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News 10 Aug 15

Albania Plan to Raise Taxes Causes Outrage

The Ministry of Finance shelved a draft law that was to introduce taxes on low wage-earners after strong criticism from the media and from some of the ruling coalition's MPs.

Gjergj Erebara
BIRN
Tirana
 
  Deputy minister of finance Erjon Luçi. Photo: Financa.gov.al

The Ministry of Finance withdrew its proposal to tax people on low incomes on Sunday after its draft law, prepared with the advice of the International Monetary Fund, was leaked to the media and caused public uproar.

“There is no change in the current personal income tax scheme and there is no plan for any possible change in this direction,” deputy minister of finance Erjon Luci told a press conference on Sunday.

On Friday, the Tirana-based economics magazine Monitor published the draft law that envisaged a five per cent tax on monthly wages of 15,000 leks (107 euros) and 13 per cent on wages between 15,000 and 130,000 leks (928 euros).

Since early 2013, all earnings below a monthly 30,000 leks threshold have been exempted from income tax.

Erjon Brace, an MP from the ruling Socialist Party, was among those who opposed the changes.

“I think that we don’t need to change the low side of the tax bracket. We need to collect more from other taxes,” Brace said.

Following the outcry from the media and the public, the Ministry of Finance first claimed that the draft law was not “official” and the said that the tax brackets were for “illustrative purposes”, insisting that there are no plans for tax increases.

But Monitor magazine then published an email sent by a ministry official to several business associations in which it was clearly stated that the draft law had been prepared and that feedback should be given by August 30 in order to have it ready for approval in September.

“The Ministry of Finance, in collaboration with the IMF mission have written the new draft law on [personal] income tax. Because the draft law has been prepared with the IMF, we are forwarding the English version to you,” the email said.

The government has increased almost all taxes in the country except from the personal income tax over the last two years, aiming to bring down the public debt that has soared to almost 70 per cent of GDP. However, the tax revenues are far short of the projected revenues expected due to the tax increases.

The IMF has suspended its agreement with the government after Tirana didn’t agree with its latest requests for tax hikes or spending cuts. The government cut its projected revenues and expenditures for this year using emergency measures but it is not clear if these cuts will satisfy the IMF.

The lack of an agreement with the IMF is expected to hinder Albania’s plan to issue up to 500 million euros of sovereign bonds later this year. These bonds are needed to repay 300 million euro sovereign bonds issued back in 2010.

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