20220518-IMF-Albania_Technical_Assistance_Report-Medium-Term_Revenue_Strategy_Revenue_Administration_Reform_Options_70页_1mb

Summary of the Technical Assistance Report on Albania's Medium-Term Revenue Strategy (MTRS)

Core Content

This technical assistance report, prepared by the International Monetary Fund (IMF) Fiscal Affairs Department (FAD), outlines reform options for improving revenue administration in Albania as part of its Medium-Term Revenue Strategy (MTRS). The report was developed in response to a request from the Minister of Finance and Economy, Ms. Anila Denaj, and was part of a broader effort to align tax policy with the government's strategic objectives. The MTRS aims to increase tax revenue by 2.2–3.0 percent of GDP over the next five years to meet additional spending needs.

The report emphasizes the need for a comprehensive and strategic approach to tax compliance and institutional capacity building, with a focus on reducing informality, tax evasion, and artificial tax avoidance, while also improving taxpayer services and administrative efficiency. It is structured into several key sections, including the context of MTRS development, tax compliance gaps, institutional capacity, customs administration, and governance arrangements.

Main Views and Key Information

1. Fiscal Context

• Albania's tax and social contribution revenues have increased in line with economic growth.
• In 2018, the GDT collected around 56% of all tax revenues, including social security contributions (SSC), while the GDC collected the remaining.
• Tax revenues have consistently fallen short of budget forecasts, averaging a shortfall of 1.5% of GDP over the past decade.
• VAT refunds have been a significant issue, with unpaid VAT refunds reaching ALL18.1 billion by the end of September 2019.

2. Tax Compliance Gap and Current Responses

• The VAT compliance gap in 2015 was estimated at 28% of GDP, almost double the EU average.
• Informality remains a major challenge, with one in three workers engaged in informal employment in 2018.
• Anti-informality campaigns have not achieved significant and sustainable improvements.
• A more strategic approach is required to address non-compliance effectively.

3. Priority Areas for Compliance Improvement

The report identifies five key areas for reform:

• Reducing VAT compliance gap: Focus on construction sector and introduce reverse charge mechanisms.
• Reducing cash economy, undeclared work, and underreporting: Develop integrated strategies, improve inter-agency cooperation, and enhance data analytics.
• Taxing unexplained wealth: Implement a voluntary disclosure program (VDP) and automatic exchange of financial information under the Common Reporting Standard (CRS).
• Limiting revenue leakage through artificial tax avoidance: Introduce a General Anti-Avoidance Rule (GAAR) and a specialist anti-avoidance unit.
• Improving tax certainty and confidence: Develop a taxpayer service strategy, improve interpretative guidance, and ensure timely VAT refunds.

4. Institutional Capacity of Revenue Administrations

• The institutional capacity of the General Directorate of Taxation (GDT) and the General Directorate of Customs (GDC) is still relatively weak.
• Reorganization of both agencies is necessary to optimize performance and improve risk management.
• A structured integrity assurance framework and enhanced workforce capabilities are essential for effective revenue administration.

5. Customs Administration Improvements

• Key reforms include increasing the number of authorized economic operators, centralizing risk profiling, and implementing the New Computerized Transit System (NCTS).
• Improving information exchange and using advanced data analytics are critical to enhancing customs operations.
• The GDC should be responsible for all fuel-related taxes and implement a supply chain monitoring system.

6. MTRS Governance Arrangements

• A dedicated MTRS Program Management Office and a strengthened Steering Committee are recommended.
• A GDC Project Office should be established to coordinate customs-related reforms.
• The MTRS must be developed with close attention to the interdependencies among reforms to ensure proper sequencing and prioritization.

7. Next Steps and External Support

• The MTRS must be finalized by the Steering Committee by January 31, 2020.
• The report highlights the importance of continued support from the IMF, as well as the European Commission (EC) and the Swiss State Secretariat for Economic Affairs (SECO).
• The report should be considered for inclusion in Albania's MTRS, and the action plan outlined in Appendix IX must be followed.

Key Recommendations

• Short-Term (First 12 months):

  • Implement VAT compliance measures with a focus on the construction sector.
  • Expand the use of the voluntary disclosure program (VDP) to target unexplained wealth.
  • Improve inter-agency cooperation and data sharing.
  • Develop a taxpayer service strategy and enhance interpretative guidance.
  • Increase the number of authorized economic operators and improve risk profiling.

• Medium-Term (1–4 years):

  • Conduct compliance improvement projects using modern Compliance Risk Management (CRM) techniques.
  • Enact legal provisions for NCTS and implement the Single Window system.
  • Develop a more professional and agile workforce.
  • Strengthen the CRM capability through training and partnerships.
  • Ensure leadership continuity and operational independence for the GDT and GDC.

Conclusion

The report outlines a series of strategic reforms to address tax non-compliance, enhance institutional capacity, and improve revenue administration in Albania. These reforms are designed to support the government's broader development agenda and increase tax revenues to meet its fiscal needs. Implementation will require sustained political will, investment, and collaboration with external partners.