By Prof. Dr. Agim Binaj
From the analyzes and studies made it is concluded that in Albania, despite the positive increasing steps, there is a high degree of tax evasion and informality (occupying approximately 40 - 45% of Gross Domestic Product (GDP), with an effect on the income of Annual Budget about 800 million euros).
If we refer to different figures and sources, for 2018, Albania for 1 million inhabitants produces and collects less public revenues for the same basis of comparison with other countries. For example, Croatia produces 13.4 billion USD and collects taxes and fees 6.2 billion USD, while our country produces 4.5 billion USD and collects 1.3 billion USD. So, Albania ranks last in the region, excluding only Kosovo.
What are the problems in this area and some solutions for the future
- Based on the advanced experiences of European countries, especially according to the German economic model, in the field of taxes, we think that the tax system, designed under certain conditions of a country should serve as a stimulus for economic and financial development of his.
For this :
- We plan to set up a group of experienced experts from the Ministry of Finance and Economy, Agriculture, scientific institutions such as the Academy of Sciences, University of Tirana, Agriculture and others, to determine priority sectors, with high productivity such as: natural resources, agriculture, tourism, technologies, innovation, etc. In this context, improvements should be made in fiscal legislation, as well Company Law, Law on Investments, Law on Tax Procedures, Law on VAT, Income Tax Law, Customs Taxes, setting up an efficient administration, etc.
The working group to draft a national reform program, with strategic orientation, to increase efficiency to combat informality and increase State Budget revenues.
The German tax model as a whole must be studied and adapted to the conditions of Albania. Germany has over 40 types of taxes, but specific are some that can be applied as soon as possible in our country: Differentiated VAT 6 - 7% for consumer goods, especially food, Profit tax 15%, additional tax for the rich and solidarity tax 5.5% on income, inheritance tax or gifts 7 - 50%, etc.
These important indicators, as an expression of fiscal reform in Albania, if adopted by law, will be, among other things, an approach to EU recommendations.
- We propose the establishment of a tax system according to advanced models, which will affect the reduction of prices of vital consumer goods. In Albania, compared to EU countries, prices are high and are not in line with the real income of Albanian citizens, with salaries and pensions, which compared to developed countries are 10 times lower, or compared with the countries of the region 2-3 times lower.
- We propose to realize the exact determination of the subsistence minimum, of providing the vital basis that guarantees living with the dignity of the Albanian citizen. This should be achieved through the study and harmonization of financial - fiscal - social indicators, such as the minimum cost of living according to the items of the basket services - Minimum wage - Minimum pension - Social assistance, and others.
- Based on the German experience and some countries in the region, we emphasize the adoption of a reduced VAT rate for essential consumer goods, proposing the level 5 - 6%, removing the limit of 2 million Lekë that is applied so far for businesses without VAT. All entities with turnover over 1- Lekë to be VAT subjects in the reduced amount such as markets, services, restaurants, etc.
This would increase consumption and budget revenues because:
- about 65 thousand small businesses would be included in the VAT scheme;
- would bring about the reduction of tax evasion to the extent of 20-25%;
- would lower prices and improve people's living standards;
- would bring faster economic development.
Germany, Czech Republic, Poland, Estonia and some countries in the Balkan region have the best experiences in this direction.
- Although in recent years we have had 3–4% GDP growth, the quality of the country's development seems to be moving at a slow pace.
This is determined by the level of poverty and the economic and social vulnerability that has gripped the peripheral areas of the country. We emphasize that inequalities and differences between social strata are increasing and this is expanding every day and more. Wealth tends to be concentrated in a few hands. If we refer to some figures of the Bank of Albania 2017-2018 report and other data from independent institutions, approximately 5% of the population owns almost 90% of national wealth, or 4% of depositors (where depositors are approximately 2.4 million people) in banks of the second tier hold about 3.7 billion euros or 45% of deposits (where the total deposits are 9.2 to 9.5 billion euros) and outside the banks circulate approximately 2.4 billion (according to the data of the Bank of Albania)
- The World Bank and the International Monetary Fund advise us to analyze fiscal policies, with the aim, that the one who receives more income pays more taxes. Perhaps, it would be appropriate to introduce a solidarity tax or a tax on the rich (according to the German model, for annual income over 250 thousand euros, at level 6 - 7%). The income from this tax should go for social assistance, increase of pensions, increase of salaries, etc. This measure could lead to the narrowing of the gap between rich and poor.
