Albania: Radical reform in taxation

Author: | Published: 24 Feb 2014
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Besnik Duraj
The new Albanian government, formed after the 2013 general elections, has already fulfilled one of its election promises: the reform of the Albanian tax system from flat tax to tiered rates. Significant amendments have been introduced in the national laws on income tax, national taxes, tax procedures, excise, local taxes, value-added tax, the hydrocarbon tax system, and health contributions.

The most important changes as of January 1 2014 are briefly presented below.

New taxation legislation primarily concerns businesses. The corporate income tax flat rate has been increased from 10% to 15%, whereas the simplified income tax on small businesses has been reduced; small businesses with an annual turnover up to L2 million ($19,000) are now subject to an annual flat rate tax of L25,000, whereas small businesses with an annual turnover between L2 million and L8 million are subject to a 7.5% tax rate.

Personal income taxation on salaries and other employment-related remunerations have changed from a flat tax-rate to a tiered tax-rate system based on progressive taxation rates, as follows: a zero percent rate for monthly salaries up to L30,000; 13% for monthly salaries over L30,000 up to L130,000; 23% for monthly salaries of L130,000 and above. As of January 1 2014, the health contribution rate of 3.4% (1.7% for employees and 1.7% for the employer) is calculated on the actual gross salary, instead of the statutory gross salary limit set for social and health contribution purposes (which is L95,130).

Also, amendments in the law on VAT (currently at 20%) will be implemented from 2014. Health services and medical supplies from public and private health institutions are exempt from VAT. Furthermore, the supply of goods and services related to the development phase of hydrocarbon operations becomes subject to VAT. However, the supply of goods and services in relation to the research or exploration phase of hydrocarbon operations remains exempt from VAT. Further, the VAT reimbursement period by the tax authorities has been extended from 30 to 60 days from the submission date of the VAT reimbursement request by the taxpayer.

Tax procedural law has also been subject to the latest amendments. Tax authorities now have a 30-day period to check taxpayers under liquidation procedures, and when necessary, perform a tax audit by means of a risk analysis. The tax appeal term has changed from a five to 15-day period, enabling taxpayers to raise claims or objections against the preliminary results of a tax inspection before the General Tax Directorate. In addition, the taxpayer now has the option to provide a bank guarantee for an amount equal to the tax liability amount imposed by the tax audit instead of paying the money before initiating the tax appeal procedure. Moreover, revised tax declarations are no longer subject to penalties, only to interest on late payment.

Finally, as of January 1 2014, the excise rates on certain products, especially alcoholic beverages and cigarettes, have been increased. Energy drinks are now subject to excise tax, whilst the rates are calculated per litre. The circulation tax on diesel and gasoline has changed from L7/litre to L17/litre.

Of course, various aspects of the reforms have drawn criticism. Industry interest groups and chambers of commerce representatives have expressed concerns that, considering the significance of the changes for doing business in Albania, the process has been carried out with unnecessary urgency.

It seems that the new Albanian government is targeting this radical reform of the taxation system with a view to boost public finances and the social state; investors, though, might be hesitant to move ahead with their plans until things settle under the new regime.

The results of the reforms are eagerly awaited.

Besnik Duraj