The Albanian government is proposing changes to the way salaries are taxed from January 1, 2027, reducing taxes for some middle- and high-income employees while introducing a new 32% rate for those earning more than 700,000 lekë gross per month.
The changes are part of the new fiscal package and are set out in the draft law on income tax, reviewed by Skyweb.al.
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According to the Ministry of Finance’s explanatory report, around 25,704 employees are expected to benefit from the changes to the tax brackets, while another 1,293 will be affected by the introduction of the new 32% rate.
But what exactly will change, and how much money will employees have left at the end of the month?
How are salaries taxed currently?
Under the current system, income tax on salaries is calculated progressively. This means the entire salary is not taxed at the same rate; instead, the rate varies according to income level.
There is no income tax on salaries of up to 50,000 lekë gross per month.
For higher salaries, personal deductions and a 13% rate apply, while the portion of gross salary exceeding 200,000 lekë per month is taxed at 23%.
For example, an employee earning 300,000 lekë gross per month currently pays 45,100 lekë in income tax, excluding social security and health insurance contributions.
What will change from January 1, 2027?
Under the new proposal, the government aims to raise the threshold at which the 23% tax rate begins from 200,000 to 300,000 lekë.
As a result, the portion of salary up to 300,000 lekë gross per month will continue to be taxed at 13%, after the applicable personal deduction has been applied.
The 23% rate will apply to the portion of salary between 300,000 and 700,000 lekë, while a third rate of 32% will apply to income above 700,000 lekë.
It is important to clarify that the 32% rate will not apply to an employee’s entire salary, but only to the portion exceeding 700,000 lekë gross per month.
Who will benefit from the change?
The main beneficiaries will be employees earning more than 200,000 lekë gross per month.
For example, an employee with a gross salary of 250,000 lekë currently pays 33,600 lekë in income tax. Under the new system, this would fall to 28,600 lekë, leaving them with an additional 5,000 lekë per month.
For an employee earning 300,000 lekë gross, tax would fall from 45,100 to 35,100 lekë. That means an additional 10,000 lekë per month, or 120,000 lekë per year.
The same monthly tax reduction of 10,000 lekë would apply to salaries between 300,000 and 700,000 lekë gross, provided the salary level remains unchanged.
According to the Ministry of Finance, 25,704 employees are expected to benefit directly from raising the threshold for the 23% tax rate.
The measure is estimated to reduce state budget revenue by around 1.98 billion lekë per year.
What will happen to salaries above 700,000 lekë?
The other major change is the introduction of a 32% rate on the portion of salary exceeding 700,000 lekë gross per month.
Currently, this portion of income is taxed at 23%.
According to the Ministry of Finance, around 1,293 employees fall into this category, and the measure is expected to generate approximately 970 million lekë in additional budget revenue each year.
However, introducing the 32% rate does not mean that all employees earning more than 700,000 lekë will automatically pay more tax than they do now.
This is because they also benefit from the tax reduction on the portion of their salary between 200,000 and 300,000 lekë.
For example, an employee earning 800,000 lekë gross per month currently pays 160,100 lekë in income tax, while under the new system they would pay 159,100 lekë, or 1,000 lekë less.
Only when gross salary exceeds approximately 811,000 lekë per month does the impact of the 32% rate begin to outweigh the benefit from the reduction in the previous tax bracket.
Thus, an employee earning 1 million lekë gross per month would pay 223,100 lekë in tax, up from the current 206,100 lekë, or 17,000 lekë more each month.
What will happen to salaries of up to 200,000 lekë?
The draft does not provide for changes to tax rates or the method of calculating tax for employees earning up to 200,000 lekë gross per month.
This means that an employee earning 80,000, 100,000 or 150,000 lekë gross per month will continue to pay the same income tax as they do currently, provided their income and other tax circumstances do not change.
In other words, unlike employees with higher salaries, this group will not directly benefit from a tax reduction under the proposed changes.
How will the reform affect the state budget?
According to the Ministry of Finance’s estimates, the tax relief for 25,704 employees is expected to cost the budget around 1.98 billion lekë per year.
On the other hand, introducing the 32% rate for salaries above 700,000 lekë gross is expected to generate around 970 million lekë in additional revenue.
