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AL-Tax Centre
Fiscal Documents,
Nr. 2014/11/26
www.al-tax.org
altax@constultant.com
Date 01.11.2014
Tirane, Albania


Albania Taxation, 2014
Growing tax compliance for ensuring governments public expenditures













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AL-TAX CENTER

FISCAL DOCUMENTS
NOVEMBER, 2014


Albania Taxation
Growing tax compliance for ensuring governments public expenditures

ABSTRACT


The AL-Tax Center (Albanian Taxation Association) in this paper has introduced the challenges in the Central Tax
Administration focusing the discussion in the strategy work and in the structure based in governs priorities in this
year and in coming years.

The purpose of introducing this paper is about attracting the attention of lawmakers, taxpayers, international tax
administrators and the media, as well as critics who might have comments about this assessment or have
questions about the methodology.

This document is prepared by the experts of AL-TAX Center, in a series of thematic collections, with the aim of
becoming a source of discussion for all those interested that have integral relationships with taxes, organization of
administration and the implementation of their practices.




Keywords: tax administration, Albania, tax structure, collection, VAT, taxes, 2014





The copyright belong to AL-TAX and anyone who will use this material as required to mark authorship reference
materials to be used.
The document is available on the website www.al-tax.org
If you have requests and questions send email to altax@consultant.com




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The three key strategic issues impacting most Administrations are:
- Organization;
- Management;
- People

One of the principle aim of the Central Tax Administration (CTA) of Albania is build a tax system
based on voluntary compliance of tax obligations, a system where taxpayers to fully believe
that they are treated equally.
Tax administration will not achieve this goal without the fruitful cooperation and mutual
business.
The tax system in Albania is composed on taxpayer-self-assessment, and recently has formatted
the strategy based on efforts for improving the tax compliance and on mitigating major risks to
the tax system.

The tax administration exercises its competences in accordance with the legal framework and
principles of administrative ethics, with a view to protecting the privacy and rights of people
and businesses. The law on taxation procedures and other tax laws whose object are direct and
indirect taxes, insurance contributions and national taxes are the basis that constitute the
fundamental compulsory legal framework for the taxation administration. The mission of the
Albanian tax administration is to contribute to the guarantee of sources for governments
public expenditures, effective and efficient collection of taxes, insurance contributions and
other duties as well as to offer suitable information for the development of Governments
economic policies.


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The most significant steps undertaken were to:
Increase in the volume of collected revenue, being synchronous with the governments
commitments;
Improvement of the efficiency with the taxpayers;
Improvement of service quality by entering to the group of countries that provide
electronic services;
Improvement of auditing, investigative capacities, as well as those of the increasing
collection of finding out and prevention of the obligations of taxpayers who have not
complied with the law;
Expansion of the taxation basis for all kinds of taxes and
Enhancement of voluntary compliance.

The Albanian CTA is mandated to collect the following taxes and contributions:
Value added tax (VAT);
Income tax;
Excise duty;
Gambling tax;
National tax;
Social and health contributions
In the income tax are included:
Profit Tax
Personal income tax for small businesses
Withholding tax
Income tax on wages

The overall level of the staff of the Albanian CTA is determined based on a function model,
which ensures that the report personnel / taxpayer to be higher in control than in other
functions and higher in Large Taxpayer Directory (LTD), than in the Tax Regional Directories
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(TRD). The structure of directories on the ground has been simplified over the past two years
and now consists of 14 Regional Tax Directorate and 23 service agencies. The Central Tax
Administration has an overall of 1600 employees. These public employees have to deal with
more than 120 hundreds of thousands of taxpayers, which include the small and medium
taxpayers to large taxpayers. The cost of tax administration each year has had the trend to be
reduced. On 2013 this indicator it was 1.1%.

The CTA is responsible for the collection of social and health contributions. Social contributions
consist of health and accidental insurance as well as contributions to the pension funds. The
financial part of the social contributions collection is dealt with in the IT system for taxation.
Companies that engage employees are obliged to collect social contributions from the gross
wages of their employees. The amount to be collected depends on the salary of an employee.
The employer has to calculate the amounts to be collected on the basis of self-assessment.
The contributions deducted from the gross salaries of employees have to be declared to CTA.
Each company needs to announce their employees in the payroll system including the amounts
due to be transferred to GDT. A cross link between employer and employee is established by
using the payroll system.

During 2013 and in continuation on 2014, the tax administration has made further progress in
both revenue collection and in administrative reforms. Next to the application progressive rate
of tax, personal income tax and social contribution as labor taxes have continued to produce
effects and led to strong growth of tax revenue year by year. The total tax revenues collected
for 2013 were 1.2 billion, from which 750 million as tax revenues and 450 million as social
contributions.

