The Minister of Finance and Economy, Delina Ibrahimaj, presented the draft laws of the 2023 Fiscal Package to the parliamentary commission for Economy and Finance, which accompany the draft state budget for the coming year.
The Minister stated that the 2023 Fiscal Package aims to improve revenue administration, align tax legislation with European Union directives, and reflect some corrections to current laws, according to IMF recommendations and discussions with interest groups.
Specifically, interventions and regulations are foreseen in several currently enforced laws, as well as proposals for new draft laws, such as:
- The new draft law “On Income Tax”;
- Draft law “On some additions and amendments to law no. 92/2014, ‘On value added tax in the Republic of Albania’, as amended”;
- Draft law “On some amendments and additions to law no. 61/2012 ‘On excises in the Republic of Albania’, as amended”;
- Draft Law “On some additions and amendments to law no. 9920/2008 ‘On tax procedures in the Republic of Albania’, as amended”.
Regarding the proposed changes to the Tax Procedures Law, the Minister emphasized the fact that they were made by taking into account the voice of the citizens through the National Consultation.
“We have found it necessary to intervene to toughen measures for cases where undeclared employees, hidden wages, or even undeclared social security contributions are identified. On the other hand, we have foreseen stricter penalties for cases of goods not accompanied by invoices, but this is only for large businesses, as this leaves room for evasion. It is our duty to reduce these phenomena as much as possible and to fight economic informality without compromise.,
The Minister.
Speech at the Parliamentary Committee on Economy and Finance – Presentation of the 2023 Fiscal Package
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Dear Chairman of the Commission
Dear members,
Today we come before you to present the draft laws of the Fiscal Package for 2023, already approved by the Council of Ministers and accompanying the draft budget.
Through this important document, we have confirmed the commitment of the Albanian government to increase the good administration of revenues, to align tax legislation with the directives of the European Union, but also to reflect some corrections in the current laws, according to the recommendations made by the IMF and from discussions we have had with interest groups.
The 2023 Fiscal Package foresees interventions and regulations in several currently applicable laws, as well as proposals for new draft laws, more specifically:
- The new draft law “On Income Tax”;
- Draft law “On some additions and amendments to law no. 92/2014, ‘On value added tax in the Republic of Albania’, as amended”;
- Draft law “On some amendments and additions to law no. 61/2012 ‘On excises in the Republic of Albania’, as amended”;
- Draft Law “On some additions and amendments to law no. 9920/2008 ‘On tax procedures in the Republic of Albania’, as amended”.
These are interventions that affect not only some policies, but also administrative measures to support more efficient implementation by the responsible, tax, and customs structures.
I must emphasize that we are not dealing with strong interventions or heavy touches on the relevant legislation, but with changes that are expected to have a significant impact on those taxpayers who will be subject to their application.
There have been strong media debates regarding some proposals we have foreseen in the Law on Tax Procedures, for a stronger punitive approach towards businesses, concerning the harsher penalties.
We have made these proposals, taking into account the voice of the citizens, who largely expressed themselves through the National Consultation held a few months ago.
This approach explicitly deals with measures primarily related to the fight against informality in the labor market, where disadvantaged employees are found compared to employers regarding the implementation of employment contracts. We had to intervene to intensify measures for cases where undeclared employees, hidden wages, or even undeclared social security contributions are identified.
On the other hand, we have severely foreseen stricter penalties for cases of goods not accompanied by an invoice, but this is only for large businesses, as this leaves room for evasion, and our duty is to reduce these phenomena as much as possible to fight informality in the economy without compromise.
I want to emphasize that informality in the economy has been and remains a scourge, both in the implementation of free competition and in the penalties that employees face in the coming years for not receiving their pensions on time. Therefore, it is important that we increase these penalties in order to set things right, which aim to prevent the effects of evasion, for the effects that would be significant in the pockets of employees at the time of retirement.
Besides these objectives, our work's priority is to focus more on legal corrections within the framework of good revenue management.
There are several alleviating incentives that we are undertaking and that should gain importance and attention both in the context of the economic situation we are going through, and in line with integration processes.
Let me mention here the changes in the excise duty on beer, VAT exemption for IPA fund projects, VAT exemption for what will be handled through the energy exchange which will start operating very soon within this year.
Even the exclusion of firewood and pallets in imports, as well as in the domestic market, as a supporting measure for citizens in conditions where we are trying to keep energy prices unchanged and to subsidize citizens and small businesses.
As the Minister of Finance and Economy, we consider the dialogue with businesses very important, and in drafting this Package, we have taken into consideration proposals that have come from interest groups or proposals that have been rejected by interest groups.
