VAT contributes about half of tax revenues, with a relatively high standard rate (20 percent), but its efficiency is low compared to others in the region. Excises and national taxes also deliver a large share of revenues. Both VAT and excise rules are in line with international standards, but a very broad range of goods, services and taxpayers a r e exempt from indirect taxes, undermining the efficiency of collection. Within the VAT, a large share of final consumption is exempt, such as education, health, medicines and similar products, sale of new property, and financial services.

Direct income taxes raise less revenues in Albania than in comparable countries. They contribute around 20 percent of total tax revenues, gradually increasing from 3.7 to 4.4 percent of GDP between 2014 and 2018. Income-based social contributions add an additional 6 percent of GDP, and social contributions and tax revenues together raised about 26 percent of GDP as of 2018.While Albania has the ingredients of a modern income tax system, the design of certain features—for example, a progressive personal income tax (PIT), a graduated general business profits tax, a simplified profits tax, and social security contributions—and the way they interact, make it overly complex, generating distortions and non-neutrality.

The current system provides incentives for individuals performing identical economic activities to choose self-employment (under the business profits tax) over employment (under the PIT). Alongside such non-neutrality, the tax system is struggling with a high degree of informality which is encouraged by the high compliance costs and excessive complexity. Furthermore, the tax authority is unable to build a complete picture of individual taxpayers because not everyone is required to file a tax declaration and the revenue administration is unable to collect data from third parties (e.g., banks, property registers, etc.) to cross-check information.

The current tax system is complex and fragmented, and frequent ad hoc changes have been undermining the stability and transparency of the system. A fairer, more efficient, simpler, and more transparent tax system could make Albania more attractive for foreign investment, while also invigorating domestic economic activity by instilling the right economic incentives and confronting the current high level of informality.


Albania is preparing a Medium-Term Revenue Strategy (MTRS) to finance its development spending of an estimated 2.2–3.0 percent of GDP over five years. Revenue mobilization will be supported by comprehensive tax policy and administration reforms. International and regional comparisons suggest that there is room for additional revenues as well as improvement in the composition of tax revenues.

While the rates for all major taxes are in line with regional peers, the overall tax-to-GDP ratio lags behind comparator countries. This can result from narrow tax bases and/or inefficient enforcement and collection. The high reliance on indirect taxes, especially on VAT is also striking, while social security contribution revenues are lower than the regional average.

These are some of the comments of the technical assistance report of IMF “Tax policy reform options in line with the Medium Term Revenue Strategy”. The report presents options for tax policy reform to raise at least an additional 1.34 percent of GDP in revenues over five years and to improve the quality and efficiency of the tax system, that will enable the mobilization of further domestic revenues.