards the business community. The flat tax rate has also been a novelty which seems not to be supported by economic data. The flat tax will impose half the tax requirements on big businesses profits, affecting 2.5 percent of Albania’s GDP. Excise taxes, 2.6 percent of all state revenues in 2006, will also be affected. Trying to minimize these losses, the government taxes personal revenues at a higher rate, making income tax levels at ten percent. Also, this tax severely affects those people paid under the average of $450. Minimum wage has been raised significantly, increasing the cost of labor which hurts not only local producers but also decreases the incentives to foreign investors. Larger informality levels on wages has been predicted by economic experts as firms will try to circumvent higher costs related to wages and other benefits such as social security and medical insurance costs.