No flat tax on properties!

No flat tax on properties!
This article has been written for Albanian Free Press newspaper and www.afp.al

By Eduard Zaloshnja

Whoever is familiar with the Albanian reality, understands that pensioners and households cannot afford a rise in taxes. But the flat tax on properties, based on their market value (which is expected to come into effect on 1 January), would increase the tax burden for this poor class of society.

It’s been a while that the IMF has insisted for Albania to introduce a tax rate based on the value of properties and not apply a rounded up rate. A memo by the IMF has been circulating in the media for quite some time now. This memo offers examples as to how this tax can be applied with two different percentages of the property value ranging from 0.075% to 0.15%. The Albanian government may opt for a value in between this interval, let’s say 0.1%.

This would be a flat tax on the value of a home. So, a couple of pensioners with an old apartment (which has a value of 30 thousand euros) and an oligarch with a villa (which has a value of 3 million euros), will be charged the same rate, namely, 0.1% of the property’s value. For the retired couple, this tax would be a heavy burden. On the other hand, the oligarch pays more in waiters’ tips in a year than he will pay on the annual tax for his villa.

To address these social problems, there’s progressive tax, which, in the case of the property tax (in contrast to taxes on incomes), could be applied without administrative difficulties and fiscal intricacies.

But how can progressive tax on property help pensioners and families in need?

By applying a threshold on property values which is exempt from tax, let’s say 30 thousand euros, on which 0 tax is paid. Then, a tax could apply for values 30-60 thousand euros, 60-120 thousand euros, and so on. Each category could see an increase on the property tax.

Let us illustrate progressive tax on property with several examples.

First example

A household owns an apartment, which, based on the cadastre tax references, it has a value lower than 30 thousand euros. This household owes 0 euros in property tax.

Second example

A household owns an apartment, which, based on the cadastre tax references, has a value of 54 thousand euros. Assuming a 0% rate for the interval from 0-30 thousand euros and 0.1% for the interval from 30-60 thousand euros, this household owes the state 0 euros for the first 30 thousand euros and 2 euros a month for the remaining 24 thousand euros.

In total, this household will pay the state (through the water or electricity bill), 2 euros a month or 0.04% of the property value a year.

Third example

A household owns an apartment, which, based on the cadastre tax references, it has a value of 110 thousand euros. Assuming a 0% tax rate on the interval from 0 to 30 thousand, a 0.1% tax rate for the interval from 30 to 60 thousand euros and 0.125% for the interval from 60 to 120 thousand euros, this household owes the sate 0 euros for the first 30 thousand euros, 2.5 euros a month for the second 30 thousand euros and 5.2 euros for the 50 thousand remaining euros of the third level.

Nonetheless, this household will pay the state (through the water or electricity bill), 7.7 euros a month or 0.08% of the property value a year.

Fourth example

A household owns an apartment, which, based on the cadastre tax references, it has a value of 178 thousand euros. Assuming a 0% tax rate on the interval from 0 to 30 thousand, a 0.1% tax rate for the interval from 30 to 60 thousand euros and 0.125% for the interval from 60 to 120 thousand euros and 0.15% for the interval from 120 to 180 thousand euros, this household owes the sate 0 euros for the first 30 thousand euros, 2.5 euros a month for the second 30 thousand euros, 6.25 euros for the 60 thousand euros belonging to the third level and 7.25 euros a month for the 58 thousand euros belonging to the fourth category.

In total, this family will pay to the state (through the water and electricity bill), 16 euros a month or 0.11% of the property value a year.

Fifth example

A household owns a big villa, which, based on the cadastre tax references, it has a value lower than 1 million euros. Assuming a 0% tax rate on the interval from 0 to 30 thousand, a 0.1% tax rate for the interval from 30 to 60 thousand euros and 0.125% for the interval from 60 to 120 thousand euros, 0.15% for the interval 120 to 180 thousand euros and 0.2% for a value of over 180 thousand euros, this household owes the sate 0 euros for the 30 thousand euros of the first level, 2.5 euros a month for the 30 thousand euros of the second level, 6.25 euros a month for the 60 thousand euros of the third level, 7.5 euros a month for the 60 thousand euros of the fourth level and 137 euros a month for the fifth level.

In total, this family will pay the state (through the water and electricity bill), 153 euros a month or 0.18% of the property value a year.

But how would this progressive tax on property be applied in cases when a household owns more than one apartment or a villa? Normally, the progressive tax must be applied based on the total value that the household owns. In other words, the tax that a household which has two apartments with 100 thousand euro value each, should pay, is equal to the total of tax a household which owns a 200 thousand euro apartment pays.

But, in practice, such application of progressive tax on property, may encounter administrative tax.

First, a household could have an apartment in Tirana and an apartment in Durres. Under these conditions, the tax for the property in Tirana will be billed every month by Tirana Water Supply Company, while the tax for the property in Durres will be billed by the Durres Water Supply Company. Their coordination may not be that simple.

Secondly, a household may own two apartments in Tirana, but each one of them may be registered in the names of two different family members (the husband and wife may not have the same family name, as it’s often the case recently). Identifying the apartments as a joint household property in this case may cause administrative difficulties.

Conclusion

The flat tax on property would be unaffordable for many pensioners and households in need. Progressive tax on property would be fairer and much simpler to apply for each individual property. As far as multiple properties are concerned, perhaps, the government should wait a little longer in order to apply a combined progressive tax.

Note: The views expressed in this article are the author's own and do not necessarily reflect Albanian Free Press’ editorial policy

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