Analysis of Albania’s Tax System
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Published: Tue, 12 Dec 2017
Every one can make the question: “why do we have taxes?”.Practically we can say , that one democratic state can not exist without taxes, even if he does not operate just with taxes.Taxes and taxability are a necessity. The standard of living of a modern society demands it; governments must collect the revenues in order to provide the goods and services that their citizens need, want and demand.
The principal sources of Albanian tax legislation are the Constitution, various laws and decrees. The Parliament is the prime taxing authority in Albania, while the Ministry of Finance is the executive branch, responsible for administration of the laws.
There is an important difference between tax and taxability in Albania.Taxability is an obligated and irreversible payment in state budget which include administrative charges and penalties for the delays provided by law. They are obligated payments of different contributors used for general public services, in that way state can accomplish his duty. While tax is an obligated contribute to pay from one person who profits directly from public services. They are a type of compensation for special public services accomplished from state in advantage of citizen. Taxes are mostly resource of locale organs entries of state, city halls, communes . Taxes for public services which we pay for has the element of volition, wich can not happen in no case with taxability. In financial point of view the taxes role is little than taxability ,so the role and the importance of taxes in confronting expenses for the public services is more sensible in the local budget than in the national budget.
The following project aims to treat with no details the types of taxes and taxability in the Republic of Albania,their importance and influence in the economy.Often the country’s financial authorities have been propagating that tax levels in Albania are among the lowest in the region so in another section we will stick to the comparative analysis of tax burden. We will try to compare it with Macedonia and Greece.
This article is structured as follows: First, we will briefly review the types of taxes and taxabilities in Albania. Second we will try to analyse and compare their importances in economy of our country with Macedonia and Greece. Finally, chapter four provides a summary and the conclusions on the issues treated.
OVERVIEW ON TAX SYSTEM IN ALBANIA
In the following section we will briefly review the classification of taxability and taxes in Albania.1
1 This section is based mainly on a summary of tax system in Albania presented by Financat (2006).
2.1.1 National Taxes
National Taxes cover 23% of the income that the state recieves from the taxes system,that is why they are considered very important to the Government’s budget.Among the main national taxes,we can mention Road Traffic Tax,Higher Education Tax and Registration fee for Poker Games, Casinos, for sport competitions taking place at the racetrack.Road Traffix Taxes include taxes imposed by the Government for the use of imported vehicles ,also the old ones,for the fuel consumption etc.The universities and other Academies are charged with the collection of Higher Education Tax.These taxes are cashed not later than 30 days from the official date of the beginning of the school year, in any academic year.While the tax on registration of gambling, casinos for sportive races held in hippodromes is payable only once at the beginning of such activities and their registration.
2.1.2 Local Taxes
Among the main local taxes,we can mention taxes for the capture of public spaces,taxes on real estate, local taxes on small businesses etc.The taxes on real estate include taxes on buildings, taxes of the lands use and also taxes on the agricultural lands.These taxes are calculated as an annual obligation of taxpayers from January the 1st- December 31st of the following year.If the taxable property is created,alienates or dissapears within this period,the obligation of taxpayers is calculated proportionally with the period of the property rights.To facilitate the implementation of this tax ,the bill, compiled in 20/04/2010 by the Government,where it was put a tax in the measure of 10% of the land’s value for all those who have the right to use the state’s land,but have not yet privatized this land.This bill,more than a policy in the tax system, is used for the privatization of the land in use,because the legalization is a current problem in the country.
2.2.1 Direct taxation
It includes direct taxation on bussines and personal income tax: Direct taxation on bussines which is also known as flat tax regime feeds economic growth by promoting the generation of the capital and attracting the foreign investments,thus increasing capacity through investment in the economy,aiming for a more efficient tax administration,provides an increase of the revenue in budget.While on the other hand this regime affects the emphasis on social inequality through the displacement of attention by facilitating fiscal burden on individuals,particularly those with low and medium income,to the ease of the fiscal burden on profitable subjects. Personal income tax is calculated on the income of the individuals.It applies to any income of any form, from any source, realized by any individual tax-object based on the law.
It includes Value added tax (VAT) and Excizes: Value added tax (VAT) is paid for all supplies of taxable goods and services rendered by the payment of a taxable person as part of its economical activity in the territory of the Albanian Republic and for all imports of goods in Albania.The Value added tax in the country, applies at 20 % . Excizes represents taxes with high level rates on the consumption of a certain category of goods. Usually excizes apply to harmful products for health, goods that affect environment pollution and luxury goods.Excise tax in Albania is refundable for this items:propellant oils used by producers of electricity resources with a power of 5 MW or more for each energetic resource;propellant used for agricultural purposes, for industrial and agro-industrial production.