At the beginning of this year, we launched a consultation process with businesses, through which we gathered more than 188 requests or concerns, 70% of which have been resolved. Some of the remaining requests are expected to be addressed through the new Income Tax Bill. We have always sought to take business requests into account and to adjust those fiscal policies that have not delivered the results we expected.
Before I proceed with detailed proposals regarding these legal changes, allow me to provide a brief overview of our revenue projections, within the framework of implementing the Medium-Term Revenue Strategy for the Budget, as well as our fruitful cooperation with the International Monetary Fund.
Our forecast is the budgeting of total revenues at an amount of 631.7 billion lek, of which tax revenues are 587.8 billion lek. Within the tax revenue item, revenues collected from taxes and customs are 431.2 billion lek and 126.5 billion lek from contributions.
Compared with the 2022 forecast, total tax revenues of the state budget are projected to increase by 7.71%, while revenues from taxes and customs are projected to rise by 8.1%, or +42.2 billion lek.
Based on the 2023 revenue projections, total budget revenue will reach 28.81% of GDP from 28.21% in 2022, an increase of 0.61 percentage points of GDP. Meanwhile, tax revenues for 2023 are projected to amount to 27.1 percent of GDP, up from 26.41 percent projected for 2022.
The consolidation of public finances, increasing state budget revenue, and progressively reducing the budget deficit continue to be the main objectives of the Ministry of Finance and Economy.
Let me present in more detail the legal changes envisaged:
New draft law “On Income Tax”
The new draft law, which aims to improve the taxation system for individuals and legal entities in Albania, strengthen the principle of neutrality in the Albanian tax system, and gradually align Albania's income tax system with the principles of EU Directives regarding income and capital taxation, addresses the shortcomings and legislative gaps identified during the 22-year application of the existing law, aiming to design a fairer, more stimulating, more honest, and universally accepted tax system.
Read also (Draft) General Instruction for Income Tax.
As part of this law, we have the most important changes and the effects are as follows:
– Increasing the tax-exempt wage threshold from 40,000 ALL to 50,000 ALL will reduce budget revenues by approximately 1 to 1.2 billion per year. Meanwhile, it will increase the income of employees with salaries up to 50,000 ALL per month by the same amount, which means more money in the budgets of Albanian families and more consumption in our economy. Over 70,000 employees in the salary group of 40,000 to 50,000 ALL per month will benefit from this measure.
– Inclusion of service providers in the personal income tax scheme as liberal professions, as a measure aimed at limiting tax evasion through the transfer of individuals from employed status where they pay taxes, to self-employed status without tax. This measure is estimated to contribute over 2 billion lekë to the state budget annually.
– Maintaining the 0% tax until 2029 for small family businesses that are sources of employment in trade, crafts, manufacturing, services, products, and transportation, etc.
It is important to emphasize that the new Income Tax bill will continue to maintain our 0% profit tax policy for all businesses with a turnover of up to 14 million Lek, with the exception of those engaging in liberal professions.
For companies, the draft law provides a series of changes such as:
Extension of the loss carryforward period from 3 years to 5 years;
Simplification and long-term cost reduction through individual straight-line depreciation of machinery/equipment and software/hardware groups.;
Calculation of taxation rules for long-term contracts, business reorganizations, and the transfer of its assets;
Establish transparent rules regarding non-performing loans, as well as universally accepted rules regarding the allocation and limits of lending interest.
This draft law has many other innovations that will be discussed this month. However, I mentioned the measures that will come into effect in 2023. It is important that this draft law, which has not changed for 22 years, comes into effect in phases and carefully, in order to give all taxpayers time to be informed about the changes in the draft law and to implement it rigorously.
This is also the reason why during 2023, the MFE, with the approval of this law and its accompanying bylaws, which will be published for public consultation from next week, will engage in an inclusive communication campaign regarding the benefits this law brings to individuals, as well as to taxpayers regarding the benefits and innovations that this law brings to them, which are numerous.
Draft law “On some additions and amendments to law no. 92/2014, ‘On value added tax in the Republic of Albania’, as amended”;
This law was actually a continuous request from the European Union's presence in Albania, to change the VAT scheme related to grants, from a VAT scheme borne by local beneficiaries of projects to an exempt scheme, a model applied in other Western Balkan countries such as North Macedonia, etc. Within this framework, the draft law foresees the treatment of imports and domestic supplies of goods/services intended for the realization of projects financed with funds received under a donation/grant agreement between the Council of Ministers/Republic of Albania and foreign donors, as supplies similar to exports, i.e., with zero VAT.
In this way, beneficiaries of projects with these grants will not have to plan for local VAT costs. The effect is neutral, as the local VAT cost was generally borne by the state or local budget, as applicable.
The operation of the Albanian Stock Exchange for the trading of electricity is expected to begin at the end of this year.
