The value added tax, which is levied at a fixed 20 percent rate on almost every product and service and accounts for more than one-third of total government revenue slightly dropped by 1.4 percent in the first two months of this year, hinting sluggish domestic consumption
TIRANA, April 8 – Albania’s public finances suffered a setback in early 2015 despite several new tax hikes, unveiling sluggish consumption as also indicated by the poor performance of the value added tax.
A report published by the Finance Ministry shows government revenue in the first two months of 2015 dropped by 1.3 percent to 52.5 billion lek (Euro 368 million) on lower income from VAT, corporate and personal income tax.
The value added tax, which is levied at a fixed 20 percent rate on almost every product and service and accounts for more than one-third of total government revenue slightly dropped by 1.4 percent in the first two months of this year, hinting sluggish domestic consumption which is the key driver of Albania’s growth.
The corporate income tax which since January 2014 was raised by 5 percent to 15 percent for mid-sized and big enterprises also dropped by 13.2 percent to around 2 billion lek (Euro 14.3 million) compared to the first two months of 2014.
The personal income tax which since 2014 shifted into progressive taxation also dropped by 12.6 percent year-on-year in the first couple of months of 2015.
Data shows the Albanian government continues applying a tight fiscal policy with both total government spending and public investments failing to meet targets set for the first two months of this year.
The deficit for the first two months of this year grew to 4.7 billion lek (Euro 32.7 million), but was 61 percent lower compared to the target government had set. Similarly, public investments grew to around 3.6 billion lek in early 2015, but failed to meet the target by around 35 percent.
Government says it paid 7.2 billion lek (Euro 50 million) in arrears for accumulated unpaid bills to the business community.
Back in January, government blamed the new online tax declaration system operational since January 2014 for the poor performance in the tax collection in the first month of this year.
Since January 2014, the corporate income tax has been raised to 15 percent, up from 10 percent previously when Albania applied a 10 percent flat tax regime on corporate and personal income taxes.
In a bid to bring the economy back to sustainable growth, the Socialist Party-led left wing majority has approved a rather overoptimistic budget for 2015 expecting a 3 percent growth and a slight reduction of public debt already hovering at 72 percent of the GDP.
Albanians will pay an extra 16 billion lek (around 112 million Euros) in higher taxes on non-wage income, fuel and tobacco in 2015, according to the 2015 fiscal package government has just announced.
While key taxes such as the personal and corporate income taxes will remain unchanged, defying businesses calls for a return to the flat tax regime after the corporate income tax was raised by 5 percent to 15 percent in 2014, the fiscal burden has further increase by raising the withholding tax on dividends and rents and capital gains, increasing the circulation tax on fuel and imposing higher excise rates on tobacco.
