Local tax burden in Tirana Municipality in 2023

In the analysis of the distribution of the tax burden according to the name of taxes and fees (including taxes and fees that are divided between the central and local governments) we notice that the tax burden is to a very significant extent maintained by the infrastructure impact tax.

This tax constitutes 44% of Tirana’s own income and represents exactly that part of the contribution that is paid indirectly by a part of resident and non-resident citizens (coming from other municipalities) from the value of the surfaces of completed constructions, which are in each major area of the municipality’s jurisdiction.

Another heavy tax that is paid directly by resident families and property owners in Tirana is the building tax. This tax holds the second and weightiest place as it accounts for 15% of the local tax burden.

In third place is the tax for educational infrastructure with a tax burden of 5% of the total.

In fourth place is the property transfer tax with a weight of 3% of the total local tax burden.

In a summary calculation of the 4 taxes as above, it can be seen that 67% of the tax burden in Tirana comes from the sector of new and old constructions.

In addition, another fee with an impact on businesses and families is the set of fees for environmental protection and greening, which amount to 15% of the total tax burden. The rest of the taxes and fees together account for 18% of the total tax burden.

The tax burden from local taxes and fees is ALL 18,296 per inhabitant/year. If we take into account only adults over 15 years of age, then the tax burden is ALL 26,710 per adult per year.

In an analysis of the distribution of the tax burden by the Municipality of Tirana, it can be seen that there is a very large burden of taxes related to the construction process and product, from which more than 2/3 of the tax revenue is provided. This unequal distribution between citizens and business is a policy that aims to increase the burden not directly from the municipality’s tax policy, but by indirectly increasing this burden on citizens by taxing a narrow category of activities more heavily.

The significant positive impact of the four most important taxes for the municipality affect all components of total tax revenue in a significant way.

The size of the construction sector and the income support for the municipality from this sector has a long-term negative impact as taxes and fees must be distributed as a tax burden proportionally to the income of residents and families and also having an incentive or prevention function depending of the effects it has on the environment and in everyday life. If one sector continues to be taxed more compared to others, this, in addition to the interest in getting as much income as possible in the short term, makes the source of the municipality’s income for the future unclear, when construction will no longer have this weight gained today.

Ndërkohë, lidhur me ndershmërinë dhe barazinë që duhet të ketë barra tatimore duket se jemi në kushtet e një mungese të drejtësisë tatimore, pasi shihet se mblidhet pak taksë për hotelet, për hapësirat publike, për tarifat e tjera duke e zhvendosur barrën e madhe ndaj biznesit. Kjo qasje e cila mbulon në vetvete edhe problemet e luftës ndaj informalitetit, si dhe moszgjerimit të bazës së tatimpaguesve ka ndikuar direkt në një shtrenjtim të çmimeve kryesisht të pasurive të paluajtshme më shumë se në zonat e tjera të vendit, por që ka dhënë ndikim si pjesë e kostos së biznesit edhe në çmimet që ata ofrojnë për konsumatorët.

Rezultatet tregojnë se ndërveprimi ndërmjet varësisë nga taksat mbi sektorin e ndërtimit dhe pasurive të paluajtshme, korrupsionit dhe mobilizimit të të ardhurave tatimore është kompleks dhe varet nga vizioni për harmonizimin e barrës tatimore. Për shembull, ulja e korrupsionit stimulon mobilizimin e të ardhurave tatimore nga burime të tjera në krahasim me të ardhurat totale tatimore. Megjithatë, mobilizimi i të ardhurave tatimore është ndonjëherë një burim korrupsioni dhe evazioni nga nismat e nxituara dhe të padiskutuara me publikun.

Notice! Tax revenues should be strengthened by considering strengthening revenue collection from multiple sources and taking revenue where it is generated and not where it is easiest to collect.

Attention! A problem that should be carefully analyzed is the discussion on the progressivity of local taxes and fees, which should be part of the tax system in the country.

A tax policy of progressivity in local taxes and charges (similar methodology to parking charges by zones) affects the redistribution of the burden more fairly.

