TIRANA, May 15 – Government revenue registered a modest increase in the first quarter of this year, but failed to meet the target by a considerable amount, negatively affecting public investment.
Finance ministry data shows government revenue rose by an annual 3.8 percent to about 105.4 billion lek (€823.7 mln) in the first quarter of this year, but failed to meet the target by 2.9 percent equal to 3.1 billion lek (€24.3 mln) for the first three months of this year.
The lower than expected income was mainly affected by the underperforming value added tax and profit tax. Levied at a fixed 20 percent rate on almost every product and service, VAT which is also an indicator of domestic consumption, grew by an annual 7.4 percent to 33.6 billion lek (€262.7 mln), but failed to meet the target by 3.6 percent.
Likewise, Albanian businesses reported lower profits in the first quarter of this year when businesses have to have submit their annual financial reports.
The profit tax, currently levied at differentiated 5 and 15 percent rates on medium-sized and big businesses, was the worst performing indicator in the first quarter of this year as it fell 13.4 percent year-on-year and was down by about 20 percent or 2.4 billion lek (€18.5 mln) compared to the target for the first three months of this year.
The underperforming revenue comes at a time when government has renewed its nationwide campaign against tax evasion and new legal changes starting April 2018 are expected to increase the tax burden on some 10,000 small businesses that were included in the VAT system after the annual turnover threshold was lowered to 2 million lek (about €15,000), down from a previous 5 million lek (€39,000). The legal changes have triggering nationwide protests and concerns over massive bankruptcies at a time when small businesses are already facing tough times amid tighter competition by supermarket chains and shopping centers already in the 20 percent VAT system.
The underperforming revenue also had a negative impact on much-needed public investment which remained at almost the same levels of 10.3 billion lek (€81 mln) for the first quarter of this year, but was down by about a fifth or 2.6 billion lek (€20.5 mln) compared to the projected level for January-March 2018.
The careful and tight spending policy allowed the Albanian government to post a surplus of about 5 billion lek (€40.6 mln) in the first quarter of this year as it targets to bring public debt down to 68.7 percent of the GDP by the end of the year, down from a 4-year low of 70 percent in 2017.
However, extra VAT that government can collect on small businesses included in the VAT system and a new value-based property tax increasing fees on both households and businesses starting April 2018 are set to have a major impact on the government revenue for the remaining of the year.
In addition, the tourism sector is expected to continue generating more income as tour operators report a hike in the number of bookings from European tourists.
However, the slowdown of foreign direct investment following this year’s completion of TAP and Devoll Hydropower, the two major energy-related projects that have driven FDI and economic growth in the past four years, is expected to have a negative impact on the budget revenue and overall economic growth.
International financial institutions predict Albania’s GDP growth will slow down to 3.5 to 3.7 percent this year, down from an estimated 9-year high of 3.8 percent in 2017 on lower FDI investment.
