Government expects revenue to increase by around 12 percent compared to 2013, which is a slightly overoptimistic forecast compared to performance in the past couple of years and in early 2014.
TIRANA, April 8 – The shift to progressive taxation has been negatively reflected on government revenue from personal income and profit tax in the first couple of months of this year and the targets governments has set in the 2014 budget will be hard to achieve.
The cut in the personal income tax on low and mid-wages has been immediately reflected on lower income in the first two months of 2014. In January-February 2014, government revenue from personal income tax dropped by 7.3 percent to 4.5 billion lek (Euro 32 million) compared to the first two months of 2013 when Albania was applying a 10-percent flat tax on personal and corporate income.
Profit tax which starting this year has increased by 5 percent to 15 percent for mid-sized and big enterprises, recovered in the first two months of 2014 after a 10 percent decline in 2013.
In January-February 2014, the tax administration collected around 2.3 billion lek (Euro 16.6 million) in profit tax, up only 0.3 percent compared to the same period in 2013.
In its economic and fiscal programme for 2014, government expects revenue to increase by around 12 percent compared to 2013, which is a slightly overoptimistic forecast compared to performance in the past couple of years and in early 2014.
Government expects revenue from profit tax to increase by around 53 percent to 23 billion lek, up from 15 billion lek in 2013. Meanwhile, personal income tax is expected to increase by only 0.3 percent to 28.5 billion lek.
Albania’s budget deficit dropped to a record low for the first two months of 2014 on lower government spending and a sharp drop in public investments. Data published by the Finance Ministry show the budget deficit in the first couple of months of this year registered 1.7 billion lek (Euro 11.7 million), down from 9.5 billion lek (Euro 66 million) during the same period in 2013, which a record low for the first two months in the past eight years.
The recovery in the budget deficit was a result of government revenue rising by 4.9 percent, spending dropping by 9 percent and public investments dropping by a sharp 72 percent compared to 2013, registering the lowest level since 2008 just before the onset of the global economic crisis.
In 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.
Some 40 percent of employees receiving wages from 30,001 to 130,000 lek have had their personal income tax lowered from 10 percent to 2.4 to 9.8 percent. Only 11,213 people or 2.8 percent of the total employees receiving more than 130,000 in monthly wages will have their income tax increased, government says.
Starting January 1, 2014 around 60,000 small businesses in Albania are no longer paying the small business tax. However, 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 currently. The income tax for businesses with an annual turnover of more than 8 million lek will increase to 15 percent, compared to 10 percent under the current 10 percent flat tax system in force since January 2008.
