Prime Minister Berisha says the 10 percent personal income tax, launched in 2008 as part of a flat tax reform, will be lifted for monthly wages of up to 30,000 Lek (Euro 210)
TIRANA, Jan. 29 – Five months ahead of the general elections, Prime Minister Sali Berisha has undertaken another step to reduce the tax burden for people receiving low wages. Speaking at a meeting with his Democratic Party MPs this week, Berisha said the 10 percent personal income tax, launched in 2008 as part of a flat tax reform, will be lifted for monthly wages of up to 30,000 Lek (Euro 210). “This is not only a 10 percent increase in wages, but at the same time huge support to enterprises and the labour market,” said Berisha, admitting that the initiative will mostly help the private sector, especially the garment and footwear industry which employs more than 60,000 people as wages in the public sector overwhelmingly stand above 30,000 lek.
Commenting on his Facebook profile, Prime Minister Berisha said some 200,000 private sector workers and 15,000 public sector employees would benefit from the removal of the 10 percent personal income tax, equal to one extra monthly wage.
Reacting to the Prime Minister’s proposal, the opposition Socialist Party which has introduced a progressive taxation system in its electoral programme, said the Prime Minister was copying part of the SP’s programme. Urging the Prime Minister to apply a full progressive taxation for wages, the opposition said “fair taxation means that whoever earns less will pay less and whoever earns more will pay more.” The opposition Socialist Party has proposed a progressive taxation system to replace the 10 percent flat tax in an effort to lower tax burden for people with low income.
Albania has been implementing the 10 percent flat tax on salaries and corporate taxes since 2008 in an effort to improve business climate and attract more foreign direct investment. However, data show the implementation of this tax has had minor impacts during the past few years since government revenues from this tax have increased by only 8 percent in the 2008-2011 period.
In the first 11 months of 2012, personal income tax was up only 0.8 percent but down 5.9 percent compared to set targets, according to Finance Ministry data.
Employees receiving low wages will still have to pay a compulsory 11 percent in social security and health insurance. Social security contributions currently stand at 24.5 percent, of which 15 percent is paid by employers and 9.5 percent by employees. Meanwhile, health insurance contributions are at 3.4 percent, shared by 1.7 percent between employers and employees.
INSTAT data show the average monthly wage for people employed both in the private and public sectors was at 34,767 lek in 2011. The average wage in the public sector climbed to 46,655 in 2011 while since mid-2012 the minimum monthly wage stands at 21,000 lek. The public sector provides only 17.7 percent of total employment in Albania. The private non-agricultural sector accounts for 27.6 percent while the private agricultural sector has a 47 percent share.
The official unemployment rate was kept at almost the same levels 13.3 percent level only thanks to the private sector which in the third quarter of 2012, the peak of the tourism season, hired an extra 10,688 people compared to the previous second quarter taking the total number of employees to 272,667.
The proposal by the Prime Minister comes soon after the ruling Democrats approved last December a new fiscal package which lifts VAT on investments in priority sectors, reduces taxes on coffee importers and tightens measures against informality.
Government had earlier decided to lift the 20 percent VAT on imports of machinery and equipment as well as cement and steel for the construction of hydropower plants.
The 20 percent VAT on imported machinery and equipment will be lifted only for investments of Lek 50 mln (Euro 351,000) or more. The changes were approved in Parliament on December 20 and are expected to enter into force starting from next January.
