People receiving 30,001 to 34,000 lek negatively affected by tax scrap
TIRANA, April 2 – A ruling majority decision to scrap the personal income tax for monthly wages until 30,000 lek (Euro 210) and apply a fixed 10 percent rate has given rise to a paradox for people who receive gross wages of 30,001 to 34,000 lek. Under the new changes expected to be approved by the ruling majority in Parliament, people paid 30,001 to 33,000 lek will practically get a lower wage than those receiving 30,000 lek because of paying the compulsory 10 percent personal income tax.
A person receiving 31,000 lek will have to pay 3,100 lek in personal income tax and get 27,900 lek, while a person receiving up to 30,000 lek will have to pay zero in personal income tax.
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.
Last week, majority MPs approved some changes to the personal income tax law stripping people who earn up to 30,000 lek a month from their 10 percent tax obligation. Deputy Finance Minister Alfred Rushaj said some 220,000 people receiving low wages would benefit from the changes which automatically provide them an extra wage. Its impact on the state budget will be at 2.5 billion lek.
Opposition Socialist Party MPs described the government initiative as electoral stressing the need for a full progressive taxation system.
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 wages higher than 30,000 lek will be taxed by 10 percent under the current scheme.
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.
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. 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.
