VAT on domestic sales down 11% in 2010

TIRANA, May 2 – Despite total government revenues growing by 8.7 percent in 2010, the collection of value added tax (VAT) for domestic sales, an indicator which measures consumption, dropped by around 11 percent compared to 2009. Finance Ministry data show the tax administration managed to collect 29.2 billion lek from VAT on domestic sales in 2010 compared to 32.7 billion lek in 2009, an indicator proving the ongoing saving trend by consumers. The situation was mostly a result of the ongoing crisis in the construction sector and the slight shrink in the telecommunications sector.
This is proved even by INSTAT data which show retail sales continued dropping for the third consecutive quarter in 2010, falling by 1.1 percent in the final quarter, a sign showing a drop in purchasing power and an ongoing saving trend despite the country’s economy returning to high growth rates in the second half of 2010.
INSTAT data show the retail sale index in the final quarter of 2010 dropped by 1.1 percent year-on-year but was up by 1.3 percent compared to the third quarter thanks to the year-end holidays.
A recent survey published by the Bank of Albania shows the consumer confidence index continued its falling trend for the third quarter in a row, dropping by 3.1 percentage points during the first quarter of 2011, and remaining 1 percent below its long term historical average. The drop was mainly a result lower consumer confidence about big purchases and the deterioration in their current financial situation which fell by 6.4 percent and 6.2 percent respectively. Consumers expect the unemployment rate and prices to further grow in the next six months.
The tax on small businesses also dropped by 8 percent to 2.3 billion lek despite the number of registered small businesses increasing by 9 percent to 62,000 at the end of 2010.
Another indicator with a negative performance in 2010 was the tax on the sale of used cars. Finance Ministry data show that its collection dropped by 7.1 percent to 2.6 billion lek in 2010. Since mid 2010 when a new law entered into force, the sale of cars under legal contracts has been in decline and car owners are using authorization or donation practices to sell their cars following the increase in taxes.
The tax is based on the car’s engine’s horsepower, years of usage from the moment the customs duty has been paid, and the kind of fuel it uses.
The best performance in the fiscal report was reported for excise goods with officials managing to collect 38.5 billion lek, 15 percent more than in 2009, from fuel, tobacco, alcohol, coffee etc also thanks to increased excise taxes on cigarettes and coffee since September 2009.
Despite revenues growing by only 8 percent to 324.9 billion lek, up from 299.5 lek at the end of December 2009, the country’s budget deficit continued narrowing. Ministry’s preliminary data show the budget deficit more than halved to -37 billion lek compared to a record – 80.3 billion lek at the end of 2009, taking the deficit to 3.1 of the GDP, down from a record 7.4 percent.
With budget revenues expected to grow by 11 percent, 2 percent more than under the revised 2010 budget, government projects the Albanian economy will grow by 5.5 percent in 2011, up from an estimated 4.1 percent in 2010, which is almost twice higher compared to what international financial institutions expect.