The uncertainty of tax privatization in Albania

Over the last decades, the lines between public and private, corporations and government have become uncertain, as more and more things that have traditionally been part of our commons, and controlled by the government, are being sold off to the highest bidder in an endless wave of privatization.

One of those things is tax collection.

We, at ALTAX want to raise some question regarding to tax privatization debate.

What are until now the merits of bureaucratic and what will be the merits of private tax collectors?

What are the major institutional and political benefits and constraints facing taxpayers in present day?

In particular, how can the problems of corruption and lack of ethics in revenue collection be resolved?

And the most important and very simple question is why outsourcing (privatization) tax collection to private debt collectors?

Privatized collection is a complex solution to a simple problem. The tax administration has significant volumes of collection cases in its inventory, and should be emphasized that in only three last years the volume of debts it is at least 30% higher than in 2013.

Near the end of September 2016, there were just at least 19 thousand taxpayers with delinquent accounts. This volume represents 12 percent of the taxpayers registered to the National Register of Taxpayers. Based in the tax revenue collected by General Directorate of Central Tax Administration (GDT) the share of uncollected debt is at least 50% of all the revenues.

Seems that the performance of collection of tax revenues is not good.

That’s a lot of accounts, and presumably a lot of money.

Who is the reason that the situation has gone in the worst direction, since the procedures are very strict and the capacities are there in place in the tax administration?

The GDT doesn’t need help collecting it if they will use efficiently their sources and capacities. The government of Albania already operates one of the most powerful collection agencies in the Balkan region, because of the broad competencies, number of public employees and the technology invested in the last three years, and with the uninterrupted assistance of experts of IMF and other European tax organizations. The same is valuable for the local tax authorities, because they serve to the same and proper legislation.

The GDT may, without judicial approval, serve a levy against a taxpayer’s bank account, serve a levy against a taxpayer’s Social Security benefits, garnish a taxpayer’s wages, or file a notice of tax crime against a taxpayer’s property. In rare cases, it may even seize a taxpayer’s property, including individual and business assets.

So, who other civil agency besides of the judicial ones has so much rights to be used to make their public duty?

Private debt collectors can’t compete with that sort of power. But they can compete when it comes to staff.

Even this fact, the IMF and some part of politics doesn’t like that idea.

Critics of private collection have made that point repeatedly an idea that has not been presented to the political high-level discussions. The most important argue to justify the idea as not convenient for Albania it is the poor performance of tax collection and the weak capacities in place. Both argues are only the responsibility of the politics and nobody else.

In fact, outsourcing could create new problems instead of solving old ones. By introducing a profit motive into the collection function, it could lead to all sorts of shady behavior by the hired companies.

But the former experiments in giving some authorities to the private companies to assist the custom or the tax administration have failed. If lawmakers go down this road for another experiment with failure, they will have only themselves to blame. Which means, of course, that they’ll blame the local and central tax administration.

In the attempt to cut costs and increase revenue from back-taxes, the Tax administration maybe will sign a contract with private debt collection agencies to collect tax debts. These companies will be paid by the Budget on a contingency fee basis, based on the amount of tax debt that they collected.

When the Tax Administration deals directly with taxpayers, it has governmental discretion to negotiate settlements with taxpayers, including the power to suspend or cancel debts. Private collections cannot make such offers, so the GDT could limit private debt collectors to “easy” cases that did not require any governmental discretion to resolve.

Unfortunately, it has become clear that few if any cases do not require governmental discretion to resolve, so the private collectors will be often to assign cases that they could not resolve.

To have a clear idea of what could be loosed directly from this process let’s see the IRS experience, even the template is not the real and proper one for Albania, but the problems are at least the same within tax administrations.

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.

Besides the debate about the pros and cons linked with the privatization of collection, in Albania exist a problematic situation regarding to the lack of capacities of local tax authorities.

Decentralization has featured among Albania’s foremost objectives since the country entered an ambitious economic and institutional reform programme in 2015. In its establishment of a decentralized local government system, Albania put in place a radical approach to local revenue generation and other competencies of vendor finances in order to be more independent from the transfers from budget money.

The advocacy that the local authorities make for private tax collection, also supported by some high level of bureaucrats, donors and other participants in the policy making on local government finance, is echoed in the recently published of best practices in revenue mobilization.

Historically, private tax collection discussion has presented administratively weak governments with two main advantages. Firstly, the opportunity to save on costs of tax administration by shifting the costs of collection onto the private sector. Secondly, tax privatization is also likely to remedy corruption at collection point, by offering superior mechanisms for penalizing poor collector performance. The main disadvantage is the risk of overzealous collection which may result in a deterioration of state-citizen relations.

Left wing legislatures should mandate firstly, as a first move the privatization of tax collection for local taxing authorities. We already in Albania have privatized part of education, highways, police etc.

If the privatization program will run into problems and will not deliver the service on its promised revenue then the politicians should carefully think about the privatization of tax collection at the national level.

In analyzing the efficiency of a privatization reform, especially when the proposed reform is privatization, the government should look at efficiency from a societal point of view.

The deep analysis of what is the performance of the tax system should evaluate if the tax collection is productive, and in such situations increasing revenue should not be the main objective of tax policy.

The tax collection reform means momentarily less “production” of tax revenues and more efficiency for the future.