The Law on Annual Budget for 2019 Is Approved. Any Implications?
USAID-Funded Tax Administration Systems as Instruments to Increase Own Source Revenues

Nga Elton Stafa – 

Albanian municipalities to receive for the first-time shares of the revenues collected from the National Tax on Personal Income

The USAID’s Planning and Local Governance Project (PLGP) is working with the Ministry of Finance and Economy (MoFE) to implement for the first time in Albania the sharing of 2% the revenues from the Personal Income Tax (PIT) with municipalities. This shall increase local governments’ revenues from shared taxes by 35% in annual terms (by 736 mln ALL or $ 6.4 mln). Currently, Albania shares 25% of the revenues from the national Tax on Used Vehicles and 5% of the national mineral rent. PIT sharing has been promised by the Albanian legislation for more than two decades, although it was only in 2017, with the approval of the Law on Local Self-Government Finance, developed with the key support of the PLGP, that the actual percentage that would be shared was determined.

USAID is currently working with the MoFE to address the main challenge of PIT sharing – the identification of the origin of the PIT revenue and the PIT taxpayer. As in many other countries in the region, the allocation of PIT revenues to municipalities according to the residence of taxpayers requires additional investments and efforts in the information technology systems to allow the automatic identification of the origin of the PIT revenue and the residence of the PIT taxpayer. Until the establishment of the IT infrastructure, the PIT revenues are expected to be shared with municipalities in accordance with the number of population residing in each municipality. It is expected that the MoFE will begin allocating PIT revenues on a per-capita basis in 2019.

PLGP will continue to work with the MoFE so that the shares of the PIT are allocated to local governments in accordance with the origin of the PIT revenue and the residence of the taxpayer. At the technical level, our efforts are currently focused at establishing rules and procedures and overcoming technical constraints between the responsible institutions (the MoFE, the General Tax Administration, the Civil Status Register Office under the Ministry of Interior and the National Agency for Information Society).

Shared tax revenues have become an important pillar of fiscal decentralization reform in Albania’s neighboring countries and beyond. With the exception of Kosovo and Bulgaria, all post-communist countries share some percentage of PIT with their municipal governments. From a comparative analysis conducted by PLGP the previous years, it emerges that, in Macedonia, municipalities receive 3% of the PIT, in Montenegro, 12% of PIT. In Republic of Srpska in Bosnia and Herzegovina, LGUs receive about 25% of the PIT. Serbia as well shares the PIT coming from different sources, 1.5% -2.5% of the tax on inheritance and gift and 2.5% of the tax on the transfer of absolute rights.

Sharing revenues from the PIT is important because it creates incentives for municipalities to promote economic development because local governments have an incentive in supporting the creation of new jobs because they would receive more PIT revenue. PIT sharing creates incentives for local governments to work with the national government to reduce the gray economy and therefore be able to benefit from more PIT revenues and it also helps satisfy the demands of richer municipalities to keep more of the wealth they generate.


Photo by Erald Lamja


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