Pros and Cons of Fiscal Peace

In an economy with a high level of informality and structural challenges in fiscal administration (deep, persistent, and systemic problems that hinder the efficient, fair, and sustainable functioning of the tax system and the administration that manages it), Albania has repeatedly returned to the use of the fiscal peace instrument—a package of interventions that includes the forgiveness of tax obligations, the revision of financial statements, and the legalization of undeclared assets. This approach, often presented as a tool for increasing revenues and formalizing the economy, has sparked broad debate among the public, technical and political circles, as well as international partners.

The analysis of pro and con approaches to fiscal peace takes on special importance in the Albanian context, where the periodic use of tax amnesties raises questions about tax fairness, administrative effectiveness, and the signals fiscal policy sends for the future. In this framework, this analysis aims to place at the center of discussion the balance between the need for fiscal flexibility and the necessity of building a sustainable and fair tax system, based on the analyses of ALTAX and other Albanian experts, international institutions, and comparative regional experiences.

PRO-FISCAL PEACE APPROACHES

a. Immediate liquidity for the budget
According to the government’s stance, fiscal peace can provide a quick injection of revenue through settlements on profit tax or the formalization of undeclared assets.

b. Incentive for formalization and self-correction
Amnesty can help businesses and individuals return to the formal system by reducing penalties and creating opportunities for regular inclusion in the future.

c. Solution for inherited situations
For entities with accumulated problems over the years (such as incomplete declarations, fictitious balances), fiscal peace can serve as a “restart” without high legal costs.

d. Increased trust and stability for local investors
Through a softer fiscal climate, it creates a moment for reflection and gain, especially for family and medium-sized businesses.

ANTI-FISCAL PEACE APPROACHES

a. Damage to fiscal morality
The IMF emphasizes that repeated amnesties create the perception that fiscal honesty is not rewarded, thus reducing trust in the system.

b. Benefits for abusers and unfair competition
Businesses that have avoided obligations receive favorable treatment, while those that have complied regularly are indirectly penalized, distorting competition.

c. Wrong message for the future
In the absence of deep institutional reform, amnesty is seen as a political tool, not as part of a long-term strategy for improving tax administration.

d. Risk of money laundering
Critics, including the European Commission, have raised concerns about the lack of control over the source of assets legalized through amnesty, particularly in a country with weak financial oversight.

MAIN SOURCES AND REFERENCES

IMF & World Bank
The IMF consistently opposes fiscal amnesties in countries with weak tax administrations, as they do not address the root cause of informality and undermine the revenue structure.

State Supreme Audit (KLSH) and domestic institutions
KLSH has emphasized that fiscal amnesties avoid oversight and accountability, creating room for arbitrariness.

ALTAX (2020–2025)
ALTAX’s approach is analytical and critical: it acknowledges the need for formalization and correction of past situations but opposes the repetition of fiscal peace without tax system reform.

According to ALTAX’s analysis on Albania and the Balkans (2023), fiscal amnesties before elections have produced temporary effects and undermined tax fairness.

Regional Experience
In the Balkans, Albania, Serbia, and North Macedonia have used similar amnesties. They brought short-term revenue increases but encouraged future evasion, according to comparative analyses from CEFTA and Open Fiscal Data.

CONCLUDING ANALYSIS

The table summarizes the fundamental dilemmas of fiscal peace, contrasting the claimed benefits with the structural objections raised against it. Its interpretation requires analysis through a balanced logic, assessing time-based impact and systemic sustainability:

1. Budget liquidity
Pro Approach – The short-term increase in revenue is real, especially during fiscal hardship or when emergency financing is needed without raising taxes. It serves as a budgetary “booster” during crises.
Con Approach – However, this increase is non-structural, not based on base expansion or administrative efficiency, and undermines fiscal discipline by creating a precedent for ad hoc interventions outside of standard budget planning.

2. Formalization
Pro Approach – Amnesties offer an entry point for informal entities to join the system at low cost and without severe penalties. This may increase registrations and fiscal reporting.
Con Approach – But it increases moral hazard, as informal actors learn they can avoid obligations and later benefit from amnesties. This creates cyclical expectations for future amnesties and weakens the long-term effectiveness of the law.

3. Tax justice
Pro Approach – Provides an opportunity to correct errors or inaccurate declarations without penalties, normalizing the situation for many businesses operating in gray areas.
Con Approach – Undermines fiscal honesty, as it indirectly penalizes compliant taxpayers who have followed the law over the years and do not benefit from amnesties. This fosters a perception of unfairness.

4. Politics and public perception
Pro Approach – Used as a pragmatic tool in sensitive political or social moments, alleviating fiscal, social, or post-pandemic tensions.
Con Approach – Perceived as an electoral instrument tied to short-term government interests rather than genuine reform goals. Risks damaging public trust in the fiscal system and fostering cynicism toward the state.

5. Effect on the tax system
Pro Approach – Can be considered part of a broader fiscal reform strategy, starting with tolerance and continuing with stronger administration.
Con Approach – In practice, often replaces real reform by creating the illusion of fiscal success through temporary measures. Undermines the push for improved administration, digitization, or enhanced oversight.

From this analysis, the tension becomes evident between the immediate positive effects and long-term negative consequences related to fiscal morality, institutional trust, and system sustainability. A successful fiscal peace requires strong institutional conditions, transparency, and clear time and objective limitations.

In conclusion, without a comprehensive reform of tax administration and institutional strengthening, fiscal peace remains a partial solution with high systemic risks. Therefore, analyses from various sources suggest that its use should be limited, one-off, and linked to strict legal and fiscal criteria.