Distribution of municipal budget expenses in 2023

In the distribution of expenses according to the structures that must respond to the demands of citizens and businesses, as well as different communities, but also the needs for the development of the city, which includes investments, we see that:

– 27% of the expenses in 2023 are for the administration of the municipality and the institutions that it leads, where the fund that has been distributed throughout the year includes salaries and
contributions paid to personnel.
– 29% of the expenses are for the continuation of the work and operating expenses that are given in the form of transfers to the enterprises dependent on the municipality, as well as the part that is spent on the citizens and their needs for social support.
– 44% of the expenses are for the investments that the municipality has developed but which are still in process or are being completed.

If we calculate the cost of governance of the municipality of Tirana in 2023, it reaches up to 1/3 of the total expenses (Tab). This level of expenditure is in the group of the average level of expenditure if compared to other large municipalities, but again it is indicative of a high expenditure and depends on the high number of employees. This expenditure should be carefully analyzed in the 2025 budget, as it needs to be understood that it is the right expenditure in relation to the quality of services and the productivity of the administration.

The most important expenditure towards the community in 2023 continues to be roads and urbanization, which takes 21% of the municipality’s expenditure in 2023. The works financed by this item together with investments for private constructions in land development are a from the most important sources of employment.

Payments for the pre-school and pre-university education system account for 17% of the annual budget expenditures of the municipality. This expense is in terms of salaries and expenses related to maintaining this service for the public. Based on the demands expressed by the citizens in different forms, it can be seen that it is at least 7% lower than the citizens’ demand for increasing the quantity and quality of spending in this highly influential item for the future of young citizens, but also to influence the way in which deterrence is encouraged to leave the country, with the reason of a better education.

Waste management, which has its main source of funding from environmental fees, consumes up to 8% of the municipality’s budget. In the comparison between the income paid by citizens and businesses for waste, greenery, lighting, etc., it can be seen that the budget for waste treatment is half of the fees paid by citizens and businesses. So more fees are collected than what is spent on this expense from the municipal budget.

 

For social housing, the municipality’s budget directly spends up to 7% of all expenditures made by the municipality per year. If we look at the needs and requirements, this expense is low. In relation to the income that the municipality collects and for a higher redistribution for young families (a reason for curbing immigration) and those in need, then this fund should be higher up to 11% of the total budget. However, in the absence of an increase in the budget, the municipality in lobbying with the government drafted and approved in the Assembly a law, which forces builders/investors to transfer to the municipality’s account 3% of the additional built surface above the threshold of 2000m². This form of taxation in kind with the finished product constitutes another resource used for social housing through charging the owners/investors in construction.

Social protection has a dedicated fund equal to 1% of the total budget of the municipality and of course this redistribution of income is very low and needs a review of the whole way of social policy in the country. Of course, the municipality has spent very little in this direction and this is another indicator of how the tax burden is redistributed, which does not prioritize the needs of the citizens, but a harmonization of development programs with what can partially fulfill the needs of citizens.

The support of the municipality for the economy of the city and for the protection of the consumer and the development of the markets for sale is dedicated 3% of the entire budget of the municipality. We see this approach of the budget for all the problems and the need for a new focus as quite insignificant as it relates to the dedicated funds and this is a moment to carefully analyze the growing needs and demands.

In terms of culture, art, it can be seen that the municipality spends 4% of its budget, but that for a capital city, this level of spending is at least double this level of spending.

At the end of the expenses as dedicated funds are those planned for agriculture, forests and pastures, which are as much as 0.2% of the total budget of the municipality. Based on the level of spending in this case, a reorientation of the focus for this very basic part for stimulating the food supply base not only for the citizens, but also the growing tourism is urgent. The current budget policy is far from the needs for this sector, underestimated even by the central government.

Fire protection has a dedicated budget to be spent at the level of 4% of the total expenses of the municipality and is considered to be close to the minimum needs for this service, but far from the requirements for investment in human and material resources.

