TIRANA, Feb. 9 – With more than one year to go before Albania holds its next scheduled general elections, the opposition Democratic Party has started unveiling its new economic platform for the 2017 campaign with lower taxes as its key pledge to improve the business climate and make the country’s economy more competitive.
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 key changes include the introduction of a 9 percent flat tax on personal income and corporate income taxes, compared to current progressive taxation, and the reduction of the key value added to 15 percent, down from 20 percent currently.
The Democrats’ fiscal platform also includes the lift of what they call several hidden taxes on fuel and environment and the easier procedures.
“One of the programme’s key points is the reforms on business development through new lending policies and online transparency of tax and customs procedures,” said the Democratic Party in a statement last week.
“The Democratic Party has started drafting an economic platform whose goal is to lift the country out of depression and the economic crisis it is facing under the current government,” Democratic Party head and opposition leader Lulzim Basha has said.
The Socialists have not announced their economic platform yet, but major concessions could also be offered to compete with the opposition’s offer.
In the midst of an aggressive nationwide campaign against widespread informality in late 2015, the Socialist Party-led government made a major concession, offering tax cuts to small and medium-sized enterprises, many of which will no longer have to pay any profit tax. Some 83,300 small businesses with an annual turnover of up to ALL5 million (€36,000), accounting for 85 percent of total enterprises, will benefit from the removal of the profit tax starting 2016.
Back in the 2013 general elections, the then-opposition Socialists also focused their electoral campaign on promises of lower taxes and fighting corruption. However, two years on, they have failed to deliver on several key promises and some of the key taxes such as the corporate income and the withholding tax on dividends rents and capital gains have increased by 5 percent to 15 percent. In addition, several legal changes have increased fines on tax evasion by 50-fold up to €70,000 and made informality punishable by prison. The changes, which the business community says deteriorate the business climate in these times of crisis and sluggish economic growth, are being challenged at the Constitutional Court.
Albania has one of region’s highest tax rates
Albania registered the greatest increase in the total tax rate among 189 countries in 2014 when the rate of the corporate income tax increased by 5 percent to 15 percent and the property tax doubled, according to the 2016 Paying Taxes report published by the World Bank and the PwC audit firm. The report shows Albania lost 11 places to rank 142nd with a total tax rate as a percentage of commercial profit of 36.5 percent, up from 30.7 percent in the 2015 report.
Albania’s total tax rate is composed of 14.1 percent in profit taxes, 18.8 percent in labor taxes and 3.6 percent in other taxes such as municipal fees and vehicle and fuel taxes. The results shows Albania has one of the highest total tax rates among regional EU aspirants and lower only compared to Serbia’s 39.7 percent and Turkey’s 40.9 percent. The total tax rates in Macedonia, Kosovo, Montenegro and Bosnia and Herzegovina range from 12.9 percent to 23.3 percent.
Albania also ranks poor in terms of time to comply with the three main taxes with an estimated 357 hours per year and a total of 34 tax payments.
Albania’s business climate suffered a major setback in the past year, losing 35 places in the World Bank Doing Business report on a sharp deterioration in dealing with construction permits.
Albania ranked 97th out of 189 countries in the 2016 Doing Business report, from a revised 62nd last year, lagging behind all regional countries.
