Taxability in Albania and its impact on GDP

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1 INTRODUCTION

To perform its economic and administrative activity our government does several expenseses .To afford these expenses our government uses several funding sources.In addition to encome earned from profit businesses that are owned in full or part-owner, he uses the fiscal system for providing needed income from it.Fiscal system consists of the entirety of taxes and fees,that the state sets through tax laws and legal acts, to be paid by various entities from taxation of taxpayers and the respective institutions. In general, fees and taxes are a financial tool that the state uses to provide the income necessary to cover the costs that makes it to maintain its administrative apparatus for opening new jobs, promotion of small business and in general for economic development, to combat inflation [1] , the redistribution of national income on the basis of social equality. Almost all economic decisions taken by business management include the selection of alternatives that have different impact on the taxes, so on business profit. For this reason it is used the taxability and tax planning which is the process of forecasting the calculation of taxes and fees that accompany a particular decision.The following project has in its focus the tax system in Albania, to create a more accurate idea of how it operates in Albania and aims to reach some conclusions about the role of the most important taxability in Albania in GDP. This article is structured as follows: First we will analyze the theoretical side of the tax system, how it is built and how it works in Albania. Secondly and the most important we will make a review of the most important taxability in our country about their applying for either of them and their impact in the economic and administrative activity. Finally, chapter four provides a summary and the conclusions on the issues treated.

TAX SYSTEM IN ALBANIA

The upcoming section provides an overview of tax system in Albania as presented by Gjyli(2009). The modern tax system in Albania has its beginning in the early years of last century. The most known and documented periods for the tax system in Albania are the later period of Turkish occupation, then,after the declaration of independence,especially the Kingdom of Albania, until the end of World War II. After its end there is a long period of dark, where the tax system has disappeared with the abolition of private property by the communist system, until the country, political developments in the 90's when started the reconstruction of Albanian tax system. Tax system of Republic of Albania consist of a package of legislation leisure tax, from tax agreements with other countries, the guidelines, regulations, methods for the establishment, modification and removal of taxes from the payment terms , methods and forms of controlling taxes and imposing liability for infringement of tax legislation. The Directorate General of Taxation proposes, while the Minister of Finance approves all the necessary regulations to implement the tax laws. These regulations will include rules that interpret and clarify a provision in the tax laws, will describe the procedures for collection and enforcement, establishment of notification procedures and creating procedural rules. All the individuals as they are taxpayer are forced to pay taxes or fees determined by law and by local government decisions, issued in accordance with it. No one is required to pay taxes if they are not set by law. Tax legislation in Albania consists in leisurely laws for national taxes and local taxes and compulsory contributions to social security and health. Also a very important point which should focus on is the problem of the right distribution of the tax demand.In this way is possible to be defined several basic criteria which must include in any tax system:the principle of security, according to which each contributor should be aware of the fiscal charge must pay; the principle of neutrality, according to which the tax should affect as little as possible in the free play of market power.Interventions can only justify the purpose to achieve certain objectives; horizontal equity (the same income taxed at the same size )and vertical equity (contributors by different paying capacity should be taxed in different ways). It is important to emphasize that in Albania taxability differ from taxes due to the fact that taxes represent a fixed amount of money that should be paid to the state for various services that it offers citizens while taxability represent a sum that varies depending on the size of the taxable item.Taxability is a payment to the state budget ,"budget" of a binding and irrevocable nature, which includes administrative penalties and interest for late payments established by law. Another explanation could be that taxability is a specific amounts of money that physical and juridical persons are obligated to pay to the state,as well as businesses that operate in its jurisdiction for the purpose, providing the necessary funds to produce public service.

3 TAXABILITY IN ALBANIA AND ITS IMPACT ON GDP DURING 1998-2005

Taxability include direct and indirect taxes.Direct taxes are imposed directly on property or income subjects ,while indirect taxes are imposed on goods and services produced in the moment, such as excise, the switching of traffic as tax or consumption tax as a sale.Direct Taxes include personal income tax, profit tax, tax on casino games.Indirect taxes include Value Added Tax (VAT) and excise.

Each one of them plays an important role in the total weight of GDP and State budget and we will also try to compare it with other countries of the region.In this analyse,because of lack of data, we will focus only on personal income tax,profit tax and VAT during 1998 -2005.

3.1 PERSONAL INCOME TAX

According to minifin (2005) personal income tax is calculated on the income of individuals. Personal income tax applies to any income of any form, from any source, made by any individual subject to tax law, except for income that expressly excluded by law. Personal income tax is based on a simple scheme,which is currently composed of seven divisions, where the minimum salary of 14,000 leks is not taxable. Personal income tax is paid by international standards, at the moment of benefiting the monthly salary.Other taxable income as interest, dividends, rent, copyrights are subject of withholding tax at 10%. Income statement is required only when the income is earned but has not been source of taxable base.

Graph 1.Income from taxability on personal income in Albania 1998-2005.

Source: minifin (2005)

Graph 2.Income from personal income in Albania compared with other countries of the region.

Source:minifin(2005)

Referring to the graph2 about the weight that this fiscal revenue occupies in the total GDP, compared with other European countries, Albania is classified last, garnering less than 1% of GDP. This comes as a result of not only low fiscal burden and low wages but with bad management of the fee for private sector as mentioned by minifin(2005).

