TIRANA, June 24 – Albania’s public finances continued underperforming ahead of the June local elections as tax and customs revenue failed to register positive growth rates, indicating that a budget cut will be unavoidable for this year when new tax hikes are proving inefficient to boost revenue.
Data published by the finance ministry this week shows government revenue in the first five months of this year rose to around 152 billion lek (€1.06 billion), up 5 percent compared to the same period last year, but down 4.2 percent or 6.6 billion lek (Euro 46.7 million) compared to the target set for this year.
The lower than expected performance was affected by a decline in the value added tax but somehow compensated by a boost in non-tax income following the sale of three 4G licences.
The value added tax, which is levied at a fixed 20 percent rate on almost all goods and services and serves as an indicator of domestic consumption, was down by 6.4 percent to 47 billion lek (€330 million) but yet accounting for around a third of total government revenue.
The excise tax, the second most important tax item, rose by 11.2 percent but was down by a sharp 24 percent compared to government’s expectations on lower imports of fuel and tobacco.
Meanwhile, the profit tax exceeded expectations by 11.4 percent while the personal income tax was down by 22 percent compared to the forecast for the first five months of this year in the 2015 budget.
The government’s underperforming tax and customs revenue was somehow compensated by a boost in non-tax revenue from the transfer of some €23.5 million after the sale of three 4G licences to mobile operators earlier this year.
Meanwhile, the government continued following a tight policy on spending to keep the budget deficit in check unlike the tradition of election years in Albania when government spending and public investments soared causing trouble in the post-election period.
The Albanian government spent around 161.7 billion lek (€1.1 billion) in the first five months of this year when the budget deficit dropped to around 10 billion lek, (€70 mln) down 17.8 percent compared to the same period last year.
The tight spending policy also affected public investments which although increasing by 26 percent to 17.6 billion lek (€123 mln) were down by 12.7 percent compared to the target set for January-May 2015.
The Albanian government also paid around 12.1 billion lek (85 mln) in accumulated unpaid bills for public works in the first five months of this as part of its three-year program initiated in 2014 which targets clearing around Euro 500 million in arrears.
Despite a pension reform gradually increasing retirement age and measures to curb labor informality launched in 2014, the deficit in the social security contributions remains huge. Finance Ministry data shows the pension gap slightly dropped 16.8 billion lek (€118 mln) in the first five months of this year, slightly down from 17 billion lek during the same period last year. The amount is slightly bigger compared to what the government spent in interest rates on public debt which dropped by 16 percent to around 14.5 billion lek (€101 mln) in January-May 2015 as interest rates stand at a record low.
The government has earlier warned the poor performance of public finances could force it to revise its overly optimistic budget downward later this year on lower royalty collected from oil production, lower imports of fuel and tobacco and a rising number of VAT-free imports of machinery and equipment.
“We are aware that we could have 6 billion lek (€42 mln) less in revenue this year, but we have a plan B that will examine expenses or revise the budget next June or September,” Irena Beqiraj, a deputy Finance Minister and acting customs director general has said.
A two year deal with UK-based consultant Crown Agents, worth Euro 8.5 million, has also proved inefficient to boost customs revenue and reduce corruption, raising questions about the efficiency of the deal signed in early 2014
In an effort to reduce smuggling and informality, the Albanian government has taken some tight measures in the oil and tobacco market following a decline in imports in early 2015 apparently fuelled by higher taxes.
The Socialist Party-led left wing majority approved a rather overoptimistic budget for 2015 expecting an 11 percent increase in revenue, a 3 percent GDP growth and a slight reduction of public debt already hovering at 72 percent of the GDP.
While key taxes such as the personal and corporate income taxes remained unchanged, defying businesses calls for a return to the flat tax regime after the corporate income tax was raised by 5 percent to 15 percent in 2014, the tax burden in 2015 has further increased by raising the withholding tax on dividends and rents and capital gains to 15 percent, increasing the circulation tax on fuel and imposing higher excise rates on tobacco.
