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Albanian government introduces flat tax

The government of Albania has agreed on a standard tax rate (or flat tax) of 10% aimed at outdoing its East European rivals and attracting international investors. The government in Tirana is determined to transform the impoverished Balkan state into a haven for multinational companies and western speculators.

From the start of next year, corporate taxes will be reduced from 20% to 10%. The basic rate of income tax, which amounted to 5% for average incomes and a maximum of 25% for top earners, had already been changed to a uniform rate of 10% for all incomes on August 1. But even this is not enough.

In August, Prime Minister Sali Berisha, announced that the state would make development land available to foreign investors for the symbolic price of one euro. Concessions for socially indispensable services such as health service, education, water and waste disposal, infrastructure, energy and raw material production are also to be sold off bargain-basement style for one euro. Should any potential investor be nevertheless deterred by any remaining tariffs, the Albanian government is also ready to step in. A law over foreign trade zones is in preparation and is due to be passed by parliament in October. Government representatives repeatedly emphasize that the reform of the tax system is beneficial for the country. The participation of foreign investors in Albania would increase tax revenues, increase transparency, and provide an alternative to businesses, which operate outside of the country’s legal framework and tax structure.

In fact, none of these claims are true.

The halving of corporate taxes will inevitably lead to sizeable deficits in the national budget, which is already chronically under-financed due to high unemployment and widespread tax evasion. The state has already withdrawn financial participation in almost all public services such as health care, education, or infrastructure. Any further decline in the national budget can only worsen the situation. The main victims of this reform will be those surviving on low incomes. The increase in taxes on low-income earners from 5% to 10% means that these taxpayers will finance the tax cuts for companies and high income earners. At the same time those on low wages will be hit hardest by the social consequences of declining tax receipts.

Sixteen years after the introduction of capitalist free-market reforms, the country already resembles an economic and social wasteland. The country’s few profitable national industrial companies have been sold off to the highest bidder and any sort of welfare provision only exists on paper. Official unemployment lies between 10% and 15%. This statistic, however, is a gross underestimation because it only includes a tiny fraction of those who receive the small level of welfare provision paid to the most needy.

If one computed unemployment according to the criteria used in Western Europe, the real total would be between 45% and 50%. Many Albanians are forced to survive by working in the so-called informal or extra-legal sector, where they work “off the books” in construction, transportation, house-cleaning, street vending, and other jobs. According to estimates, the total number of such workers is around 30% of the total workforce. At the same time, the number of emigrants seeking their luck abroad is rising. Monies sent to family members by Albanians working abroad currently exceeds the total receipts from Albanian exports.

Workers with an official job must live on poverty wages. A teacher earns an average €150 per month, a factory worker between €80 and €120. A pensioner must survive on an average income of €50, while steadily rising prices for goods and services are in many cases comparable with those in Western Europe. Already this month, Berisha announced a 57% increase in the price of electricity.

State institutions are hopelessly outdated and under-financed. A large proportion of the population is deprived of any adequate education and health care. Hospital treatment is possible in most cases only with bribes and two years ago, Albania placed second-to-last among European states on the international corruption index.

Albanian agriculture is also in a dire condition and the agricultural reforms introduced at the beginning of the 1990s had devastating effects. In the 1980s agriculture’s share of the GDP amounted to approximately 40%. Today this proportion stands at less than 4%. People living in rural areas today are to a large extent dependent on self-sufficiency.

The tax policy of the government has attracted international companies seeking big returns through the exploitation of raw materials and a cheap labour force. The British MedOil company, as well as Steamoil Gas Limited, want to establish extensive sites for new oil drilling. According to official figures, unexplored Albanian reserves total around 1.8 billion barrels. MedOil has secured the rights over oil fields for the next 20 years under a deal which requires that just 10% of all profits made remain in the country.

Other companies, such as the Canadian Bankers Petroleum or Occidental Petroleum, have already been operating for some years in the country. Western European enterprises, particularly those from Germany and Austria, see huge potential in the Albanian building and banking sector and are increasing their investments. (Article courtesy wsws.org)