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Above it is shown the performance of the personal income through years.As we can see from graph 1,the revenue from this tax at the end of 2002 had a decrease of 0.2% compared with a year ago.In 2003 only increased by 0.1% compared with 2002, while in 2004,this revenue increased by 27% compared to the last year(that this increase is estimated to have come as a result of reforms undertaken to collect this tax).Referring to minifin (2005)the weight of personal income tax in total tax revenue and customs is about 6.5%, while in the total income of the state budget it occupies only 4.1%( estimated for fiscal year 2004). So at the end we can reach the conclusion the performance chart of nominal income shows an improvement of administration and collection of personal income tax from year to year, as an increase of wages in the public sector and reduction of tax evasion [2] as well as private sector. However, the real effects of each of these factors can not be assessed accurately because the growth rate of revenues from year to year does not follow a trend harmonious.

3.2 PROFIT TAX

In our country the profit tax is applied on the profit from the exercise of a business, for all natural and legal persons). It consists of two components:regular profit tax,which is applied to businesses whose annual turnover exceeds the VAT threshold(over than 8mln leks per year) and by simplified profit tax, applied on small businesses with annual turnover below 8 million leks(without liability for VAT registration).But because of the lack of data we will regard our analysis only onregular tax on the gain.

Tax rate on profit tax is currently 10%. For determining taxable profits in the Republic of Albania is recognized as an expense they carried out for profit, insurance and storage of profit, to the extent that these costs are proved and documented by the taxpayer, and you are subject to limitations specified by this law.

Regular tax on the gain that is applied in Albania is comparable to the corporate tax applied also in the other region’s countries, with the exception that this tax in our country is determined by the level of throughput that implements.

Since 2003 has been excempted from this tax all the entities that realize an annual turnover of less than 3 million leks .The general perception for small businesses has changed significantly in the recent decades.They are considered increasingly attractive as a force for economic growth of countries.The costs of fulfilling tax obligations for small businesses are very high and it often comes as a result of complex tax structure and insufficient resources to spend tax administrations for their treatment. In Albania, this tax is applied on businesses that realize an annual turnover of less than 8 million.

Graph 3.Income from the Profit tax in Albania 1998-2005.

source: minifin (2005 )

Graph 4. Income from regular tax on the gain in Albania compared with other countries of the region.

Source:minifin(2005)

As shown by graph 3 the performance of the profit tax revenue as a percentage of GDP has been positive by the end of 2002 (increased performance), while from 2003 are clearly distinguished problems, which mainly deal with the computerization of its procedures for collecting .According to minifin(2005) the weight that this taxability occupies in the total tax revenue from taxes and customs is over 12%, while in the total state budget ,it is about 8%.Always referring to minifin (2005) in 2003 Albania is estimated to have collected less than 1.8% of GDP, while the regional average in 2004 has been about 2.4% and this may constitute an argument in favor of lowering the tariff level of this tax.

So at the end we can draw the conlusion that the weight that occupies this tax as a percentage of GDP in Albania is lower than the regional average,but we notice an increasement of its weight in GDP.

3.3 VALUE ADDED TAX

Value Added Tax (VAT) paid for all taxable supplies of goods and services rendered against payment of a taxable person, as part of its activity in the territory of the Republic of Albania and for all imports of goods in the territory of the Republic of Albania.

Minimum enrollment limit is 8 million leks (per calendar year) or any other more established by the Council of Ministers pursuant to clause 5 of this article.

All legal or physical activity which have export or import are required to register for VAT payments.

VAT applies to the measure 20 percent, unless otherwise specified in this law.

Are exempted from the payment of VAT:provision of financial services ,supplies of gold, bank notes or coins to the Bank of Albania,supply of stamps to mail the postal service or use similar stamps and provision made by a nonprofit organization against payment of a reduced supply is exempt under the terms defined in Article 24, etc.The taxable value of supply is the total amount paid for that supply, unless otherwise stipulated in specific laws.

Graph 5. Income from VAT in Albania 1998-2005.

Source :minifin (2005)

Graph 6. Income from VAT in Albania compared with other countries of the region.

Source:minifin(2005)

The above graphs show the comparison of revenues from VAT in Albania with the countries of the region (2002-2003) and the performance of these revenue in Albania during the period 1998-2003, with forecasts for 2005.VAT is about ListenRead phoneticallyVaVvd45% of total income tax and customs administrations and 29% in the total of State budget revenues.So the performance of the tax compared with other countries of the region is very similar in terms of its weight in the total Gross domestic production.Also as we can see by graph 5 the role of this tax in our country, has been consolidated under Albanian tax system.Its weight in GDP is up to 6.81% (in the late 2003), and reach 6.9% in 2004.And referring to this data and to minifin (2005) we can surely affirm that VAT is considered the most important tax our fiscal system.

CONCLUSIONS

At the end of this analysis we can draw the following conclusions: First we can affirm that income from personal taxes are increased,this due to increase of wages in the public sector and reduction of tax evasion as well as in the private sector.But the growth rate of revenues from year to year does not follow a trend harmonious.

About regular tax on gain we can draw the conlusion that the weight that occupies this tax as a percentage of GDP in Albania is lower than the regional average,but we also notice an increasement of its weight in GDP.

About VAT we can say that the performance of the tax compared with other countries of the region is very similar in terms of its weight in the total Gross domestic production and its role in our country, has been consolidated under Albanian tax system.And finally we can surely affirm that VAT is considered the most important tax our fiscal system.

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