Progressive tax to apply on all types of incomes

Individuals in Albania will soon pay progressive tax to the state not only on their salary, but also on every other income that they earn. This is the essence of a new bill which is being drafted by the government and which will soon become a reality for all Albanians. This fact was confirmed yesterday by the minister of Economy and Finance, Arben Ahmetaj during the debates taking place in Parliament for the 2018 budget. “This bill will also include integrated incomes”, he said, adding that every income will be calculated as a whole during a taxing period and then a tax rate will be applied on it. According to Ahmetaj, this logic will continue to preserve the principle of progressiveness. So, progressive tax in Albania applies on salaries over 30 thousand lek a month, with a tax rate which varies from 13% to 23% on high salaries. But, based on the new law that the government is drafting, an individual’s progressive tax will be calculated after all of his incomes are added up and these incomes include rents, royalties, etc. This will be taxed as a total amount with progressive brackets from 0 to 13% or even 23%, as it is the case now with salaries.

In principle, the application of the tax on all sources of incomes increases the tax basis and as a result, it collects more money from the individual. So, if a person is paid 130 thousand lek a month, so far, the tax that he has paid on a progressive basis is 170 thousand lek. But, if he is also receiving monthly rent of 50 thousand lek, then on top of the 17 thousand lek that he was paying until now, he will also pay progressive tax on the 50 thousand lek received from the rent. Let’s recall that a few days ago, UNDP Albania issued a rather critical report on progressive taxation, considering it damaging for the Albanian society. According to this report, this sort of taxation, which started to be applied in 2014, hit the country’s middle class and brought lots of poverty. So, according to UNDP’s figures, from 2008 until 2014, this class of society expanded by 2.8% and after this period it expanded by 2.5%.

Rents, honoraries, royalties will be subject to progressive tax

 So far, incomes from rents or royalties were taxed 15%. But, with the introduction of the new progressive tax, this taxation rate is expected to change.

So, progressive tax in Albania applies to salaries over 30 thousand lek, while salaries below this bracket are not taxed. Meanwhile, for salaries ranging from 30 thousand lek to 130 thousand lek, progressive tax is 13% on the difference above the 30 thousand lek, while for salaries over 130 thousand lek, progressive tax goes as far as 23%.