- It is noted that the increase in GDP has also not been accompanied by an increase in the quality of life in the right parameters and the improvement of living conditions. Despite the improvements, we still do not have a fair distribution of income. In Albania only 1/5 or 20% of GDP is distributed for wages, while the average in OECD countries is 55%. We are the country with the lowest average gross salary in the Balkans (419 euros, while the average of the Western Balkan countries reaches 773 euros). But on the other hand we are also the country with the lowest productivity in the Balkans.
We think that a more detailed study should be done in the ratios of employees' salaries with the profit realized by business companies, moving towards a gradual salary increase in order to achieve the average salary with the countries of the region. This would also require changes to the legislation to increase the minimum wage.
- The Albanian economy is focused on low-productivity sectors such as tailoring and call centers. Today in Albania there are over 40 thousand such enterprises.
The Albanian economy does not have a developed processing industry, as a result oil, minerals, decorative stones are exported as raw material and Albanian employees work 48 hours a week and are paid only 26 thousand Lekë per month. Such salaries, above all, are below the level of dignity, do not stimulate consumption and do not generate continuous development. Here, fiscal policy must intervene so that it is as equal as possible, favoring Albanian employees not only in salary increases but also in lower taxes. Establishing balance in this regard requires special and rapid studies and decision-making.
- We think that one of the priorities for the development of the country such as agriculture, that despite the project that has started to be implemented for 100 villages (this is a good initiative of the government), is still a little to talk about a comprehensive development of agriculture, for them turned from an extensive agriculture (production for itself) to an intensive agriculture (production for the market), especially for export. It is important that, through fiscal development policies, taxes and levies 5 - 6%, especially in VAT, being rigorously implemented in both buying and selling, as well as in direct subsidies.
The model of stimulating agriculture through VAT 6% on the purchase of agricultural products and 20% on sale at the processing stage, is not appropriate as it violates the balance of VAT.
Albanian agriculture, despite the growing trend, is more in deficit; produces a lot in season, but this product is sold at low prices which hurt the producers, which causes many products to be left uncollected by the producers because the selling prices do not justify the production costs.
Agriculture and livestock urgently need to be stimulated through subsidies, based on advanced incentives, oriented not to individual farmers, but to farmer communities (according to the cooperation system). They should focus on agricultural techniques, seeds, capital, information, vision, trade protection, etc.
- About 95% of Albanian enterprises have 1-10 employees. Small dimensions limit investments in innovation and human resource qualification, which affect global competition. If we look at the innovation index in the world, Albania is ranked 68thto, well below the average of other countries in the region. From study data, e.g. in the medicinal plants sector, Albania has about 3,200 plant species, which constitute approximately 30% of fauna species that has all over Europe. About 80 thousand employees work in their collection in rural areas. The question that arises and needs to be resolved is how much the Albanian state invests in this industry (in different ways) and that it all goes for export. Quite a bit, the investment is only 170 thousand euros per year.
- We think that investments in this industry should be expanded with subsidies for the processing and industrialization of medicinal plants, so that this wealth is exported not as a raw material, but as a finished product increasing their value. These natural resources can bring added value and benefit from Albania, through advanced processing technologies and not from other countries where these assets are exported, as raw materials. On the other hand, there can be an orientation towards the regionalization of cultures in accordance with the conditions for higher productivity.
- We are the country with the lowest level of education in Europe. We have graduates from high schools, but they do not have the professional preparation to work in the relevant specialty or labor market.
Studies show that the 20% of the ruling class in public administration has at least one degree from a closed university. This is a concern because it directly reflects on the quality of public services and the low level of public administration
Our education system, despite the educational reform that has just begun to show the first signs of improvement, is still unable to prepare professionals to respond to the labor market with professional competence, especially in the field of new technologies.
As an example we can refer to Estonia, with very similar characteristics to Albania. Today it has become an important market "player" in terms of providing specialized services and products in the field of technology. This started in 1992, when the level of per capita income in Estonia and Albania was approximately at the same level of income. Today, per capita income in Estonia is estimated at 7 to 8 times more than in Albania. The then Prime Minister of Estonia, Mart Leart, undertook a series of reforms in the field of investment but also of easing fiscal policies. Appropriate privatizations were made in this small country, without destroying the property inherited from the previous regime, drafting long-term, concrete strategies related to the economic and social development of the country, focusing on the development of the technology sector and the education of generations of young people to respond to this strategy. It would be interesting to study and implement this experience of this small country in the conditions of Albania, both in terms of population and geographical areas that are approximately the same as our country.
