Tax exemptions "cost" 663 million euros - Finance Analysis with IMF/ 67% of the total is accounted for by missing VAT revenues
The Ministry of Finance, assisted by the International Monetary Fund, has conducted an analysis of business tax exemptions in Albania as well as an analysis of exemptions that are active in other countries, with the aim of coming to a conclusion on how much they "weigh" in the budget and which ones should be removed.
Tax expenditures, or otherwise known as missing revenues, represent those "revenues" that are not collected in the state budget due to the implementation of exemptions and other tax incentives different from the standard tax treatments, defined in fiscal laws.
The Ministry of Finance has drafted the Tax Expenditure Report for 2023 and 2024, making an assessment of tax expenditures arising from: VAT, Profit Tax, Simplified Profit Tax and Excise.
The analysis shows that, based on the assessment models, the value of tax expenditures for 2024 amounts to 64.2 billion lek or 663 million euros, or about 2.55% of GDP. The largest share for this year is again occupied by tax expenditures from VAT, which constitute about 67% of the total or about 1.7% of GDP. Expressed in monetary value only from Value Added Tax exemptions, the state budget lacks 42.8 billion lek, followed by personal income tax with about 16.9 billion lek, while from Corporate Income Tax, 3.5 billion lek is missing.
For 2023, the missing value in the budget is estimated at around 60 billion lek or 620 million euros or 2.54% of Gross Domestic Product (GDP). Of the total tax expenditures for this year, around 65% of them derive from: tax exemptions, the application of reduced rates and the minimum registration threshold for Value Added Tax. VAT tax expenditure accounts for around 1.65% of GDP. In addition to its role as the tax with the largest share in tax revenues, VAT also generates the highest level of tax expenditures as a result of the large number of exemptions and reduced rates provided for in the VAT law, as well as the relatively high registration threshold.
Tax expenditures generated by exemptions or applications of reduced rates on other taxes, such as profit tax (around 0.2% of GDP), simplified profit tax (0.6% of GDP), personal income tax (0.05% of GDP), and excise duty (0.04% of GDP) have a smaller role in the total exemptions for 2023.
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