TIRANA, May 19- Through an information request by business and economy magazine Monitor, the General Directorate of Taxation (GDT) provided a list where all municipalities and former former communal centers resulted in tax liabilities, mainly for unpaid social security. By the end of 2018 unpaid social security debts amounted to 14 billion lek or 114 million euros, and a considerable part of it belongs to local government. GDT did not separately report the debt created by the vendors due to confidentiality reasons, referring to the law on tax procedures.
The former mayor of Kukes was sentenced to jail in May 2016 by the court, accusing him of abusing about 45 million lek (367 thousand euros) of social security contributions to sponsor the city’s football team. It seems that almost all local government units, former communal centers and all municipalities continue to follow the same practice today by not paying employees social security, which in the expenditure hierarchy are the first to be paid as a liability arising from law.
The General Directorate of Taxation has currently imposed a measure of forced execution of unpaid tax obligations for the municipalities of Libohova, Memaliaj, Permet, Tepelena, Pustec, Sukth, Himara, Polican, Fushe-Kruja, Kruja, Kavaja, Rrogozhina and Divjaka. However, all municipalities in the country are tax debtors. Official sources at the GDT stated that the debt of municipalities and communes is comprised of unpaid social security. From a legal point of view, GDT must act for municipalities as well as for businesses, confiscating bank accounts and selling valuable items to cover liabilities, but in practice this does not happen.
“If a municipality can not pay social security, the finance experts have dropped the bells that the municipality is in danger of real bankruptcy,” argues renowned economist Arben Malaj who is also a former finance minister. According to him, in a functional democracy and a legal state, municipalities, like any other country’s governing body, must face the risk of bankruptcy. Malaj added that for the municipalities in difficulty, the central government should buy their debt with five to seven year instruments/bonds, and should set these fusions clear and sound conditions and restrictions on their financial management where after the payroll , insurance, and fiscal obligations, the payment of the annual proportion of the purchased debt must be ahead any other expense or investment.
Beqir Nuredini who is the Mayor of Rrogozhina, said the cause for the financial situation was the early suspension of payments from the central government treasury last year. During 2018 the treasury payments to local government were blocked in November, when the deadline in the previous years was December 15, as the new budget was opened late in January. Nuredini said that blocking treasury operations for more than two months created arrears. He also said that settlements are being made on the meantime.
Executive Director of the Association of Municipalities Agron Haxhimali, explained that non-payment of social insurance by the municipalities is intolerable. He said that budget planning for a public institution, such as the municipality, is based on rules and laws, and clearly expenditure planning starts off with wages and social security that are inseparable. He said there can be no salary payment without paying off the social security in accordance to the percentage stipulated by the law. Haxhimali added that finance offices in the municipality, municipal councils, and internal auditors should take responsibilities. According to a United Nations Program (UNDP) analysis however, as fiscal decentralization has risen after territorial reform, budgeting and internal audit in local government structures had some shortcomings in some cases. The Ministry of Finance for its part, claims that local government structures are often not correct in bringing payroll sheets in the Treasury and abuse treasury payments instructions.
Municipalities in bankruptcy
In most major cities, the municipality is the largest employer. Lack of economies of scale and the massive takeoff of people has put the private sector at a disadvantage to develop at a sustainable pace, as the public sector and local government are the main employers. When the territorial reform took place in 2015, preliminary analysis by the Ministry of Finance predicted to save over 60 million euros from cutting the communal administration. According to data from the Association of Municipalities the local government had employed about 33,500 persons in 2018, from 22,000 in 2015. From the transfer of new functions there are no more than 10 thousand employees. Even without the transfer of new functions such as pre-school education, forest management, maintenance, fire protection etc., the municipal administration is more swollen than prior the reform.
For this reason, municipalities throughout the country have failed to pay social security for employees. Because of this situation the crisis in some municipalities may be described as a bankruptcy, as taxes have started seizure procedures in some of them.The financial problems of local government have in some cases been exacerbated by the central government, which has transferred the administration’s functions, but not all funds for their administration. According to a State Supreme Audit Report, the transfer of functions has created additional problems in the financial administration of municipalities. At national level nearly 7,300 educators and support staff working in preschool and pre-university education institutions are managed by municipalities since 2017. The administration function of the fund for pre-university education was transferred to the Municipality of Shkodra in 2016.
In the specific 2016 transfer, funds were allocated to educational and assisting staff of pre-school education as well as funds for assisting staff of pre-university education. In this transfer to the Municipality of Shkodra funds for salaries and social security (not in the full value required to be transferred) of staff (employee and educator), and operating expenses for dormitories were not included. The other municipalities are in a similar situation as well, which in the absence of solutions, were unable to meet the tax obligations related to social security, putting them in a theoretical state of affliction.
Municipalities that don’t pay security rose
According to an official list provided from the General Directorate of Taxation through the right to information, all municipalities are debtors for non-payment of insurance. The list was further expanded after the territorial reform. However, the list of taxes currently includes over hundreds of state entities and institutions that have not paid employee benefits. In the list of institutions, debtors are many state water utilities that have not made insurance payments. If a business is struggling to pay tax debts, the first to be paid are insurances. This also applies to state institutions. According to the Law on Tax Procedures, payments of insurance contributions and tax liabilities are made in this order:
- compulsory health insurance contributions;
- compulsory social security contributions of the employee;
- compulsory supplementary social security contributions;
- compulsory social security contributions of the employer;
- taxes;
- interest rate delays,
- fines and, finally, administrative costs.
Even when debts are received by force, after the court hearings are completed, the first to be settled are insurance liabilities. But in the case of the state this order does not work because no paralyzing or blocking measures have been taken against water companies, municipalities and regional agencies, even though they have not paid the insurances. Social Security Institute (SII) experts advise that all state employees should routinely verify whether their institution is actually deposited the insurances taken off their wages. For the last six years, these checks can be made online at the E-Albania portal. They advise that these checks should be made by employees at the retirement age so that they can solve the problem created while still at work.
The accumulated tax liabilities in the form of unpaid social security by the end of 2018 amounted to 13.8 billion lek or 112.9 million euros. According to official data from taxes, these liabilities expanded by 20 million euros in 2018 or by 18 percent. Taxes claimed that a large part of these obligations belong to public entities and local government, as private companies have been subjected to coercive measures. If businesses do not pay employee obligations in time, their bank accounts are blocked. For state institutions this approach cannot be taken. The bank accounts of water utilities are difficult to block because of the strategic function they have in services to the public.
Tolerance against state entities is formalized, as the state is supposed to settle liabilities at a second moment after it has created the debt. SII experts argue that unlike other obligations that the state may create from non-payment of other taxes, the negative effects of the social security debt are multiple. The damage to monetary benefits is far greater than the pay now and on the other hand, the social consequences that are created to the persons are immaterial.
