Albania’s Fiscal Evasion Hurdles

By Linda Karadaku

Albania has 106,000 active businesses, but according to the Albanian State Supreme Audit, only 55% paid social and health contributions last year — the rest either do not pay or declare zero activity, Albanian Top Channel reported.

The Albanian Centre for Economic Research, established in 1992, focuses mainly on economic growth, institutional and regulatory framework reform, and Albania’s complex informal economy.

In an interview with SETimes, the centre’s Executive Director Zef Preci discusses the scale of fiscal evasion in the labour market.

SETimes: How massive is the fiscal evasion in the job market in Albania?

Zef Preci: Tax evasion and customs evasion remain a real challenge for the country’s fiscal administration. Various studies prove that the degree of informality in Albania’s economy continues to be above average in the region by about 30%.

SETimes: What is included in the fiscal evasion in Albania?

Preci: The tax evasion levels, although improved compared to a decade ago, comprise mainly of non-payment of taxes and duties, but also of unpaid social insurance. Fiscal evasion in the Albanian economy occurs in speculations with asset values in company balance sheets.

SETimes: Where do you see more informal employment?

Preci: Informal employment includes private sector with a large number of employees such as private ventures that work with raw materials, the construction sector, but also agriculture, and above all, the service sector.

SETimes: What can the government do to better control informal employment?

Preci: Reducing the informal sector and controlling tax evasion is apparently conditioned by overall progress in building the rule of law. More specifically, the rate of tax and customs collection may be viewed as one basic indicator of how the state functions.

In order to control tax evasion, the Albanian government should generally build business-friendly policies, abolish repressive practices against business and fiscal arbitrariness; free business from the so-called wages and reference prices — which in effect harm the firm’s internal processes and distort competition; increase co-operation between different state agencies and increase the capacity and professionalism of customs and tax administration.

It should analyse and improve government policies in overcoming development obstacles that businesses face in the Albanian market.

SETimes: What else can be done to improve the control fiscal evasion in the job market?

Preci: The evasion in the labour market requires education of both employees and employers, strengthening the legal and financial penalties for informal work; strengthening penalties for individuals and companies who certify company balance sheets.

The three-partite council [government / employer / employee] should become functional and various employee incentives should be applied for the newly employed, with the intention of their inclusion in the social insurance scheme.

Other measures could be the removal of the “reference salary”, left over from the centralised economy era; waging campaigns to clarify the consequences that come from the non-payment of social insurances; promotion of private pension schemes and the expansion of investment opportunities for funds accumulated in those funds.