TIRANA, May 9 – Only a few thousand Albanians declared annual income of more than 2 million lek (€15,600) with tax authorities for 2017, in an ongoing annual trend hinting of high tax evasion due to progressive taxation having increased the tax burden on high income earners since 2014 when Albania abandoned its 10 percent flat tax.
Some 8,700 individuals submitted declarations with the tax authorities in 2017, a 5 percent increase compared to the previous year and record high since 2011 when high-income earners were first asked to submit reports, says Albania’s tax administration.
The self-declaration affects those who have income from more than one job and have to pay for the difference of their total annual personal income and their monthly income that has already been taxed at lower rates.
Albania currently applies progressive taxation of up to 23 percent on personal income for monthly wages of more than 130,000 lek (€1,017) under a system that excludes the first 30,000 lek (€225) from taxation and applies a 13 percent rate on income from 30,000 to 130,000 lek.
The number of the officially high-income earners represents only about 1.3 percent of some 666,000 workers in the public and private non-agricultural sector and is reported to mostly involve government officials, MPs and high-level public administration employees.
The tax administration says the 8,700 high-income earners paid an extra 275 million lek (€2.1 million) in taxes following the declarations at an average of €241 person.
With monthly income of more than 130,000 lek (€1,017) taxed at 23 percent, experts say tax evasion in the private sector has risen with the progressive taxation increasing tax burden on high income earners.
Private sector workers in the country are commonly declared with tax authorities as receiving minimum wages to avoid paying high taxes and get the rest in ‘envelope wages.’
“The progressive taxation effect has not been important as far as assistance it was supposed to provide to low-income households is concerned and has considerably punished middle-income earners,” says Selami Xhepa, an economy expert has told a local TV.
“The number of those who file statements is related to a limited number of individuals, mainly high-level public administration officials, while the remaining part of employees that could have high income have found ways to evade that income and report in other forms and that is not having positive effects,” he adds.
The declaration of income applies to both Albania residents and non-residents with income source in the country and abroad that have annual wage and non-wage income of 2 million lek (€15,600).
Individuals with annual income of not more than 1 million lek (€7,700) can also submit declarations to benefit tax deductible expenses in student loans and cover part of health spending.
Albania has the region’s lowest minimum wage at 24,000 lek (€176) while average gross wage are at €357.
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 the country one of the region’s highest.
The value added and personal income tax thresholds are one of the main causes leading to tax evasion in Albania, a survey has shown.
About 38 percent of companies surveyed by the Albania Investment Council, a government advisory body, rated the turnover thresholds that Albania applies on businesses to be included in the 20 percent VAT system and the progressive taxation the country applies on wages as the main two factors leading to tax evasion, one of the top concerns facing Albanian and foreign businesses operating in the country.
