Shift to progressive taxation brings Euro 16 million in extra income

In total, government has collected around 2.3 billion lek (Euro 16 million) from the personal income and profit tax since Albania shifted into progressive taxation.
TIRANA, Sept. 2 – The shift to progressive taxation starting January 2014 when the tax burden was reduced for households but raised for businesses has also had moderate positive impact on the country’s public finances which this year are back on track with a double digit increase of 11 percent.
Finance Ministry data for the first seven months of this year show that while government has lost around 863 million lek (Euro 6 million) in personal income tax due to the application of lower rates than the previous 10 percent flat tax, benefits from the profit tax, especially from mid-sized and big businesses have been bigger after the corporate income tax was raised by 5 percent to 15 percent.
The tax administration reports a 33 percent increase (an extra 3.1 billion lek or Euro 22 million) in profit tax revenue compared to the first seven months of 2013.
In total, government has collected around 2.3 billion lek (Euro 16 million) from the personal income and profit tax since Albania shifted into progressive taxation.
Albania’s budget deficit dropped to around 31 billion lek (Euro 217 million) in the first seven months of this year compared to a record high of 49 billion lek (Euro 348 million) during the same period of the past general elections year. Meanwhile, public investments in the first seven months of this were down by 47 percent to around 24 billion lek (Euro 168 million).
Only six months after the approval of a new fiscal package shifting Albania into progressive taxation, the Albanian government approved some tax changes following problems with the taxation of small enterprises.
In a considerable number of cases, the new taxation placed a higher tax burden on small businesses of up to 2 million lek (Euro 14,000) which were charged a fixed tariff compared to businesses with a turnover of 2 to 8 million lek (Euro 14,000 to 60,000) whose profit rate was cut to 7.5 percent.
The new amendments to tax procedures foresee that the profit tax for businesses with a turnover of 2 to 8 million lek will not be lower than 25,000 lek (Euro 176) annually to prevent them from paying less than micro businesses.
Under the new fiscal package approved in late December 2013, starting January 2014, small businesses with an annual turnover of up to 2 million lek (Euro 14,000) will pay 25,000 lek a year in a fixed tariff. Small businesses with an annual turnover of 2 to 8 million lek (Euro 14,000 to 60,000) will pay 7.5 percent in income tax, down from 10 percent previously. The income tax for businesses with an annual turnover of more than 8 million lek was raised to 15 percent, compared to 10 percent under the current 10 percent flat tax system in force since January 2008.
In late-December 2013, the new Socialist Party-led Albanian government approved the expected shift to progressive taxation starting January 2014 after the country had been applying a 10 percent flat tax for the past six years in a move favoured by low and middle-income households but strongly opposed by the business community which will have to pay 15 percent in corporate income tax.