Democratic Party MP Jorida Tabaku criticized the government’s economic policies during a discussion of the fiscal package and the budget. She said Albania’s growing reliance on construction casts doubt on the sustainability of its economic growth, while agriculture and manufacturing are losing ground.
Tabaku sought explanations for the proposed VAT changes, the lowering of the small-business threshold and the increase in dividend tax from 8% to 15%. She also raised concerns about money laundering through construction, the informal economy and falling agricultural and manufacturing exports.
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Thanking the chairwoman and Ms. Ahmeti for their explanations, Tabaku said colleagues on both sides of the table shared similar concerns, despite focusing on different issues. Her first question concerned the sources of economic growth and how its benefits are distributed.
According to Tabaku, growth in recent years has come from just two sectors, whose contributions could run out in the medium to long term. She noted that agriculture has changed both in value and in its share of gross domestic product, without being replaced by a sector with a comparable impact on the many people who depend on it for their livelihoods. She expressed the same concern about manufacturing and the garment assembly sector.
Tabaku asked how the narrowing of the sources of economic growth and its concentration in construction were being assessed. Recalling an earlier, lengthy discussion about financing for the sector, she said the concern was no longer confined to Albania but also involved money laundering. She therefore asked the Bank of Albania for a response addressing both the banking sector’s concerns and citizens’ concerns about money being laundered through construction.
Turning to the fiscal package, Tabaku referred to the accompanying reports, which forecast a 50 billion lek increase in revenue and 26 billion lek in tax relief. She requested an assessment of this redistribution, particularly the changes affecting VAT and small businesses.
On VAT, which directly affects consumption, she said the government was proposing changes of this scale for the first time: a one-percentage-point increase in the standard rate, to 21%, and a reduction to 6% for 54 products. Tabaku asked what effect these measures would have on the informal economy.
She said the state budget and the government presented the effects of the two changes as almost equal. For that reason, she said they did not appear to ease the tax bill and asked whether the measures would encourage businesses to formalize or increase informal activity in the economy.
Tabaku also cited the government’s calculations for the 21% VAT rate. She said the revenue expected from it was the same as in 2004, when domestic VAT reached at least 0.2% of gross domestic product, as stated in the government’s accompanying report. She said these projections implied a high level of informal activity.
As for small businesses, Tabaku said the threshold was being lowered this year from 10 million to 5 million lek. She recalled that the Albanian government had changed the threshold for inclusion in the VAT system by a decision of the Council of Ministers.
According to Tabaku, the government had erred by failing to draft a framework law for small businesses that would also define how they are treated in their dealings with Tirana Municipality and local authorities. She noted that a different classification was used for local taxes, which she said reflected an inconsistent policy.
Addressing Ms. Ameti, Tabaku recalled the Bank of Albania’s opinion on the 2018 budget, in which a change to the small-business threshold was assessed as an appropriate policy. She pointed to two periods: the lowering of the threshold to 2 million lek and its subsequent increase during the pandemic.
For the first period, Tabaku cited a Bank of Albania report that said the measure helped bring businesses into the formal economy, although the short-term costs for businesses also needed to be considered. She said that when the policy changed in November 2020, the Bank described the tax measure as necessary for economic development. The transcript confuses references to the lowering and raising of the VAT threshold.
Tabaku asked for the Bank’s position on the current proposal to lower the VAT threshold again to 5 million lek. She accused the government of reversing what it had told citizens in 2019, when it said the threshold would not be lowered, and accused Edi Rama of lying about everything. According to Tabaku, the issue should be viewed from the perspective of bringing the economy into the formal system, which falls within the Bank’s remit, even though it is not the Bank’s role to judge fiscal policies and government measures as a whole. She also linked her question to the two positions the Bank had expressed at different times.
On dividend tax, Tabaku recalled that the Albanian government cut the rate to 8% in 2018 and was now proposing to raise it from 8% to 15%. The rate in force before 2018 is not clearly audible in the transcript. She described the proposed change as double taxation for businesses that, she said, would penalize manufacturers and dividend distributions.
She returned to the Bank of Albania’s assessment at the time, which said the tax cut would reduce the cost of equity financing and encourage investment. Tabaku asked how the Bank now viewed the reversal of dividend tax policy.
The third issue Tabaku raised was exports. She said manufacturing and agricultural exports had fallen since the beginning of the year, while energy exports had also declined at one point, depending on developments in foreign markets. For January, choosing not to refer to quarterly figures, Tabaku cited a 6.1% decline.
Finally, she asked about the absence of government policies to stimulate these sectors, whether the Albanian economy could make up the losses, and whether steps were being taken to invest in other sectors to offset the decline in agricultural and garment assembly exports. According to Tabaku, agriculture and manufacturing have been severely affected by illicit money and the informal economy, which have led to the depreciation of the euro.
