TIRANA, Jan. 26 – Albania’s public finances registered a significant recovery in 2014 but the tight fiscal policy government followed by increasing the corporate income rate and the under-execution of public investments is estimated to have had a negative impact on businesses.
Finance Ministry data shows government revenue rose by 12 percent to a historic high of 366 billion lek (Euro 2.58 billion), registering the highest growth rate since the onset of the global financial crisis in 2009. Back in 2013, government revenue dropped by 1 percent and registered a zero growth rate in 2012, hinting rising difficulty as the economy struggled with growth rates of 1 to 2 percent.
However, public investments hit a record low for the past seven years in 2014 when they dropped to 60.5 billion lek (Euro 426 million) the lowest level since 2007.
Public investments, which are estimated at 5 percent of the GDP and considered a key driver of the economy, were down by 7.5 percent compared to 2013 and down by 8.3 percent compared to the government target.
Public investments, which have traditionally soared in general elections, hit a record high of around 96 billion lek (Euro 674 million) in 2009.
However, the payment of around 34 billion lek (Euro 237 million lek) in accumulated unpaid bills to the business community is estimated to have had a positive impact in the liquidity of enterprises engaged in public works.
The budget deficit for 2014 widened to 4.9 percent of the GDP, up from around 3.5 percent in the previous three years and a record 7 percent in 2009 when public investments soared with the construction of the Durres-Kukes highway linking Albania to Kosovo.
The value added tax, which is levied at a fixed 20 percent rate on almost all goods and services and is also an indirect indicator of consumption, registered a 10 percent increase. VAT is the main source of government revenue accounting for around a third of total income.
Excise taxes, the second most important item of government revenue, grew by 7.2 percent in 2014 accounting for 11 percent of total government revenue.
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 and their double digit increase of 12 percent.
Finance Ministry data shows that while government lost around 718 million lek (Euro 5 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 42 percent increase (an extra 6.3 billion lek or Euro 45 million) in profit tax revenue in 2014.
Meanwhile, privatization revenue in 2014 hit a record low for the past decade at only 35 million lek (Euro 250,000) compared to 16.7 billion lek (Euro 117 million) in 2013 when four small and medium-sized hydropower plants were acquired by Turkey’s Kurum.
