“The consequences of the implementation of two consecutive fiscal packages which in essence increased taxes, clearly show that the political decision-making must change direction,” says Konfindustria’s administrator Gjergj Buxhuku
TIRANA, March 24 – More than one year after Albania renewed its deal with the IMF supported by a Euro 334 million loan, the Albanian business community represented by the Konfindustria association remains skeptical over the impacts the two consecutive IMF-supported fiscal packages accompanied by tax hikes have had on the Albanian economy which continues suffering crisis impacts.
Critical of IMF’s tax hike suggestions, Konfindustria’s administrator Gjergj Buxhuku says “the gist of IMF’s policies is reaching financial stability at any cost, even when it affects real economic growth.”
Speaking in an interview with weekly Java magazine, Buxhuku suggests the Albanian government should not be silent in accepting IMF’s recipes.
“The IMF employs tools such as higher taxes and tighter fiscal policy to increase budget revenues and its standard policies are based on a summary of global experience but this does not mean these standards can successfully apply especially in countries with a small economy, fragile institutions and high tax evasion such as Albania,” he says.
“The consequences of the implementation of two consecutive fiscal packages which in essence increased taxes, clearly show that the political decision-making must change direction. Enterprises, households and the economy in general cannot handle new increases in the tax burden,” says Buxhuku.
The Konfindustria administrator says the Albanian government chose to borrow around 1 billion dollars from international financial institutions such as the IMF and the World Bank to handle the country’s difficult financial situation in late 2013 being forced to meet the creditors’ requirements at a time when it could have secured funds by fighting tax evasion currently at around 50 percent of the GDP and adopt structural measures in the banking and financial markets. “The latter would be a more difficult path, but clearly more valuable for the next Albanian generations in the long-term,” says Buxhuku.
He describes the public debt at around 70 percent of the GDP, credit struggling to remain at positive growth rates, non-performing loans at around a quarter and declining foreign direct investment as key barriers to Albania’s growth which has dropped to 1 to 2 percent in the past three years.
While business associations have in general opposed the deal with the IMF, government and economy experts described it as a necessity to preserve macroeconomic stability at a time when the country’s public finances were in critical situation with public debt at around 70 percent, including accumulated unpaid bills to the business community of around 5 percent of the GDP and top agencies were considering downgrading Albania’s credit rating.
With consultations on the 2016 budget already under way, the Konfindustria business association has called on government to be careful with the new fiscal package after tax hikes in the past couple of years.
Citing a sharp informality rate of around 50 percent of the GDP, Konfindustria suggests that the 2016 budget should be based on better fiscal administration and structural reforms promoting economic growth.
“A further increase in taxes would produce undesirable consequences for the country’s competitiveness in attracting foreign direct investment, set conditions for increased tax evasion by affecting regular business and household taxpayers, reduce budget revenues, and make domestic goods and services less competitive to the imported ones,” says Konfindustria’s administrator Gjergj Buxhuku.
Starting January 2015, Albanians are paying higher taxes on non-wage income, fuel and tobacco, which are expected to cost both households and businesses an extra 112 million euros in taxes. In addition, higher electricity prices are expected to have a negative impact on the budget of both households and businesses.
While key taxes such as the personal and corporate income taxes will remain unchanged, defying businesses calls for a return to the flat tax regime after the corporate income tax was raised by 5 percent to 15 percent in 2014, the fiscal burden has further increased by raising the withholding tax on interest rates, dividends and rents.
The Albanian government and the IMF remains optimistic Albania will achieve its 3 percent growth target for 2015 despite the massive flooding earlier this year and a sharp drop in international oil prices affecting Albania’s exports.
