The proposed changes foresee that the first 30,000 lek will not be taxed in all monthly wages while the remaining amount will be taxed by 10 percent
TIRANA, March 6 – With the taxation system being the focus of the pre-election campaign, the ruling Democrats have unveiled a new scheme which applies progressive taxation to personal income while leaving the flat tax on corporate income unchanged at 10 percent. Under the newly proposed scheme by Prime Minister Sali Berisha, all employees receiving up to 30,000 lek in monthly wages will be excluded from their 10 percent personal income tax. Under the current people receiving up to 30,000 lek (Euro 210), pay 2,000 lek in personal income tax as the first 10,000 lek is tax-free. The proposed changes foresee that the first 30,000 lek will not be taxed in all wages while the remaining amount will be taxed by 10 percent.
The changes automatically turn the personal income tax into a progressive taxation system with the tax rate varying from 2.5 percent for monthly wages of 40,000 lek to 4 percent for wages of 50,000 lek and 8.5 percent for wages of 200,000 lek. Under this scheme, a person receiving a gross monthly wage of 50,000 lek will have to pay only 2,000 lek in personal income tax compared to 5,000 lek under the current system.
Some 158,000 people employed both in the private and public sector are expected to benefit from the scrap of the personal income tax for wages of up to 30,000 lek which will cost the state budget around 2.2 billion lek or USD 22 million.
The 10 percent personal income tax was launched in 2008 as part of a flat tax reform.
“This is not only a 10 percent increase in wages, but at the same time huge support to enterprises and the labour market,” said Berisha, admitting that the initiative will mostly help the private sector, especially the garment and footwear industry which employs more than 60,000 people as wages in the public sector overwhelmingly stand above 30,000 lek.
Reacting to the Prime Minister’s proposal, the opposition Socialist Party which has introduced a progressive taxation system in its electoral programme, said the Prime Minister was copying part of the SP’s programme. The opposition Socialist Party has proposed a full progressive taxation system to replace the 10 percent flat tax in an effort to lower tax burden for people with low income.
Albania has been implementing the 10 percent flat tax on salaries and corporate taxes since 2008 in an effort to improve business climate and attract more foreign direct investment. However, data show the implementation of this tax has had minor impacts during the past few years since government revenues from this tax increased by only 8 percent in the 2008-2011 period and shrank by 2 percent in 2012.
Employees receiving low wages will still have to pay a compulsory 11 percent in social security and health insurance. Social security contributions currently stand at 24.5 percent, of which 15 percent is paid by employers and 9.5 percent by employees. Meanwhile, health insurance contributions are at 3.4 percent, shared by 1.7 percent between employers and employees.
INSTAT data show the average monthly wage for people employed both in the private and public sectors was at 34,767 lek in 2011. The average wage in the public sector climbed to 46,655 in 2011 while since mid-2012 the minimum monthly wage stands at 21,000 lek.
