Who really pays VAT in Albania?

Who really pays VAT in Albania?

The comparison and analyse of data from INSTAT and Ministry of Finance about Monthly Household Per-Capita Income, Relative Tax Burden, Per Capita Consumption, and relative VAT Paid the result show that the VAT burden in the lowest income group is 7.9 percent, which is extremely high given the fact that the VAT burden of the highest income group is only 5.5 percent.
The higher income groups are enjoying fewer burdens than the lower income groups.

Sound fiscal policy is fundamental to maintain macroeconomic stability and foster economic growth of any country. Excess expenditure over revenue collection (fiscal deficit) may have an adverse effect on macroeconomic stability. This means resource mobilization, whether sourced internally or externally, is immensely important to the overall economic management of a government.

This is true in Albania, where tax revenue accounts for about 91.5 percent of total government revenue, and the VAT alone accounts for more than 36.8 percent of total tax revenue.
In this article, we express that the incidence of VAT on the poorest of the urban income groups is higher than that on the middle-income groups, but the incidence rises as income increases for the people of rural areas.

The comparison and analyse of data from INSTAT and Ministry of Finance about Monthly Household Per-Capita Income, Relative Tax Burden, Per Capita Consumption, and relative VAT Paid the result show that the VAT burden in the lowest income group is 7.9 percent, which is extremely high given the fact that the VAT burden of the highest income group is only 5.5 percent.
The higher income groups are enjoying fewer burdens than the lower income groups.

Taking considerations to all of the analysis done in previous chapters, the study suggests the following policy recommendations that could help design a better VAT system in Albania.

First, VAT can be made less regressive by making a distinction between luxurious goods and necessity goods. So the better policy would be not to maintain a single rate of VAT.
The government could impose a higher rate of tax on goods that account for a greater share of expenditure of the better-off members of the society;

Second, exemption causes distortion and induces elements of tax evasion in the tax system. But some exemptions are unavoidable. So exemptions should be limited only to basic health service, public transport, agriculture and agro-based industries and government education;

Third, a reasonably threshold can reduce the regressivity of a VAT system.
It can help the lower income group of people and ensure the equity of VAT.

Even though applying high threshold, more revenue can be collected by close monitoring of the large taxpayers through adopting risk based audit programmes.

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