TIRANA, March 1 – Albania has postponed drafting legislation on a new value-based property tax that is expected to considerably increase rates compared to the current area-based tax after the June 2017 general elections when a new government is formed.
In a letter to the International Monetary Fund, the current Socialist Party-led government says the new property tax will be submitted to Parliament in September 2017 and a valuation methodology adopted by the government shortly after the law’s passage.
Legislation enabling local government units to implement the valuation-based property tax was initially supposed to be approved by Parliament by the end of 2016 and a new methodology initially applied in Tirana in 2017 on a pilot basis.
As a 3-year binding deal with the IMF supported by a Euro 331 million loan has come to an end, and general elections are approaching, the government says a fiscal cadastre is being developed in cooperation with state-run OSHEE distribution operator and pilot projects are being carried out in four large municipalities in order to strengthen collection by integrating property tax bills into electricity/water bills and collecting property tax based on area under the current law before new legislation is drafted.
“We commit to developing a fiscal cadastre that will enable the introduction of a valuation-based property tax. As a first step, the Prime Minister has adopted an action plan and appointed a high-level working group involving all relevant stakeholders,” the government informs the IMF adding that pilot projects are underway to be implemented in the municipalities of Tirana, Durres, Korà§a and Fier to integrate property tax bills into electricity/water bills.
In its latest country report, the IMF warns property taxation reform has lagged at a time when collection rates remain very low by regional standards.
Property tax levied on buildings and agriculture land accounts for only about 0.8 percent of total taxes in Albania, a small amount even compared to regional EU aspirant countries.
The reform is expected to shift property tax calculation from its current rate depending on the size and location of the property to a formula based on current market value by end-2017, in considerably higher rates.
To encourage voluntary reassessment of property valuation, the Albanian authorities have undertaken a temporary reduction in capital gains tax on property valuation from 15 percent to 2 percent. The amnesty initially set to expire in late February after remaining effective for six months, has been postponed until the end of May, only a couple of weeks ahead of the elections.
The introduction of a new property tax comes as the ruling Socialists seeking a second consecutive mandate in the upcoming June 18 elections eased some doing business procedures for 2017 but left unchanged the key taxes, one of the key concerns for business representatives.
Since 2014, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in Albania one of the region’s highest and the key concern for the business community in the country.
