TIRANA, August 5 – The poor tax performance in the first half of this electoral year has forced the Albanian government to revise downward its overoptimistic 2015 budget while the International Monetary Fund has postponed its new loan installment as part of a three-year Euro 331 million loan deal.
In its latest meeting, government approved 16.2 billion lek (€114.6 million) in spending cuts following failure to meet its revenue target.
Under a normative act which has also been published on the Official Gazette, the Albanian government has cut spending by €114.6 million to 456.4 billion lek (€3.2 billion). The income target has also been cut by 16.2 billion lek (€114.6 million) to keep the initial budget deficit target unchanged at 58.2 billion lek (€410.5 million).
Latest Finance Ministry data published this week in delay show government revenue deteriorated in the June local elections when total revenue were up by only 0.9 percent year-on-year and failed to meet the monthly target by 2.17 billion lek (€15.2 mln) on lower VAT and excise tax collection, the two key taxes accounting for around half of total government revenue.
For the first half of this year, the government collected about 183 billion lek (€1.28 bln), up 4.4 percent compared to the same period last year, but down 4.5 percent or 9.6 billion lek (€61 mln) compared to the target it had set.
The government’s underperforming tax and customs revenue was somehow compensated by a boost in non-tax revenue from the transfer of some €23.5 million after the sale of three 4G licences to mobile operators earlier this year.
The government had earlier warned the poor performance of public finances could force it to revise its overoptimistic budget downward on lower royalty collected from oil production, lower imports of fuel and tobacco and a rising number of VAT-free imports of machinery and equipment.
Back in 2014, the budget was revised upward for the first time since the onset of the global crisis in 2009 after regular mid-year or year-end cuts through normative acts.
The poor performance has also suspended the next loan installment from the IMF whose deal with the Albanian government deal is based on fiscal performance and the reduction of public debt, currently hovering at around 72 percent of the GDP.
The last time the IMF approved an installment was in May 2015 when the Fund’s executive board okayed a four installment of around Euro 36 million, bringing the total disbursements to about Euro 153 million under the 3-year loan.
Jens Reinke, the IMF resident representative in Tirana, said the Albanian government had asked more time to improve tax collection under the current system before considering new tax hikes.
The Albanian government has announced new nationwide campaigns on informality and running water similar to the electricity operation which has brought the state budget an extra Euro 100 million in income since its launch in late 2014.
The Socialist Party-led left wing majority approved a rather overoptimistic budget for 2015 expecting an 11 percent increase in revenue, a 3 percent GDP growth and a slight reduction of public debt already hovering at 72 percent of the GDP.
While key taxes such as the personal and corporate income taxes remained 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 tax burden in 2015 has further increased by raising the withholding tax on dividends and rents and capital gains to 15 percent, increasing the circulation tax on fuel and imposing higher excise rates on tobacco. In addition, electricity prices increased for both household and business consumers.