Notice! In analyzing the year 2024 about the increase in the costs of doing business and the decrease in productivity, by considering specifically the impact on exposure to PM2.5[1] and PM10[2], as well as the low productivity of municipal services for the prevention efficiency of city pollution in the study conducted for this concern[3], it can be seen that in the areas with increased pollution, there are:

– increase in costs for equipment and services against pollution (high depreciation of equipment, frequent damages, costs for cleanliness, etc.)
– decrease in demand and price of premises and commercial activities
– increase in outpatient and family health costs
– reduction of consumption in the polluted area compared to other areas

Attention! The infrastructure and construction sector itself must be considered risky by the local government and the National Territorial Council regarding the impact of permits without considering the intensity of construction per area, but also many construction sites at the same time.

Policy suggestions for managing budgetary and economic requirements

Based on the insufficient resources available to the municipality, our experts, after analysis and confrontations with many similar situations, have presented in this format several proposals for discussion, where, with the aim of good financial management, new resources and tools should be sought that can be dialogued with MF, but also with donors and central institutions that interact and communicate with local government

Without intending that these proposals be considered exhaustive, below we have listed some that we consider the most important.

Use of shared purchases.

Joint purchasing programs allow two or more municipalities to purchase equipment or tool supplies, which can result in increased cost savings due to the creation of economies of scale. This is a practice that is still not widely implemented in the country’s municipalities.

An example of a joint purchase is the purchase of e.g. a fire extinguisher system, drones, etc., expensive as a capital investment, where each municipality, if it were to buy it for its own needs, would only use it on a limited basis.

However, when shared between municipalities, this co-ownership becomes more affordable as an investment and has a low cost relative to the small budgets of municipalities with low budgets for asset purchases.

Participation in cooperative emergency response programs (fire and flood).

Cooperative emergency response programs allow neighboring municipalities to combine resources for a more efficient and cost-effective emergency response system. Although there are similar initiatives from the central government, it seems that this is not enough

An example in this case is the creation of joint regional entities, e.g. on a district basis that have the same organizational structure as the reorganization of water supply and sewerage companies, etc.

Appropriate use of human resources

HR strategies include combining reduced employee working hours with student engagements and free labor (occasionally overage), avoiding employee layoffs that require lengthy procedures and criteria and that may harm productive programs.

In this between the use of the contribution of young people and volunteers, it should be linked to incentives such as programs offering incentives for early retirement (recognizing working time as a contribution to insurance) and the implementation of an employment promotion policy , according to the provisions of the Labor Code.

Implementing the right HR strategy can result in cost savings, which can help local governments balance their budgets more effectively.

Avoiding excessive commitments to fixed expenses, such as those for energy, travel and marketing, etc.

Avoiding overcommitments to fixed expenses is a long-term strategy that helps the municipality maintain fiscal discipline.

Educating the local public about the decisions the municipality faces during a fiscal crisis

An example of a positive public education initiative is Community Councils, which promote public discussion and feedback about municipal services and investments. Investing in public and preschool education can increase citizens’ understanding of complex public policy issues, which in difficult times can lead to more efficient and productive discussions and decisions.

Increase incentives for economic development programs that attract residents and businesses.

The use of economic development incentives at the local level, which may include subsidies, can generate jobs and tax revenue during a period of recession, are more efficient than those engaged by central government at the national level.

These incentives can influence a business developer to move to a particular region, which in turn can create a sustainable economy within the municipality’s jurisdiction.

In these cases, the municipality e.g. in the case of tourism, it plays the role of agent to bring together the resources and tools available by encouraging all donors and policies to achieve the goal and giving a personalized name to an economic approach

[1] It is created by rising dust. Long-term exposure (months to years) to PM2.5 is associated with premature death, especially in people who have chronic heart or lung disease, and decreased growth of lung function in children.

[2] It is created by rising dust. Short-term exposure (a few hours a day) can lead to irritation of the eyes, nose and throat. Worsening of asthma and lung diseases such as: chronic bronchitis, heart attacks and arrhythmias in people with heart disease.

[3] https://altax.al/en/product/air-pollution-added-economic-costs-and-incentives-for-inclusive-policies/