Outsourcing tax collection in Albania?

A nation’s finances depend on tax and customs administration, so such administrations would seem to be inappropriate candidates for privatization. Nevertheless, some countries have experimented with privatization because their tax administrations have become centers of corruption and incompetence.

It is no secret that privatization in tax administration is under discussion because there is a significant problem. And there’s not only one or two problems. If we make an insight to the origin of problems we can find that:

• Too often the tax administration has enough incompetent personnel.
• Low performance standards combine with low salaries to make corruption almost inevitable.

In this case, wage levels are linked to and limited by low civil service pay scales. In other cases, the tax and customs administrations are used as resources for political patronage. Turnover due to political changes discourages professionalism, especially if political supporters traditionally have sought such positions because of the opportunities for illicit activity.

Privatized collection is a complex solution to a simple problem.

Let’s follow the brief history of tax privatization…

Tax privatization, understood as a system wherein the right to collect certain taxes owed the state is auctioned off to the highest bidder’, was practised in Mesopotamia around 1750 B.C., in England from the late Tudor period until the Civil War, by the Mughals in Northern India in the early 18th century and by France, China, Russia and Spain at other historical junctures. While tax farming’s popularity typically faded with time and modernisation, its trajectory and ultimate demise was rarely linear and often involved switching between bureaucratic and private systems of collection.

In fact, in USA, when the practice of tax collection with outsourcing has a history the IRS present that the latest practice had created new problems instead of solving old ones. By introducing a profit motive into the collection function, it led to all sorts of shady behavior by the hired guns. Eventually, that behavior brought an end to the program and the resignation of a Treasury secretary.

In an attempt to cut costs and increase revenue from back-taxes, the IRS contracted with private debt collection agencies to collect tax debts for the United States. These companies were paid by the United States on a contingency fee basis, based on the amount of tax debt that they collected.

The IRS’s experience with its private debt collection program revealed that despite even the most ardent attempts to ensure that private parties performing government functions act neutrally, it can still occur.  The IRS employed an impressive array of oversight mechanisms, which still did not completely prevent the private debt collection agencies’ self-interests from undermining the neutrality of the IRS’s tax debt collection.

However, before it was suspended, the privatization program ran into problems besides not delivering on its promised revenue. Taxpayers with outstanding debts complained about being harassed by aggressive phone calls from debt collector’s day and night, or they would be pressured into agreeing to installment plans they could not afford to pay. Unlike IRS employees, the private debt collection contractors could not negotiate more flexible payment plans or waive tax penalties.

Nevertheless, private tax collection does have some advantages.

First, it enables an administratively weak tax administration to offload some administrative costs by shifting them onto the private sector.

Second, privatization presumably mitigates corruption opportunities at the collection point, as private collectors do not enjoy the same protection as civil servants and can be easily terminated more easily for poor performance or for taking bribes.

As illustrated by the problems in the United States, a disadvantage is the risk of overzealous collection, which could result in a deterioration of taxpayer relations