Corporate Profit Tax reduction, but average Wages lag behind

According to ALTAX’s thematic study, over the last decade, Albania has undertaken significant reforms in tax policy aimed at stimulating economic growth and supporting businesses. One of the main measures has been the reduction of the corporate profit tax, particularly for small and medium-sized enterprises. However, the impact on the growth of average wages has been less pronounced than expected.

Profit Tax: From 20% to 5%, but with limited impact on Workers

From 2008 to 2013, the corporate profit tax was reduced from 20% to 10% — a move intended to enhance competitiveness and attract investors. Later, from 2014 onward, the tax policy shifted toward a differentiated system, applying lower rates (5% and 0%) for small businesses while maintaining a 15% rate for large corporations. Although this was considered a stimulus for increasing production and employment, the impact on average wages did not prove proportional.

According to processed data, during the 2008–2013 period, the real average wage in Albania grew at an average annual rate of about 3.6%, while during 2014–2023, this pace slowed to approximately 2.5%. This suggests that the reduction in profit tax has not automatically translated into tangible improvements for workers in terms of real income.

Nominal growth, but not always Real

Despite announced increases in the minimum and average wage — especially after 2020, when the minimum wage rose significantly from 30,000 ALL to 40,000 ALL by 2024 — real growth (i.e., inflation-adjusted) has been modest. This is due to rising inflation and other living costs, which have “eaten away” a portion of the wage increases.

Economists: Lower Profit Tax doesn’t guarantee Wage growth

Experts argue that reducing taxes for businesses is not an automatic instrument for improving workers’ welfare. “In the absence of strong collective bargaining mechanisms, labor market transparency, and a more competitive environment for labor, the benefits from tax cuts often concentrate in profit growth rather than wage increases,” highlights a well-known economist from Tirana.

Time for a Policy rethink?

The analysis suggests that while fiscal support for businesses remains important, a more balanced approach is necessary, which includes:

• Strengthening enforcement of minimum wage compliance,
• Encouraging higher value-added jobs,
• Improving social dialogue among government, employers, and employees.

Albania has taken bold steps toward modernizing its fiscal system, but if the ultimate goal is to improve citizens’ living standards and reduce inequalities, policies must go beyond merely offering tax relief to businesses. A more inclusive model, focused on empowering workers, may be the key to success for the coming decade.