TIRANA, Nov. 4 – The launch of the much-rumored nationwide campaign against informality last September had an adverse effect on some key taxes levied on both businesses and households as the tax administration started field inspections fining thousands of businesses on tax evasion.
Finance Ministry data shows the value added tax, levied at a fixed 20 percent rate on almost all goods and services and accounting for a third of total government revenue, increased by only 3 percent year-on-year last September, but failed to meet by 10 percent the revised target after a mid-year budget cut. VAT is also an indicator of domestic consumption, one of the key drivers of Albania’s economy, whose sluggish performance has considerably affected the Albanian economy in the past few years.
The situation was more critical for the business community which reported a 26 percent decline in profits. The tax administration reports the profit tax, which since 2014 has increased to 15 percent for medium-sized and big enterprises, was down by 25.7 percent to 1.62 billion lek (€11.5 mln) year-on-year last September.
Personal income tax levied under a progressive system on wages and at a fixed 15 percent rate on interests, rents and dividends, was up by 9 percent to 2.4 billion lek (€2.4 mln) but failed to meet the target by 17 percent despite the increase in the withholding tax by 5 percent to 15 percent this year.
The situation was more critical in the customs administration which failed to meet its target by 20 percent on a sharp cut in tobacco imports.
Social security contributions rose by 8.4 percent to 4.65 billion lek (€32.9 mln) last September as inspectors warned of heavy fines on informal labour but the gap on the pension system remains huge. For the first three quarters of 2015, the deficit between social security contributions and spending slightly rose by 0.2 percent to 34 billion lek (€241 mln).
The underperforming revenues also forced a cut in public investments which in Sept. 2015 although increasing by a sharp 46 percent to 4.3 billion lek (€31 mln) failed to meet the target by 35 percent.
Tax inspectors imposed fines worth €1.4 million on more than 4,000 businesses last September during field inspections in the first 23 days of the nationwide campaign against informality, according to the tax administration.
Last September, some 600 groups of tax inspectors backed by police officers started carrying out field inspections in a bid to give an end to widespread informality, estimated at around 30 percent of the country’s GDP, officials said.
The Albanian government says it targets collecting about 330 million dollars from the nationwide campaign which will last 300 days in a similar operation to the electricity campaign to curb massive thefts and collect accumulated unpaid bills which has brought an extra €100 million to the state coffers since its launch in late 2014.
The much-rumored nationwide campaign against tax evasion with thousands of businesses previously operating informally registering with tax authorities is having a boomerang effect on government revenue. Official data published by the Finance Ministry shows public finances failed to meet the target even last September when more than 15,000 businesses previously operating informally registered after warnings of fines and seizure of goods. The tax and customs administrations failed to collect 4 billion lek (€28.7 mln) last September, with the revenue for this month only 0.6 percent higher compared to September 2014.
