Tax rates and the impact of direct and indirect taxes, 2022 – 2024

This specificity of the weight carried by direct, indirect taxes and social contributions, etc., if we look at it according to the Tax Norms 2022 – 2024 in Statistics, it is observed that:

1. Regarding direct taxes, countries such as Albania and Serbia that apply higher profit tax rates than others in BP6 do not have the same productivity in direct tax collections, since the harmonization of rates with the expansion of bases and the fight against evasion and corruption, further strengthening the capacities for the optimal use of investments in technology.

Thus, although Albania has invested more than other Western Balkan (WB6) countries in digital technology and the instrumentalization of the electronic invoicing system, it can be seen that the weight of direct taxes has remained the same weight in relation to GDP, but indirect taxes also have impacts on in 2022, where there is an increase due to high inflation.

2. Regarding the share of indirect taxes in the fiscal burden, when we look at it in relation to the standard rate of VAT, another correlation can be observed, which does not correspond between them. Thus, Montenegro, which has the highest standard VAT rate (21%), actually has a high share in the fiscal burden, which is significantly higher than in other countries.

However, Albania and Serbia, which apply the same standard VAT rate of 20%, have differences in the respective parts that carry indirect taxes in the fiscal burden of their countries. This fact shows that the fiscal burden is closely related, in addition to the VAT rate, to the circulation of goods and services, the extent of tax exemptions, as well as to the level of informality and reserves in the administration of VAT and other taxes. in general.

Such comparative analyzes are valid to really see the productivity of technology and the release of propaganda for hasty investments, or untested as much and properly in time and their spread.

If we look at the relationship between the fiscal burden of social contributions and other taxes with the rate of contributions, which constitutes the main part within this group, it is observed that Serbia, Bosnia-Herzegovina and Montenegro, which apply higher rates of contributions than the countries of others have a higher fiscal burden. But, even in this case, it is worth mentioning the fact that it is related to the reserves in fiscal administration and the fight against informality in the labor market in all WB6 countries.

Tax rates for VAT and Excise (consumption taxes) and national tax have undergone some changes in 2023 [1].

In the conditions of not changing the tax rates, but also of the regulations for incentive purposes, it can be seen that already the tax competitiveness between BP6 countries is in the direction of regulating the internal environment of each country, no longer considering only the tax policy as the main instrument in the absorption of foreign capital and the release of domestic capital.

It is noted that BP6 countries have a visible level of compliance with the recommendations of the IMF missions, as well as all international monitoring institutions have presented a stability of the tax rate policy.

When we analyze these tax rates, as indicators of the fiscal burden from the point of view of the fiscal revenues that have entered the budget of each BP6 country, it is observed that the low rates for direct taxes have not affected the reduction of fiscal revenues, but on the contrary they have increased. This shows that the administration and the fight against informality make the difference and are dominant to the current fiscal policy, in those environments where the demands of the business have been met, but also by fighting informality and increasing protective barriers from the interference of corruption..

The burden of value added tax (VAT) compared with its tax rates[2], as in the case of income tax and salary, highlights the problem found in the fiscal administration capacity. The VAT burden does not coincide with the VAT rate levels.

In cases where the VAT rate is equal to or above 18% (Albania, Montenegro and Serbia), the highest fiscal burden is not in Albania, but in Montenegro, Kosovo, BiH and Serbia.

Although Albania applies the same VAT rate as in Serbia, the VAT burden is significantly lower. The fiscal policy in this case seems to need to be approached more closely with the administration capacities and with the review of tax exemptions, since its productivity is lower than the surrounding countries and is behind only North Macedonia

The standard VAT rate in 2023 is 17% in Bosnia and Herzegovina, 18% in Kosovo and North Macedonia, 20% in Serbia and Albania and 21% in Montenegro.

All other Balkan countries, except Bosnia and Herzegovina, also apply reduced VAT rates, mainly for vital consumption, health, the supply of the population with energy, urban transport, as well as for education, books, magazines and cultural and sports activities.

Social security and health insurance rates have been stable and have had small changes in previous years, but no changes in 2023. Bosnia and Herzegovina (without Republika Srpska) and Serbia have the highest contribution rates.

Kosovo and Montenegro have the lowest rates.

Albania is only 0.9 percent higher than North Macedonia.

Even in 2023, the main weight of the tax rates is maintained by taxes on consumption and less is left to direct taxes. Meanwhile, the policy for social funds is seen as not intended to be competitive, maintaining the same burden as the previous year.

In the context of the implementation of tax rates, if we analyze these rates in their entirety with the level of fiscal burden, it can be seen that the administration capacities for indirect taxes are below the level of the burden of tax rates in each Balkan country. But even for direct taxes, the administration capacities still remain completely unrealized. This confrontation requires a revision of the model of adaptation of tax rates with strengthening of capacities, adaptation to the economic and social environment of taxpayers.

From the point of view based on practical cases, there is no doubt that fiscal policy affects the economic choices of business. If the reductions in tax rates are not harmonized among themselves, considering also the expansion of the tax bases, then a budget situation is created that negatively affects fiscal consolidation, as well as the strengthening of voluntariness in paying taxes and the growth of fiscal culture.

From the horizontal comparison of the rate of total social contributions, there is a regional tendency to keep them at the same levels over the years. The unchanged rates of social contributions show that the policy is relaxing the labor market and is aiming to help budgetary policies, despite the fact that for some countries such as Albania, Kosovo and perhaps even North Macedonia there is a need for an increase in contributions for some sharp social policies in relation to employment empowerment policies and for certain categories such as: people unable to work, young people newly entering the labor market, as well as the poor.

If we analyze more deeply, it is found that some countries have a low fiscal burden (Albania, Kosovo, Macedonia). Reducing a tax rate of a certain tax is not the solution to the demands of the citizens and the budget. A complex tax system, which has been implemented in recent years, has interfered with the economy. It needs to be competitive in the regional market and this is achieved by harmonizing fiscal policy with tax rates. On the other hand, the complexity of the fiscal system increases the difficulty of voluntary cooperation with the law by small and medium-sized taxpayers, who are the majority of the taxation base. Although recent studies by various organizations and researchers confirm that changes in consumption and capital tax rates are less influential on the economy than changes in individual and labor tax rates, it is worth noting that the shift of the fiscal burden from ( a) consumption and capital to (b) individual and work is quite a difficult task for any government.

The fiscal policy related to the low tax rates for capitals has not had the expected impact on the absorption of investments and consequently on economic growth. This shows that the fiscal policy is a very strong stimulating/inhibiting instrument for the movement of capital and consumption, but the fact cannot be overlooked that the budget needs enough money to make policies for the growth of the labor market through incentives and capacity building , but also through increasing the infrastructure and creating the environment for the introduction of modern technology.

The application of a comprehensive reform policy must be supported by a level of administration with strong capacities. The improvement of the tax system should address simultaneously the policy of tax rates, but also the strengthening of the administration, always being considered a necessary condition for the functioning of the development of the fiscal system in accordance with the objectives for the development of the economy.

[1] See point “A. Legal changes for consumption and national taxes in 2023” in the Appendix of the Report.

[2] excise taxes a specific category of goods and tax rates can be viewed