- Albania pays dearly for the inefficiency of the public administration and the bureaucracy. Law enforcement, despite the improvements made, still leaves much to be desired. For example, whenever the public administration prepares studies to transfer services or public property, to private in the form of concessions due to lack of professionalism, wrong decisions are often made; from the contracts signed for these activities, the Albanian state always loses, as in the case of CEZ, oil concessions, etc. where losses are estimated at several hundred million euros.
- Fiscal policy favorable to foreign investors. All countries in the region have moved in this direction, while we as always lag behind.
We continue to maintain the level of profit tax at 15%, both for local and foreign businesses and investors, while Bulgaria, Bosnia and Herzegovina and Northern Macedonia have 10%, Montenegro 9%, Hungary for foreign investment has reduced the tax- profit in the amount of 9%, while Serbia subsidizes part of the investment and salaries of foreign investors. Croatia and Slovenia are providing subsidies to companies investing in IT, etc.
- Possible ways to reduce the informal economy and tax evasion.
We think that it is necessary to fill the gaps and improve the legislation for companies or other laws related to tax procedures, such as the Law on VAT, Income Tax, etc. The annual change of these laws creates confusion for business and unsustainable fiscal policies.
- To be effective, the fight against tax evasion from a legal point of view must affect four aspects of companies:
- their governance, management and administration;
- accounting policies and financial reporting system;
- good auditing and control practices, not only manually but through IT systems with advanced technology software;
- harmonization of accounting science and practice with other sciences and disciplines, preparing accountants with complex knowledge to'respond to the demands of the 21st century.
The fight against the informal economy and tax evasion should be seen in the conditions of Albania from the socio-cultural and psychological point of view, emphasizing the increase and improvement to recognize these phenomena and cooperation between different factors that can contribute to achieving better recognition and measures to minimize them.
- If we would see the fight against the informal economy and tax evasion only from the perspective of policy-making and administrative policies, then we would build this fight on four elements.
- State - business relations
- Assessing the tax liability of businesses and their proper implementation
- Documentation of business activity
- Management model with advanced standards and technology and integrated with the triangle Customs - Taxes - Cash (Consumer).
- We think that the use of fiscal cash register and electronic invoice, not with campaigns, but continuously, is a good key to administration and the fight against informality and tax evasion. The triangle of an integrated system, Customs-Tax-Consumer, and accompanied and with incentives by returning a part of VAT to the consumer, would bring a significant improvement of tax evasion and increase budget revenues.
- It should be studied in an appropriate term the abolition of VAT at customs that the business pays in advance. It must be paid within the meaning of this tax, when the goods create added value after being sold. This way of paying VAT at customs, with the argument of the tax administration that it cannot be collected during the value creation process, aggravates the financial situation of the business, because it pays a tax that it has not realized. This also has additional costs for the business, which in some cases to pay this customs tax is forced to take a loan or overdraft.
The removal of customs references for a certain group of goods, which increase the cost of business, should also be studied. We think that the customs should act with the self-declaration made by the business and the accompanying documents that it has, for the imports from different countries.
- A full fiscal amnesty has never been applied in Albania. There was an attempt in 2011, which required 2/3 of the votes in parliament and political consensus, but which was not achieved and was therefore reduced to a simple law that is the 2011 law "On legalization of capital and forgiveness of obligations… ”. Care must also be taken not to legalize corrupt capital stemming from crime in the economy.
- We think that a fiscal amnesty can be done only when the state has the necessary administrative capacity to implement it correctly, and especially if it is prepared to implement the law correctly and efficiently in the future by not allowing the recurrence of the phenomenon. Well, to create confidence that the law will be enforced correctly, equally for all, and offenders not to be amnestied, but to be punished for crimes in the economy. Given the current political-economic-social situation, the level of corruption and the incomplete conduct of vetting in the judiciary and beyond, we think that the capital amnesty is currently not effective.
In conclusion we think that the founders of advanced democracies in Europe and the US did not lay the rails of democracy against taxes, but rather, They built and reformed such tax systems, to respond to the cultural level, democracy and economic model of a given country.
* Below in this geogle document you will read the English version of the article, according to the original publication in the print version of "Star Business" magazine, January 2020.