COMPARING ALBANIAN TAX SYSTEM WITH OTHER COUNTRIES OF REGION
3.1 Greece Taxation
The principal taxes of Helen state are corporate tax, personal income tax,value added tax (VAT),excise duty and property tax.As in Albania the prime taxing authority in Greece is The Parliament , while the executive branch responsible for administration of the laws is the Ministry of Finance.Unfortunately,revenue collected from taxes in Albania based on Gjokutaj(2007) are not yet at the desired level, as the structure and organization of the economy or business in our country is not very favorable. Factors like disuse of the banking system in economic transaction, arbitrariness and bureaucracy lead to the development of corruption, causing a loss in government revenue , that must be gained from taxes and thus bring a reduction of the effectiveness of Tax Administration. Some of these problems are present also in Greece.For example according to Yannopoulos(2003,p 4) during 2002 hundreds of businesses in Greece whose sole activity was to practice or abet some form of taxes fraud .Some did nothing but issue and sell false invoices for imaginary services,which companies could use to keep down their paper profits; others made fraudulent demands for the reimbursement of VAT.While now as we know the crisis that Greece is experiencing ,come as a result of tax evasion by all citizien. As shown by Goro(2010) this caused the increase of budget deficit of Greece, which captures the value of 12.7%. The Greek government has undertaken different policy from the region as increasing taxes to increase its income, this could exceed the crisis in which is included.But these decisions has caused discontent and protest for people and bussines.
Referring to Taxrates(2010),minifin (2010) and as shown by Table 2 we can say that in Albania VAT is 20% unless cases when it is specified in this law, while in Greece for all the goods not belong to any special category the VAT is 23%.As we can see it is higher than in Albania.Personal income tax in Greece has the value equal to 15 % and the Corporate tax is equal to 25%, but in our country both of those taxes are knowed as “FLAT TAX” and the value of this tax is 10%,which is clearly lower than in Greece. According to Taxrates (2010) and to Xhepa(2000) ,Excise duty is roundet to the same value in both countries but in Greece, is expected this tax to be increased, until 10%, for some items(like alcohol,tobaccoetc). Greek exports to EU countries are tariff-free. Imports from non-EU countries are subject to the EU’s common customs tariff. Most raw materials enter duty-free, while manufactured goods have rates between 5% and 7%. Textiles, electronics, and some food products have higher rates. Motor vehicles, yachts, and motorcycles are subject to special duties.While Albania applies customs duty for machinery and equipment and other capital goods at 5%(minimum because there are aother categories of goods, which are raw materials that have tariffs of 10%). Greece does not impose withholding tax on corporate dividends paid to foreign investors. It does impose withholding tax on interest and royalties. The rate of tax may be affected by income tax treaties.In Albania earnings, that economic entity realizes are taxed in the amount of 30 percent. While dividends, interest and other types of earnings pay a withholding tax to the extent 10 % for residents and 15 % for non-residents.
Finally according to the analyses above we can say that compared with Albania, Greece really applies higher tax rates than Albania.But both countries have similarities.The structure and organization of the economy or business for the moment is not very favorable in Albania as well as in Greece.It has caused a loss in government revenue , that must be gained from taxes and thus bring a reduction of the effectiveness of Tax Administration,whose consequence is the crisis caused by tax evasion in Greece.
3.2 Macedonia Taxation
The most principals taxes applied in Macedonia are flat tax (corporate tax and personal income tax),value added tax (VAT),excise duty and property tax.As we can see taxes in Macedonia are similar with taxes in Albania.
Referring to Xhepa (2000 pp 7-9) ,minifin (2010) and as shown by Table 1 we can see that Vat value in Albania is equal to 20% and in Macedonia it is at 18%. So in Albania it’s noted a higer level of VAT than in Macedonia.About Flat tax in both countries it is noted a trend to put down the level of this tax. Macedonia applies this tax with a value of 12%, and in our country it is applied with a value of 10 %.This value puts our contry in the range of states with the lowest value of this tax in the region. Always according to Xhepa (2000 pp 7-9) and minifin (2010) we can see that Albania applies customs duty for machinery and equipment and other capital goods at 5%(minimum because several categories of goods, which are raw materials have tariffs of 10%).While foreign companies that wish to operate in Macedonia (for a period of at least five years), exempt from customs duties on machinery and equipment (capital goods) imported, which are part of the investment.(Level of custom duties ranges from 0 percent to 60 %).So we can reach the conclusion that Albania applies a standard rate ,while in Macedonia even though facilities the custom duty rate is higher than in Albania.In Albania earnings, that economic entity realizes are taxed in the amount of 30 percent. While dividends, interest and other types of earnings pay a withholding tax to the extent 10 % for residents and 15 % for non-residents.In Macedonia this tax is applied to the extent of 23 %. While referring to Xhepa(2000) labor costs rise by about 42 percent for payments made on social security and health,while in Macedonia it is a total of 30%.
At the end of these comparisons, we can reach the conclusions that there are taxes in which Albania applies lower rates than Macedonia as well as there are taxes wich are at a higher rate.But what is important to emphasize is that both countries follow the policy of low level taxes to attract investitors from other countries and to protect the bussines.
At the end of this analysis we can draw the following conclusions: First,revenue collected from taxes in Albania are not yet at the desired level, as the structure and organization of the economy or business in our country is not very favorable,but Greece is also facing the same problems that even lead to the crises that it is experiencing recently,which Albania succesfully went through some years ago.While compared with Macedonia we can conclude that both countries follow the policy of low level taxes to attract investitors from other countries and to protect the bussines.
Another conclusion that we reached at the end of this paper is that Albania,as well as Macedonia and Greece apply the same principal taxes,but the difference is that they have different tax rates.For the same taxes ,Greece applies higher tax rates than Albania,while comparing with Macedonia there are taxes in which Albania applies lower rates than Macedonia ,but there are also taxes in our country which are at a higher rate.
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