TIRANA, Feb. 1 – Three new concessions, including the key value added tax, that the Albanian government is mulling over have sparked debates in Albania over the transparency and benefits of such public-private partnerships considering the country’s troubled experience with similar contracts.
Following the announcement of plans to award a concession on a new electronic platform on VAT collection, the Albanian government is also considering public-private partnerships on property tax collection and electronic number plates.
The planned concessions come at a time when the government is struggling with public finances affected by a sharp drop in international oil prices with a negative impact on exports and spillover effects from its key trading partners Italy and Greece. A nationwide campaign to curb widespread informality launched last September has failed to yield the expected positive results even though thousands of previously informal companies were registered with the authorities. Sluggish domestic consumption, non-performing loans at 20 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.
In its latest fiscal transparency evaluation report on Albania, the International Monetary Fund warned some 55 public-private partnerships that the Albanian government has signed have created commitments with a present value of about 7 percent of the GDP, about €700 million, in which the government will either pay the cost of the investment in installments or guarantee the revenue of concessionaires.
State-run power utility KESH, the Tirana airport and recent customs scanning and health checkup service concessions are described as risky public-private partnership.
Last December, the prosecutor’s office launched investigations into three concession contracts in the health sector after media allegations of favoring of companies close to government in the public tenders. The recent 10-year concessions on medical check-up, hemodialysis and sterilization services are estimated at 250 million euros.
VAT concession
Plans to award a 10-year concession on the value added tax, the country’s key tax levied at a fixed 20 percent rate on almost all goods and services and accounting for about a third of total government revenue, have sparked fierce reactions by experts and business representatives. Government officials say the concessionaire establishing a new technological platform, worth about Euro 9.6 million, will be selected through an international tender in a bid to ensure better tracking of the VAT chain and improve its collection. The Albanian government says the concessionaire will benefit bonuses only for an annual increase of more than 11 percent in VAT income, otherwise it will only be paid about €957,000 a year which is the value of total investment divided by 10 years. The concern is that the concessionaire will get 90 percent of the extra income for an increase between 11 to 15 percent and 65 percent for 15 to 17 percent threshold.
A Hong-Kong-based company is rumored to be behind the concessionaire after submitting an unsolicited bid. It is not known whether the Hong Kong-based M.POS company has received a bonus for the unsolicited bid which would give the company an advantage in the expected international tender.
An investigative report by BIRN news agency has unveiled that the rumored concessionaire is a shell company registered in tax havens such as the British Virgin Islands and Samoa and has little experience with VAT management.
Business representatives and economic experts have opposed the project as increasing costs and undertaken without being consulted with the business community, but the government insists the project will bring positive results.
“We are convinced on what we are doing and this is absolutely not a choice placing a burden on the public. We are not providing money to the company to establish the whole system and to carry out the investment, but we are tell them invest and undertake the risk,” Prime Minister Edi Rama has said.
Latest finance ministry data shows the value added tax dropped by a slight 0.1 percent to 113.6 billion lek (€804 mln) in January-November 2015 compared to the same period in the previous year, but yet accounting for a third of total government revenue.
Property tax
The Albanian government is also considering a public private partnership on property collection because of poor collection rates and tax evasion. Property tax collection in Albania is estimated at only 0.3 percent of the GDP compared to 2 to 3 percent of the national output in regional countries, finance ministry sources were quoted by local media.
The Albanian government says it is preparing to introduce a comprehensive reform of the property tax by the creation of a fiscal cadastre that will consolidate existing data.
“We commit to introducing a valuation-based property tax by end-2017. The reform will be undertaken in consultation with the Fund’s technical assistance. As a first step, we plan to introduce a fiscal cadastre to assess tax for each property by end-2016,” the Albanian authorities have informed the IMF.
A working group has been established and different options are being reviewed in consultation with technical assistance from the IMF.
Currently, there is a small annual tax payable on property in Albania. The amount varies depending on the size and location of the property.
In its 2016 fiscal package, the Albanian government decided that apart from buildings and agriculture land, it will also tax non-agricultural land classified as available for construction ranging from 1,400 lek (€10) per hectare in remote municipalities to 5,600 lek (€40) per hectare in key municipalities. The changes are expected to have a positive effect of 180 million lek (€1.3 mln) based on an estimated 50,000 hectares of land available for construction.
Electronic number plates
The BIRN investigative team also unveiled government plans to award a concession on electronic number plates with high costs for Albanian car owners and raising privacy concerns due to round-the-clock tracking through microchips.
BIRN has learned the Albanian government has received an unsolicited bid by Porta Saber Albania, a newly established Albanian-run company, and is mulling the proposal over.
The concession would cost each driver Euro 48 with the company expected to collect 95 million Euros under the 35-year concession.
Albania has about 500,000 motor vehicles of which 360,000 are reported to be in circulation.
BIRN reports that such a concession is quite unique and only Azerbaijan is reported to have signed such a public-private partnership on electronic number plates.
The proposal has also sparked privacy concerns by the Commissioner for Personal Data Protection in a letter to transport ministry officials.
The transport ministry says it has established a working group to examine the unsolicited bid and will issue a report on it. Under Albanian law, companies can benefit bonuses for unsolicited bids if the government decides to hold a public tender.
