Legality and market impact of the Decision of the Council of Ministers (DCM) setting minimum utilization capacities for accommodation structures

The Decision of the Council of Ministers No. 160, dated 12.03.2025, determines the utilization period and the minimum capacity levels for accommodation structures in Albania. This decision directly affects the government, business operators in the tourism sector, and citizens/consumers.

1. Objectives According to the Government

According to the government’s perspective, the enforcement of this DCM for the 2025 tourist season aims at:

a. Formalization and Increased Tax Revenue
The decision obliges accommodation businesses to report data on their capacities and usage, thereby enhancing tax oversight and sector formalization.

b. Promotion of Year-Round Tourism
By setting minimum utilization levels (65% in the high season and 30% in the low season), the government aims to boost tourism even during off-peak periods, reducing dependency on summer-only activity.

c. Monitoring the Accommodation Market
Through mandatory reporting, the government will gain a clearer overview of the tourism industry’s capacity and trends.

2. Expected Benefits According to the Content of the DCM

• Planning Stability
  With a clear framework of utilization obligations, operators can better plan prices, offerings, and marketing strategies.
• Level Playing Field
  The new requirements may reduce unfair competition from informal operators who evade taxes, thus favoring regulated businesses.
• Better Investment Predictability
  The DCM introduces minimum expected standards, helping investors assess the potential return on tourism investments.
• Standardized Services
  With increased control and mandatory declarations, consumers will benefit from a more transparent market and reduced fraud regarding availability and quality.
• More Offers in the Low Season
  The obligation to operate more sustainably pushes hotels to remain open throughout the year.
• Year-Round Tourism Development
  Assuming that the imposed measures improve infrastructure and the tourism offer, citizens could benefit from a more developed sector, more jobs, and increased economic activity in their communities.

3. Potential Negative Effects Accompanying These Benefits

• Artificial Obligation to Maintain Minimum Utilization Levels
  Small or niche-oriented structures (e.g., mountain or rural tourism) may struggle to meet the thresholds, risking penalties. This could be seen as an artificial constraint impeding the natural development of the market based on supply and demand.
• Administrative Burden
  Entrepreneurs will be required to report detailed capacity data, which demands additional time and resources.
• Low Season Pressure
  Reaching the minimum 30% utilization during the low season (October–April) may be challenging, especially for coastal hotels reliant on summer tourism.
• Potential Price Increases
  Some accommodation providers may raise prices to cover new administrative costs or compensate for seasonality, leading to higher consumer prices.
• Reduced Market Choice
  Smaller businesses unable to comply may exit the market, consolidating it and leaving fewer consumer options. This could unfairly benefit large accommodation structures while penalizing small and medium-sized enterprises.
• Risk of Inaccurate or Fictitious Reporting
  To avoid penalties, businesses might manipulate reports, creating misinformation about actual accommodation availability.

4. Lack of Public Consultation and Transparency

There was no public consultation, and transparency surrounding this government decision is lacking. It is unclear what calculations, criteria, or analysis were used to determine the reference levels for the minimum workload of accommodation structures across the country.

First comment – Legality of DCM No. 160/2025

To assess the legality of DCM No. 160/2025, two main elements must be reviewed:

1. Does the Council of Ministers have the competence to approve this DCM under the Constitution and the Law on Tourism?
2. Does the DCM include provisions that conflict with the law or create unlawful obligations?

Legal References Used as Basis for the DCM

Article 100 of the Constitution of the Republic of Albania
This article authorizes the Council of Ministers to adopt decisions in compliance with the law, but not to impose restrictions without a clear legal basis.

However, based on the principle of economic freedom, the Constitution and the legal framework for the market economy protect the freedom of economic initiative and free competition.

Under this principle, every business has the right to operate based on market conditions, without mandatory state interference in sales volume, pricing, or capacity utilization.

In strategic sectors like energy or public services, the state may impose minimum production thresholds to ensure reliable public supply. In tourism, however, such a regulation is not typical in open and developed markets.

Article 64/1, point 7 of Law No. 93/2015 “On Tourism”[1]
This provision regulates the management of accommodation structures, granting the government authority to set operating criteria.

However, Law No. 93/2015 regulates tourism without imposing direct market restrictions. It sets service standards and requires compliance with hygiene and safety rules. It promotes formalization but does not mandate a minimum level of activity.

Lack of Clear Legal Provision

The legal basis for DCM No. 160/2025 does not clearly authorize the government to impose a mandatory level of utilization. This regulation may be considered an unlawful market intervention, as it directly impacts the business model of entrepreneurs, forcing them to maintain a minimum utilization rate even when market demand does not justify it.

