Govt turns down opposition’s proposals on VAT, progressive taxation

TIRANA, Dec. 6 – Some opposition Socialist Party (SP) proposals to cut VAT on basic products and replace the current 10 percent flat tax on salaries with a progressive system to protect people with lower revenues were turned down by majority MPs of Parliament as they finally approved the 2012 budget this week.
Mimi Kodheli, a SP MP and deputy chair of the parliamentary economy committee, said the progressive taxation for salaries, excluding monthly income of 20,000 lek from taxes, would save an average-income Albanian household with 3,000 lek (USD 30) a month. The biggest opposition party has also proposed cutting VAT on electricity from 20 percent to 6 percent, and lifting VAT on books which discriminates domestic typography industry at a time when imported books are tax-free under Stabilization and Association Agreement (SAA) commitments.
“Teachers, police, doctors and nurses are taxed 10 times more than five years ago at a time when their salaries have not grown by ten times,” said Kodheli of the progressive tax system which foresees that the higher the salary the more taxes employees will pay.
Currently, the minimum 20,000 lek salaries face a 5 percent flat tax while salaries 30,000 lek or above undergo a fixed 10 percent flat rate.
Kodheli said revenue reductions could be compensated from privatization of hydropower plants.
The Democratic-Party-led coalition, which has been striving to meet revenue targets during the past two years, making mid-year and year-end budget cuts, had also previously ruled out the possibility of cutting taxes, describing proposals by the opposition on VAT as populist and the progressive tax as ‘Marxist.’
Speaking on Tuesday’s government meeting, Prime Minister Sali Berisha said “Their idea to replace the flat tax with a progressive one is the idea of ruining the mechanism of the economic success of reforms with populist and Marxist slogans over the fight against the rich.”
The Prime Minister emphasized that teachers, doctors and nurses used to get 22,000 lek a month and paid 700 lek in taxes compared to a gross 50,000 currently paying 5,000 lek in taxes, challenging his opponents and the public which is better.
The Socialist Party’s draft law on some changes to the VAT envisaged the removal of 20 percent VAT for wheat, flour, bread, milk and its reduction to 10 percent for cooking oil, sugar and rice starting from January 2012. Another amendment to the law also suggested the removal of the 10 percent VAT on medicines, introduced at the beginning of this year. The report accompanying this draft law compiled by the biggest opposition party says the fiscal burden for each Albanian household during the past 5 years has increased by 18 percent and that articles such as electricity, medicines and food products have risen from 43 to 62 percent.
Albania has been implementing the flat tax on salaries and corporate taxes since 2008 in an effort to improve business climate and attract more foreign direct investment.