Tax changes increase the burden on families / Property prices distorted by money laundering

Experts on local government and the economy assess that the draft law changing the way real estate is taxed will increase the fiscal burden on citizens.

Agron Haxhimali, Executive Director of the Institute for the Municipalities of Albania, estimates that the reform, overall, is expected to increase the tax burden, as it changes both the tax base and the tax rate at the same time, moving from a partial system toward taxation based on the approximate market value of property.

According to him, the impact will not be the same for all citizens.

“The increase will not be the same for everyone. The first home benefits from a discount of up to 50% of the value, within the thresholds set by municipalities; while exemptions are предусмотрены for families receiving economic assistance and certain categories of pensioners.

However, for properties in high-value areas, for second homes, land, and commercial properties, the burden is very likely to increase significantly.

It should be emphasized that the new system for buildings is expected to begin in 2029 and for plots in 2031; therefore, today it is not possible to provide an exact bill for every family without value maps, the assessment methodology, and the specific decisions of municipal councils.

But I emphasize that taxation based on market value is the fairest approach, of course when it is implemented properly.”

Mr. Haxhimali argues that taxation based on market value is, in principle, the fairest model, provided it is implemented correctly and transparently.

He stresses that the main challenge is not only related to the new taxation formula, but also to the administrative capacity of municipalities to implement it.

According to him, revenues from the real estate tax in Albania account for only 0.27% of Gross Domestic Product, the lowest level in the region and among European Union countries.

In this context, he notes that municipalities have varying administrative capacities, incomplete property registers, and differing levels of formalization.

The creation of the Fiscal Cadastre and the General Directorate of Property Tax is considered a positive step, but he underlines that the reform cannot succeed without investment in the property register, inter-institutional data exchange, digitalization of services, and strengthening the capacities of local administration.

Economics expert Zef Preçi says that an increase in the real estate tax should come only after the structural problems of the market and property administration have been addressed.

“Real estate prices have been distorted by the influence of money of illegal origin and by uncontrolled urban development. Basing the tax on these prices risks legitimizing these distortions.

Comparisons with countries in the region are incomplete if the quality of public services and infrastructure offered to citizens is not also compared.

The property registration process has not been completed, creating injustice, since the fiscal burden is borne mainly by law-abiding citizens. The priority should be expanding the taxpayer base and not increasing the burden on those who already pay.

The real estate market requires greater formalization and stricter monitoring to fight tax evasion, money laundering, and hidden transactions through cash payments or the use of third parties (“frontmen”).

It is essential to draw up a new and objective map of property values to avoid injustices and inequalities in taxation.

Fiscal changes should take into account the contribution of emigrants, who have financed a considerable part of the country’s housing stock and business buildings.

The tax increase may have a disproportionate impact on low-income families who own homes in high-value property areas, even though their incomes have not increased.

An increase in the tax on rental properties is likely to be passed on to tenants through higher rent, affecting citizens who do not own real estate as well,” he says.

In addition to changes to the tax on residential buildings and commercial activity, the draft law provides for changes in the calculation of the liability for the tax on plots and agricultural land.

For these categories of real estate as well, the liability will be calculated based on market value.

Implementation is expected to begin in 2030. The shift from a taxation system based on land area to a taxation system based on market value may increase the tax burden.

For this reason, Article 31 provides for the application of a deduction from the assessed value of the plot subject to taxation in the first two tax years, starting from the year the market value-based tax for plots is introduced.

The deduction will be equal to 50% of the assessed value of the plot./Monitor