Without a clear legal foundation, the government cannot impose a minimum utilization threshold, as this infringes on the freedom of business to operate under market conditions. If the Tourism Law does not explicitly authorize the government to set such thresholds, then the DCM may be ultra vires (beyond its legal powers).

Second comment – Impact on Market Freedom

Can the government impose a reference activity volume under a free-market economy?

In principle, in a free-market economy, the government cannot compel a private business to reach a certain level of economic activity, unless such a regulation is justified by public interest, sectoral policies, or fair competition rules.

This DCM, under the legal logic discussed above, appears to conflict with Article 11 of the Albanian Constitution, which guarantees freedom of economic activity and prohibits unjustified restrictions on businesses.

Direct Impacts:

• Creates artificial constraints on tourism businesses.
• Small operators and rural inns may struggle to meet utilization thresholds.
• Seasonal area accommodations, such as coastal hotels, might be forced to operate during periods with no demand.
• Market consolidation could favor large operators, increasing monopolization and reducing the diversity of the tourism offer.
• The 65% (high season) and 30% (low season) thresholds impose obligations not necessarily aligned with actual market conditions.
• Hotels unable to meet these thresholds due to lack of demand or external crises could be penalized unfairly.

This government interference effectively dictates the business model of entrepreneurs. Instead of the market determining occupancy rates, the government imposes a fixed standard that does not reflect the unique realities of each business.

Such an approach undermines free competition and forces operators to base their strategy on compliance rather than market responsiveness.

The DCM unjustifiably interferes with the functioning of the free market by imposing a minimum level of activity that cannot be legally justified as a measure for regulating competition or protecting the public interest.

Third comment – relates to specific problematic provisions that exceed the legal framework or create obligations beyond the government’s legal competence.

The obligation to maintain a minimum level of utilization (65% during the high season and 30% during the low season) appears problematic, as the Law on Tourism does not clearly define such an obligation. The law must explicitly authorize the government to impose a minimum utilization level for accommodation structures.

However, the consequences for failing to meet the minimum utilization level are foreseen to artificially increase the tax burden, without taking into account the likely increase in corruption, which could further worsen the relationship between the state and operators.

How will this happen?

The DCM stipulates that if an accommodation structure fails to meet the minimum utilization level, the tax administration will automatically adjust this level in the tax system.

This rule raises two key concerns:

1. The Principle of Legal Certainty in Taxation

According to the Law on Tax Procedures, every tax obligation must be based on the actual income of the business, not on a level predetermined by the government.

2. Tax Evasion Cannot Be Addressed with Arbitrary Penalties

If an accommodation structure does not reach 65% or 30% utilization, it does not automatically indicate tax evasion. Multiple factors influence this outcome, including:

• The natural seasonality of tourism;
• Economic crises or changes in market demand;
• Local market specificities (e.g., small inns in rural areas have limited off-season demand).

Government’s Potential Arguments:

The government may argue that:

• This policy aims to increase formalization in the tourism sector by requiring operators to declare accurate utilization levels and reduce fiscal evasion.
• It is a measure to support the economic stability of the tourism sector and prevent extreme seasonal fluctuations.
• If tax incentives or subsidies are provided to structures that do not meet these thresholds, and if there is a strong legal basis for the tax assessment method foreseen, then this DCM measure could be partially justified.

However, an Overreach of Powers Is Evident Because:

• The Law on Tourism does not explicitly grant the government the right to set minimum utilization thresholds for accommodation structures.
• The Law on Tax Procedures does not allow the automatic determination of income based on a level predefined by the government.

As a Result:

• Market freedom is violated, and
• An unjustified burden is placed on tourism operators, especially small businesses.

A Fairer Alternative Would Be:

To stimulate the sector through fiscal relief or support measures for operators during the low season, rather than imposing a mandatory utilization threshold.

In these Conditions:

• Given the lack of transparency,
• And the absence of a discussion process with the stakeholders obligated to implement the measure,

The following concerns and actions are foreseeable:

• Tourism operators could challenge the DCM in the Administrative Court, requesting its suspension as an unjustified interference in the free market.
• Business associations should demand a review of this regulation, proposing incentives instead of penalties.
• The government should reconsider its approach to ensure a balance between formalizing the sector and preserving market freedom.

If this Decision is challenged in court, it is highly likely to be annulled as an unlawful intervention in the free economy.

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[1] Law No. 93/2015 aims to:

• Promote Albania as an attractive tourist destination by ensuring sustainable development of the sector.
• Regulate relations between public institutions and private entities in the field of tourism, setting standards for the provision of tourism services.
• Ensure a balance between economic development, environmental protection, and the interests of host communities.
• Set rules for the management of the tourism industry, including accommodation structures.

This law aims to regulate tourism development, but within the limits of a free market and in accordance with the principles of economic freedom.