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IMF Country Report No. 22/52

ALBANIA

TECHNICAL ASSISSTANCE REPORT—TAX POLICY REFORM OPTIONS FOR THE MTRS

February 2022

This technical assistance report on Albania was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed in February 2020.

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Title page

FISCAL AFFAIRS DEPARTMENT

Albania

Tax Policy Reform Options for the MTRS

Dora Benedek, Aqib Aslam, and Narine Nersesyan

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Technical Report

February 2020

The contents of this report constitute technical advice provided by the staff of the International Monetary Fund (IMF) to the authorities of Albania (the “TA recipient”) in response to their request for technical assistance. This report (in whole or in part) or summaries thereof may be disclosed by the IMF to IMF Executive Directors and members of their staff, as well as to other agencies or instrumentalities of the TA recipient, and upon their request, to World Bank staff and other technical assistance providers and donors with legitimate interest, unless the TA recipient specifically objects to such disclosure (see Operational Guidelines for the Dissemination of Technical Assistance Information— http://www.imf.org/external/np/pp/enq/2013/061013.pdf). Disclosure of this report (in whole or in part) or summaries thereof to parties outside the IMF other than agencies or instrumentalities of the TA recipient, World Bank staff, other technical assistance providers and donors with legitimate interest shall require the explicit consent of the TA recipient and the IMF’s Fiscal Affairs Department.

Contents

• ABBREVIATIONS AND ACRONYMS

• PREFACE

• EXECUTIVE SUMMARY

• I. INTRODUCTION

• II. PLACING ALBANIA’S TAX SYSTEM IN REGIONAL CONTEXT

• A. The Performance of Albania’s Tax System

• B. Albania and its Regional Comparators

• III. CONSUMPTION TAXES

• A Value-Added Tax

• B. Excises

• C. Environmental Taxes and Other National Taxes

• IV. A COMPREHENSIVE APPROACH TO TAX INCOME

• A Current System

• B. Reform Proposals

• V. PROPERTY TAX

• A Current System

• B. Reform Proposals

• REFERENCES

• BOXES

• 1. Most Important Benefits Provided Through the Tax System to Priority Sectors

• 2. Tax Free Zones

• 3. Revenue Impact of VAT Exemptions

• 4. VAT and Tourism

• 5. Choosing the Right Tax Incentives

• FIGURES

• 1. Albania’s Domestic Revenue Performance

• 2. Albania vs. Regional Comparators, Tax-to-GDP Ratio, Percent

• 3. Domestic Revenues by Type, 2018

• 4. VAT C-Efficiency Ratio

• 5. Effective Tax Burden for Income from Employment

• 6. Labor Market Statistics

• 7. Distribution of Turnover and VAT Payment of Taxpayers

• 8. Alcohol Consumption per Capita (ages 15+ years), Liters of Pure Alcohol

• 9. Comparing Revenues from National Taxes, in Percent of GDP

• 10. Effective Tax Burden: Employee vs. Self-Employed

• 11. Indirect Government Support Through R&D Tax Incentives

• TABLES

• 1. Summary of Tax Policy Reform Recommendations

• 2. Comparing Albania’s Tax System with Regional Neighbors

• 3. VAT Revenues, 2017–2019

• 4. Breakdown of Businesses Within the Simplified Profits Tax Regime

• 5. Profit Margins from Taxpayer Returns

• ANNEXES

• I. Composition of Taxes in Regional Comparison

• II. FAD Tax Policy TA Advice Since 2015

Abbreviations and Acronyms

Preface

In response to a request from the Minister of Finance, Ms.Anila Denaj, for capacity development in the preparation of a medium-term revenue strategy, a mission advising on the tax policy aspects of this strategy visited Tirana during November 1–12, 2019. This mission of the International Monetary Fund’s (IMF) Fiscal Affairs Department (FAD) comprised Ms. Dora Benedek (head), Mr. Aqib Aslam, and Ms. Narine Nersesyan (both FAD). The mission partly overlapped with a mission advising on the revenue administration aspects of the strategy, also of the IMF FAD, led by Mr. Stephen Vesperman.

The mission had several rounds of productive discussions with the following officials and members of their staff: Mr. Elton Haxhi (Deputy Minister of Finance); Mr. Ylber Karanxha (Director of GDC); Ms. Arjana Dyrmishi (Advisor to the Minister); Mr. Nikolla Lera (Director, General Directorate of Macroeconomics and Fiscal Policy); Ms. Enkeleida Pipa (Director, Fiscal Harmonization Directorate); and Mr. Artan Gjoka (Director of Fiscal Cadaster).

A meeting with World Bank colleagues proved as usual very useful for coordination purposes.

The mission is grateful for the hospitality of the authorities and the efficient support provided in organizing and facilitating the discussions. The mission would also like to thank Ms. Linda Spahia (IMF Resident Representative office) for her assistance during the preparation of the mission. The mission also acknowledges excellent interpretation by Ms. Arlinda Gjebrea and Ms. Engjellushe Shqarri.