TIRANA, April 5 – Seven months after the launch of a tough nationwide campaign to tackle widespread tax evasion, the Albanian government has announced the beginning of a second stage against informality in a bid to formalize the market and boost public finances.
Speaking at conference this week, Prime Minister Edi Rama said the nationwide campaign against informality has already yielded positive results, but the potential is far bigger.
According to him, some 47,000 businesses previously operating informally registered with authorities and 83,000 workers were lifted out of informality in the past seven months.
Government revenue in the first quarter of this year increased by 20 percent or $100 million, said the Prime Minister.
The government says the campaign’s second stage will focus on big businesses, including those dealing with excise goods such as fuel, tobacco, alcohol.
A risk-based electronic platform, easier procedures, improved service to taxpayers and communication with and education of taxpayers will be the four key points of the campaign’s second stage.
The risk-based platform has equipped the tax administration with intelligent instruments of office-based analysis and inspection, by minimizing the number of field inspections, says the government.
Earlier this year, the Albanian government lowered its expectations of extra income from the fight against tax evasion after an aggressive nationwide campaign launched last September formalized thousands of previous informal business and workers, but failed to boost revenue because of sluggish domestic consumption.
In its 2016-2018 program of economic reforms, the Albanian government says it expects the ongoing campaign against informality, estimated at about 30 percent of the GDP, to generate 9.3 billion lek (€66 million) for 2016, a small amount compared to initial expectations of more than $300 million in 300 days announced in Sept. 2015 at the start of the nationwide operation.
The fight against informality is estimated to have formalized 30,000 businesses and 40,000 workers in September- December 2015.
Yet, Albania’s public finances failed to meet targets by about 20 billion lek (€141 million) in 2015 when the budget was revised three times, including twice in December, according to a report by the finance ministry.
The campaign against informality, accompanied by legal changes with tougher penalties, was criticized because of focusing on small businesses and repeated field inspections not helping improve the business climate.
Last March, Albania’s Constitutional Court turned down a heavy fines law increasing fines on tax evasion by up to 50-fold as running counter to constitutional principles. The new legal changes envisaged fines of 500,000 lek (€3,529) to 10 million lek (€71,000) on informality in apparent “disproportionate” penalties to income and offences committed.
A business association has also challenged as unconstitutional some legal changes replacing fines with prison time over tax evasion which is being examined by the Constitutional Court and most recently some tax hikes by Tirana Municipality at the Tirana Administrative Court.
Sluggish domestic consumption, non-performing loans at 18 percent preventing credit growth and an asylum exodus which saw more than 50,000 Albanians leave the country last year are having a negative impact on the Albanian economy which has been struggling with growth rates of 1 to 3 percent in the aftermath of the global financial crisis. The country’s public debt has also sharply increased to above 70 percent, becoming a burden on much-needed public investments due to its high cost.
