TIRANA, Sept. 18 – With less than one year to go before the next mid-2017 general elections, the Socialist Party-led Albanian government has announced a new fiscal package that significantly reduces penalties on businesses but keeps unchanged the current high tax burden, one of the major concerns for the business community, following tax hikes in the previous three years.
The new package which will become effective starting next year comes after concerns of deteriorating business climate by several key foreign and Albanian associations and after a law envisaging fines of up to €70,000 on tax evasion was turned down by the country’s Constitutional Court earlier this year over “disproportionate” penalties to income and offences committed.
A rather aggressive nationwide campaign against informality in Sept. 2015 although formalizing thousands of businesses previously operating informally failed to produce the expected hike in government revenue with the budget cut three times last year and facing a mid-year cut in 2016.
The new penalties, aimed at improving the business climate, are sometimes even lower compared to their current levels such as in the case of failure to declare employees with tax authorities and failure to submit tax declarations in time.
The new legal changes also normalize relations with taxpayers, allowing businesses to get notified 10 to 30 days before undergoing inspections. Frequent and not previously notified inspections have been one of the main concerns for businesses especially after the Sept. 2015 nationwide campaign against tax evasion, estimated at 30 percent of the country’s GDP. Finance Minister Arben Ahmetaj has described the new package as a revolution in relations between the tax administration and businesses.
“The Albanian government has decided to keep taxes unchanged for 2017 but I want to assure businesses that the tax system will always have its procedures simplified to improve the business climate,” Ahmetaj has earlier said.
The business community has previously welcomed the measures, but warned the current high tax burden remains the key concern.
“It is necessary that the Albanian government seriously considers reducing the tax burden which is the highest in the region,” says Nikolin Jaka, the head of the Tirana Chamber of Commerce.
Albania lost 35 places to rank 97th out of 189 countries in the latest Doing Business report published by the World Bank.
Business associations have continuously appealed for a review downward of taxes on profit, dividend and personal income and a return to a flat tax regime of 10 percent as an incentive giving the business community more room to develop and increase registration numbers.
Since 2014, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in Albania one of the region’s highest.
Albania’s total tax rate at 36.5 percent of the commercial profits is the second highest after Serbia’s 39.7 percent which is a much bigger economy. The total tax rate among other regional competitors ranges from 12.9 percent in Macedonia to 23.3 percent in Bosnia and Herzegovina, according to the World Bank’s Paying Taxes report.
The opposition Democrats who take to the next June 2017 general elections after two consecutive heavy defeats in the 2013 general elections and 2015 locals have proposed a shift back to the flat tax regime this time at 9 percent, lower than the 10 percent rate applied when it was in power until 2013.
The tax cuts will improve the business climate and fight corruption and informality in the tax and customs administrations, say the Democratic Party.
The Albanian economy has grown between 1 to 3 percent since 2009 compared to a pre-crisis decade of 6 percent.
Proposed changes to the tax procedures law
| Violation | Penalties |
| Failure to submit the tax declaration in time | 10,000 lek (€71) for profit tax taxpayers |
| 5,000 lek (€35) for other taxpayers | |
| Failure to pay in time the preliminary profit tax or simplified tax instalments | A fine equal to 10 percent of the amount of the instalment to be paid |
| Failure to declare employees |
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| Failure to report the real wage | In addition to the obligation to pay the amount of tax obligation owed and social security and health contributions for the period the violation is proved, is punished by fine equal to 100 percent of the calculated obligation and contributions. |
| Failure to advertise prices | 100,000 lek (€714) fine for profit tax taxpayers and 50,000 lek for other taxpayers |
| Cash payments or receipts over 150,000 lek (€1,071) | 10 percent of the amount of each transaction |
| The storage, use or transport of goods not accompanied with tax receipts | Simplified tax taxpayers not registered for VAT are immediately obliged to shift as VAT taxpayers |
| VAT registered taxpayers are obliged to document goods by issuing tax receipts under article 53 of this law. A reassessment of sales at the same amount of the market value of the undocumented goods is carried in case of goods with no tax receipts. | |
| Failure to issue an electronic or handwritten tax receipts containing VAT is punished by fine equal to 100 percent of the undeclared tax as a result of failure to issue the receipt, in addition to taxes and late payment penalties calculated and paid in compliance with the provisions of this law or other specific tax laws. | |
| Failure to install cash registers for the registration of cash payments | Blocking the operation of the business identified for 15 calendar days. If the taxpayer doesn’t install the cash register within this deadline, the blockage is extended until the cash register has been installed. In case the situation is not handled within 15 days, the taxpayer has his name, tax ID no. and business representative name published on the official General Tax Directorate website |
| Failure to issue tax receipt to document the circulation of goods and services | Fine at the amount of 50,000 lek and for VAT taxpayers, in addition to the fine, a tax reassessment is carried out for the past three months |
| In case the taxpayer continues not issuing the tax receipt, a seizure is imposed on the activity for 30 calendar days | |
| For every repeated identification of failure to issue a tax receipt after the two previous identifications, in addition to the punishment such as in point i), is considered tax evasion under article 116 point 2 of this law. The name, tax ID No. and business representative are published on the official General Tax Directorate website. | |
| Failure to advertise the obligation to issue a receipt, issuing a receipt with a different value from the transaction, issuing a receipt with un-printed amount |
Fine at the amount of 50,000 lek for each of the cases |
Albania’s main Taxes
ï± Value Added Tax – 20%
ï± Profit Tax on Annual Turnover:
- a) 0-5 Million ALL (€36,500) – 0%
- b) From 5 Million ALL – 8 million Leke (€58,400) – 5%
- c) Over 8 Million ALL – 15%
ï± Dividend Tax – 15%