For this reason, it is necessary to implement a special VAT scheme, exempting from VAT on imports or domestic supply of electricity intended for sale through the Albanian Energy Exchange, as well as shifting the responsibility for VAT payment to the taxable person for whom the electricity supply is made through the reverse charge mechanism. Meanwhile, the tax treatment for electricity trading outside the exchange will continue according to the existing scheme.
The bill also provides for VAT exemption on imports and domestic supplies of firewood, heating pellets, etc., for the period January 1 - December 31, 2023, as a measure to mitigate the effects of the energy situation and high energy product prices.
Draft law “On some amendments and additions to law no. 61/2012 ‘On excise duties in the Republic of Albania’, as amended”:
The excise tax changes aim to fulfill obligations in the process of aligning our country's legislation with that of the EU and transposing the respective Directives, in this specific case, the Directive on indirect taxes on excise duties, and the following changes and effects have been designed:
Removal of excise tax for electric vehicle batteries with an effect of -50 million lekë. The Ministry of Finance and Economy, as part of implementing the energy savings strategy and subsidizing the price of solar panels, has proposed the removal of excise duty on solar panel accumulators and batteries for electric vehicles. With the introduction of electric vehicles, it is necessary to review the excise duty on their batteries, while the entire electric vehicle not only is exempt from excise duty but also benefits from a 0% VAT rate at the time of import.
Incentive policies for the use of electric cars are present throughout Europe, as part of environmental protection policies. Meanwhile, within the framework of energy security measures, the abolition of excise duty on solar panel batteries also makes sense.
Changes in the excise tax on beer which consist of its unification for industrial producer categories, based on COUNCIL DIRECTIVE 92/83/EEC of 19 October 1992, on the harmonization of structures of excise duties and taxes on alcohol and alcoholic beverages, a directive which aims at the harmonization of excise duty on alcohol and alcoholic beverages. This harmonization has been a constant request in the discussions of the Albania-EU subcommittee for trade, industry, taxes, and customs.
The excise tax is unified at the level of 710 ALL per hectoliter, or 7.1 ALL per 1 liter of beer, while up until now, beer produced by plants with a capacity of less than 200 thousand HL per year had an excise tax of 360 lekë/hl, or 3.6 lekë per liter.
Unification also impacts the simplification of excise tax calculation, avoidance of loopholes for abuse, and approximation of legislation before Albania's entry into the EU. This change will have an effect of +262 million lek, which will be +184 million lek on domestic production and +78 million lek on imports. This change in taxation will also help local companies to increase production and strive to be more competitive in the region.
Draft law “On some additions and amendments to law no. 9920/2008 ‘On tax procedures in the Republic of Albania’, as amended”, which provides for:
Establishing the necessary legal framework for the procedures to be followed by the tax administration in controlling high-income individuals, a persistent request from international partners.
– Improving the provisions regarding the Tax Administration's obtaining of information from banks with the aim of accurate calculation of taxpayers' tax liabilities, detection of non-declarers, and potential cases of income concealment and tax evasion.
– Limiting evasion and avoidance by setting a cash limit for companies and businesses, a measure that will also affect the reduction of cash in the economy.
This measure was part of the Fiscal Package related to the bill on Fiscalization approved in Parliament, but at that time, the Committee on Economy and Finance of the Parliament judged that it should be a clause of the Law on Tax Procedures, and that is why we are proposing it.
Regarding the changes in the fine system presented in the draft law,
They do not intend to toughen the fine system overall. This is not the objective of the Ministry of Finance and Economy. The presented changes only represent the differentiation of penalties for certain categories of large taxpayers or repeat offenders.
From the National Consultation data, it has been determined that criminal penalties should be intensified for entities that do not declare employees but employ them off the books, as well as for entities that hide the real wages they pay to their employees. For these categories, the existing fine is projected to double.
The fine for large taxpayers caught with undeclared goods, which may be contraband, or goods purchased/produced illegally and undeclared, is also projected to increase.. For these categories, the current fine of 75,000 lek is proposed to be 500,000 lek, but at the same time, the obligation of the tax administration to report it immediately for criminal prosecution has been removed, and it is foreseen that this report will be made if the taxpayer is a repeat offender of this violation.
The draft law also foresees a reduction in the level of the penalty for late submission of the individual annual income statement for individuals, from the current 5,000 lek to 3,000 lek, given the high number of individuals with multiple jobs and as a request from the population.
I thank you very much for your attention and I am here to guarantee the seriousness and availability of the Ministry of Finance and Economy in fulfilling the committee's requests, with the aim of examining the draft laws, part of the Fiscal Package, in detail, in a timely manner.
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Source: Ministry of Finance.