TIRANA, Oct. 29 – The latest World Bank Doing Business report has sparked political debate over the government’s policies after Albania’s competitiveness dropped by 35 places to worst performer in the region.
The center right opposition blamed the government and what it said are aggressive and higher tax policies toward the business community, while the Socialist Party-led majority said it expected the lower results but they would be temporary as part of nationwide reforms it has undertaken that will have future positive effects.
Albania ranked 97th out of 189 countries in the 2016 Doing Business report, from a revised 62nd last year when it achieved its best ever ranking, lagging behind all regional countries.
Among regional EU aspirant competitors, Macedonia ranked 12th, Montenegro 46th, Turkey 55th, Serbia 59th, Kosovo 66th and Bosnia and Herzegovina 79th.
Albania’s sharp deterioration was affected by the dealing with construction permits where it lost 67 places to rank the bottom 189th in the report.
“Albania made dealing with construction permits more difficult by suspending the issuance of building permits,” the report noted.
Paying taxes in Albania also became more difficult as the country lost 12 places to rank the world’s 142nd on the number of payments, time spend and total tax rate of 36.5 percent of profit which is above the Europe and Central Asia average of 34.8 percent.
Protecting minority investors and trading across borders are mentioned as reforms in the report.
“Albania strengthened minority investor protections by introducing legal requirements for immediate disclosure of related-party transactions to the public. Albania also made exporting easier by implementing an electronic risk-based inspection system, which reduced the time for border compliance,” according to the report.
Albania’s best indicators in the 2016 Doing Business report were protecting minority investors (8th), trading across borders (37th), resolving insolvency (42nd), getting credit (42nd) and starting a business (58th).
Registering property, paying taxes, getting electricity and dealing with construction permits deteriorated in 2015, ranking Albania 107th to 189th.
Back in 2014, Albania achieved its best ever result in the Doing Business report, ranking 68th (later revised upward to 62nd) among 189 global economies, considerably improving its image among foreign investors who consider the flagship report as a reference point before deciding to invest.
Doing Business, a World Bank Group flagship report, covers 189 economies and 10 indicator sets including starting a business, dealing with construction permits, getting electricity, registering property, paying taxes, trading across borders, getting credit, protecting investors, enforcing contracts and resolving insolvency.
Gov’t: Decline expected, temporary
Few days before the release of the report, Prime Minister Edi Rama warned Albania’s position in this year’s Doing Business report would deteriorate because of the ban in construction permits and obstacles with registering property.
“We are aware that the decline will be a result of the compulsory suspension of constructions for a considerable period of time which was a necessity to restore order in the territory by stopping illegal constructions and curbing abuses with construction permits,” Rama said in a meeting with the National Economic Council.
The prime minister pledged reforms to ease the process of property registration and reduce the number of inspectorates to two, which will considerably improve the business climate by early next year.
Reacting to the findings of the report on Wednesday, Economy Minister Arben Ahmetaj said the situation was a result of the aggressiveness of reforms the Albanian government has undertaken and whose results will be visible next year.
“To give an answer to all those who have called this a ‘blow’ to the Albanian economy or those who want Albania the last in the region for its competitiveness, I would like to tell them that the Albanian economy has embarked on a sustainable road of aggressive reforms which tackle the gist of the economy, the productivity and competitiveness,” said Ahmetaj.
Albania is targeting to further improve the climate of doing business by establishing the National Business Centre, a new one-stop-shop that will merge the current national registration and licensing centre, according to a draft law that has been submitted to parliament for approval.
The new law targets improving the Doing Business indicators in Albania and reducing costs especially for small businesses, says the report to the draft law.
Opposition blames gov’t policies
Reacting to the report, the opposition center-right Democratic Party blamed Albania’s deteriorated ranking on the poor performance of the leftist majority led by Prime Minister Edi Rama.
“This black passport for Albania is a serious barrier for the arrival of investors and the development of the economy. The country is facing a deep crisis and this was also confirmed by the key World Bank report,” said Florion Mima, a Democratic Party lawmaker who specializes on economic issues. “The country is in a free fall. We are the last in the region where even Kosovo is more attractive. We rank the last on a global stage for construction permits.”
The opposition Democrats say the country’s economy needs a package of incentives to lower taxes, improve the business climate and fight corruption.
Lower, fewer and more stable taxes needed, experts say
The Foundation for Economic Freedom, a non-profit organization bringing together several experts, has launched an awareness campaign against what it calls heavy tax burden and frequent changes in tax legislation.
In a round-table that took place soon after the release of the Doing Business report, the foundation’s executives said the tax administration’s aggressiveness in fining business and the use of police during inspections as part of the nationwide campaign against informality is having a negative impact on the business climate.
“We think that this state-run campaign on tax collection warns of a tough winter for the Albanian economy. The use of police in the collection and inspections on businesses is the worst possible instrument and a bad message in the state-business partnership,” said Arber Kadia, the executive director of the Foundation for Economic Freedom.
Economic experts at the round-table said Albania needs lower taxes, fewer taxes and a more stable tax legislation.