The collected amount (health care and social contributions) can be identified in the system
based on the respective tax/contribution type. Once the payment was booked onto the account
of the taxpayer, the amounts collected can be reconciled against the declared debt. After
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reconciliation is successfully completed the funds can be transferred to the respective budget
line at treasury.
The declaration of income tax on wages is also done as a part of the payroll.
The following taxes are collected based on the completion of tax return sheets for the
respective taxes which are partially electronically filed by taxpayers.

As of 2012 CTA collects the income tax on wages and social contributions based on IT means
including the declaration of payable amounts in electronic format.
On the other hand, the DePa System, which consist in evidence for the tax administration of
every tax assessment notice in order to collect the new debt in effective time and also as an
automated program affect the decrease of administrative cost in tax debt collection.
Only from the intervention of this project are enabled some 5 million euro received. Today, the
job placement program Depa expects bigger results.

In 2013 the attention of human resources were oriented towards guaranteeing the fact that tax
officials understand and exercise their right in the way of their daily duties in accordance with
the functional structure.

Currently the CTA operates over the IT system quite all functions (registration, declaration,
assessment, audit, risk analysis, certificate issues) and is expanding their functionalities with the
objective of better administration, more tax collected)
CTA is developing the implementation of two important projects in IT field; (1) electronic
submission of tax declarations, which is mandatory for all VAT taxpayers, and (2) collecting data
from electronic cash registers that must be installed by about 80,000 businesses and which
automatically transmit to the GTD main server data on transactions made each day.

Application of electronic filing tax declarations has been the main focus of DPT in recent years.
With support from USAID, has been successfully implementing the system for electronic
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submission of VAT declarations by all VAT taxpayers. The GTD will face new challenges in 2012
in the area of supporting new tax regimes. Based on the current system is functioning well and
the planned expansion is thought to be successful also for individuals.

In the past, tax administration has addressed compliance risks only in terms of enforcement
programmes with a cyclical approach. Taxpayers tended to be treated with the same single
action strategy one cut approach, and enforcement programmes were based solely on
verification and enforcement actions. In fact, such an approach is neither efficient nor effective
and based on that conclusion we tend to adopt a model of OECD compliance risk management.

Moreover, taxpayers compliance has also been discouraged because of the violation of the
principle of legal certainty due to the continuous revisions and amendments of the Tax Acts,
the loopholes due to the numerous tax allowances and exemptions.

Nevertheless, tax revenue developments in recent years have been encouraging, showing that
the recent changes to the tax system and the administration are proving effective. A series of
tax simplification and tax control measures taken in recent years have led to an improvement in
tax compliance, as indicated by the higher-than-expected income elasticity of many important
taxes, such as the value-added tax, the profit income tax and the personal income tax. This
accounts for the large tax revenue realizations as compared to the budgeted amounts in recent
years. In particular the improvement in revenue collection reflects better compliance by
companies with international reporting standards, as well as efforts to enforce the tax law with
the creation of a special directorate of tax investigation; improvements in tax administration
have also played an important role. Although, we use for three years a computerized audit
selection systems based on risk analysis model, we yet do not have a clear strategy in place to
guide operational activities towards major compliance problems and ensure that the most
effective and appropriate of service, audit, and enforcement measures is utilized.

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The fight against corrupt behavior and evasion cases were a priority of a joint effort with public
opinion in Albania. Administration pursuant to its legal obligations has created a special free
telephone line which can be reported to the above cases. The initiative has been accompanied
by awareness campaigns in all mass media.
Increasing the active role and create the correct relationships between taxpayers and tax
administration has led to new initiatives which are present since the beginning of 2011 with the
functioning of new institutions such as the Taxpayer Advocate, Joint Tax Board for discussion of
legal changes in the fiscal area business tax administration. These institutions are in function to
enable the increasing transparency and the role of taxpayers in tax administration decisions.
As the tax administration has the responsibility to use the resources in the most cost effective
manner, in a tax compliance context, exercising this responsibility requires having a systematic
approach for managing tax compliance risks, aiming to ensure that such risks are properly
identified, assessed, prioritized and treated.

The tax administration would be developing a three phase approach as follows:
- develop a compliance strategy that directs efforts at major compliance risks;
- reflect the strategy in annual operational plans and instructions (e.g. national audit plans,
audit selection parameters, taxpayer service plans, and debt collection plans); and
- improve compliance tools (e.g. audit organization and methods, taxpayer services, and
enforced collection) and skills of tax administration management and staff to enable the
effective and efficient implementation of strategies and operational plans.

A compliance effort needs to be linked to categories of taxpayers. It is essential that tax
administrations consider carefully how to deploy its compliance resources, which may include
hundreds of auditors, investigators, debt collectors, and service personnel.
A more ambitious strategic plan will begin to apply toward the education of new generations
with fiscal education in Albania. Based on the positive experiences in the world we are building
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a detailed action plan for collaboration with educational institutions at all levels to increase the
level of recognition and enforcement of fiscal educate, to create a near future a layer of
taxpayers aware ready to meet their fiscal obligations.
We are engaged to ensure good governance and administration in compliance with the
regulatory framework.