Albania: Technical Assistance Report-Tax Policy Reform Options for the MTRS

Abstract

23 B. Excises __________________________________________________________________________________________________30 C. Environmental Taxes and Other National Taxes ____________________________________________________ 32 Consumption TaxesVAT contributes about half of tax revenues, with a relatively high standard rate (20 percent), but its efficiency is low compared to others in the region. Excises and national taxes also deliver a large share of revenues. Both VAT and excise rules are in line with international standards, but a very broad range of goods, services and taxpayers are exempt from indirect taxes, undermining the efficiency of collection. The authorities' estimate on the revenue forgone through indirect tax exemptions, reduced rates, and other beneficial treatments is around 5.5 percent of GDP, but that comprises both the policy and compliance gaps.Within the VAT, a large share of final consumption is exempt, such as education, health, medicines and similar products, sale of new property, and financial services. Some of these exemptions are based on equity grounds, but this is an expensive and poorly-targeted means of support. The mission recommends that private education, health, non-prescription medicines and similar goods, as well as fee-based financial services and the first sale of newly-built property be subject to VAT.