Measures against labor informality in AlbaniaALTax
A number of policies have already been introduced in Albania, targeted towards reducing informal employment.
The small business tax has been lowered in order to make small businesses more competitive. Social Security contributions have been cut. The employers share was cut from 41.9% to 32.9% to make payment more attractive to employers. Personal income tax is based to progressive rates and company profit tax stay to 15% rate.
In the private sector, a reference wage system is present as opposition of envelope wages. Wage payments are increasingly channeled through the banking system to restrict informal cash payments.
Business registration procedures are being simplified, giving small firms the ability to register within just 24 hours. Participation in public procurement is linked to the full publication of information of wage and tax payments by contributing companies. Furthermore, obligatory registration of self-employed is in force.
But the situation of formal market of labour seems to have problems that need to be addressed. Based on surveys made from ILO specifically for Albania have shown that informal employment is mostly in retail trade activities (41%), construction (19%) and services (19%). Private individuals and acquaintances (family members, friends, etc.) are the main source of informal employment.
But, what push the employers to be part of informal market of labour?
Fiscal burdens on employers and workers are one of the main reasons for the especially high level of informality among self-employed persons.
Too high a fiscal burden in the form of payroll taxes and social security contributions can have serious implications on the competitiveness of a company. This is why many employers prefer to pay a certain amount of wages in the form of envelope wages or operate entirely in informality. This can potentially distort competition on the market since the employer who does not pay taxes has an unfair competitive advantage over businesses that are compliant.
Lowering payroll taxes and social security contributions can in some cases raise compliance and as a result the overall tax revenue can be potentially increased. Fiscal reform should also include possible fiscal stimulus measures, especially for small and mid-size companies. These can include favourable tax and credit schemes, especially for newly created small businesses. This would make it more attractive to formally start up a business activity and help newly created small companies to become competitive over shorter periods of time.
Last but not least, it is also important to ease compliance by revising and simplifying legal and administrative requirements, such as registration and licensing. In fact, the transaction costs to comply with regulations (in terms of time, money and expertise), especially for small businesses, can become severe.
It is important that policies of remuneration and salary are adapted to address the implications of undeclared work. Clear economic indicators have to be developed and measured on a regular basis to assist the social partners in their discussions on the setting of minimum wages.
Close cooperation with the national agency responsible for statistics should also be based on the comparison of minimum wages and average wages in specific sectors and regions.
A notification letter (email) may be sent to the employers in the sectors in which data shows possible envelope wages, informing on the discrepancies and asking for voluntary revision. For those who will not accept, strict control measures need to be in place.
Wage payment through the banking system should be encouraged, since this is an efficient way for the State to properly control payments of taxes and social security contributions.
Tax and other payments could be better controlled through the introduction of e -government solutions. Additionally, the introduction of a coherent database on employment contracts is recommended, including individual and collective agreements. This would improve the effectiveness of joint control mechanisms of the labour inspection and the tax authorities and facilitate their efforts in identifying informal activities.
It is also necessary to establish a set of positive incentives for moving from informality to formality.
Opportunities granted by the Government for voluntary transition from undeclared work into formal activities should be done in a way which is attractive for companies in terms of no additional costs and no risks of sanctions.
Specific, well targeted schemes should be designed allowing informal workers and employers to enter formality. Individuals and businesses can be given a specified period of time, during which they can enter into the formal economy without sanctions.
The management of these measures should be as simple as possible, avoiding unnecessary bureaucracy and over-regulation.
According to experiences in various EU member states, such as Italy, Belgium, and Germany, a system of incentives may also be coupled with the establishment of a specific organization, possibly created jointly with the social partners, in order to assist small-scale entrepreneurs emerging from undeclared work, by offering tutorship and counseling services.
Training packages could be designed and implemented to facilitate the skills adaptation of the staff in the enterprises, increasing the capacity of the firms to compete legally on the market. Training vouchers can also be provided to meet the training needs of individual employees.
The emersion from informality could be also facilitated through the launching of amnesties that will cancel previous periods of undeclared work, provided that the entrepreneurs are willing to voluntarily disclose that they have been working informally. This approach allows undeclared workers and enterprises to regularise their situation with respect to issues such as tax, labour, safety, and social security contributions.
The introduction of amnesties should be carefully assessed, and should make part of a coherent package of measures, negotiated with the social partners.
Introducing new categories of legitimate forms of employment can help formalize activities which were not previously recognised by labour law. These may include such forms of employment as part time work, homework or temporary work.
In most EU countries, those forms of employment have been recognised as legal forms of employment in creating flexibility in the labour market through the flexicurity approach. The legitimisation of such activities makes it easier for workers who work atypically to formalize their employment and as a result often contributes towards moving into typical formal employment. Most importantly it helps to expand legal protection to workers in atypical employment relationships.
The experience from EU countries demonstrates that the introduction of non-standard forms of employment such as on-call employment, agency temporary employment, small jobs or household tasks, or picking and selling fruit (Slovenia) and mini-jobs with a fixed earning threshold (Germany) have proved to be successful in reducing undeclared work. The identification of such jobs to be legitimized is country-specific and solutions should be agreed with the social partners in order to ensure adequate solutions on pay, working hours, exposure to risks and accidents at work.
How to address the government the problems of informal labour?
One way of encouraging consumers and businesses to use declared work is to reduce value-added tax (VAT) on specific goods and services where undeclared work is widespread: e.g. in Finland and Italy there is a reduction of VAT in the sphere of building renovation and maintenance.
One of the major obstacles to moving from informal to formal employment is a lack of adequate skills. Active labour market measures should be guided towards upgrading of skills to enable job seekers to enter the formal labour market.
Public works should be used to develop specific skills demanded in the formal labour market. The analysis has further shown that a large share of informally employed workers receive unemployment benefits. Hence, passive labour market policies should be coupled with more active measures, since passive measures alone are generally not that effective tool inÂ reducing informal employment.
A sector that needs specifically to be targeted is agriculture, which presents the highest level of informal employment in Albania. The prevailing characteristic of traditional agriculture is the small scale of enterprises for which the challenge is to increase productivity and reduce vulnerability.
This could be done by providing technical and financial support for rural development, as it has been planned in Albania, through the introduction of a specific law for rural development, linking incentives (grant facilitation, credit lines, and tax reduction) to the full compliance to tax and social contribution rules.
An interesting practice has been introduced in Italy through the Service vouchers in agricultural sector which allows for regularisation the students and pensioners who supply their services on an occasional basis during the grape harvest season. The success of these schemes brought to the extension of this approach to other sectors and activities, such as private coaching, gardening, seasonal work by young people and door-to-door deliveries.
It is important for Albania to implement these worthy measures as effectively as possible to have an effect.