Albania faces a major challenge related to informality and non-payment of social security, which has negative effects on the economy and social systems. However, comparison with neighboring countries such as Kosovo, North Macedonia and Greece, shows that there is room for improvement through tax policy reforms, strengthening inspections and promoting the formalization of the economy.<\/p>\n
According to the General Directorate of Taxes in Albania, it is estimated that around 30% of registered entities do not correctly report employee income, thus avoiding social security payments. This evasion is particularly pronounced in the construction, tourism and services sectors.<\/p>\n
Meanwhile, according to data from the National Registration Center, in 2023, the number of entities that declared bankruptcy is around 1,100, while a significant part of these entities had unpaid social security debts.<\/p>\n
Bankruptcy statistics show that about 20% of bankrupt businesses had accumulated significant insurance debts, ranging from 500,000 to 10 million lek per entity.<\/p>\n
The lack of social security is leading to an increase in social inequality, as those working in the informal or uninsured sectors are unable to benefit from public services such as health and pensions. This worsens living standards for those individuals and increases poverty.<\/p>\n
With an aging population and a reduced number of contributors, the pension system is at risk, as contributors are not enough to support pension funds in the future. In 2023, about 55% of pensioners had not paid enough during their working lives to receive a full pension, increasing the burden on the state budget.<\/p>\n
The scale of the phenomenon has become even more widespread after the pandemic crisis in Albania, where a good part of small and medium-sized businesses face financial difficulties, often leading to tax evasion, including non-payment of social security. To better understand the situation, it is necessary to analyze the spread, effects and causes of this phenomenon.<\/p>\n
The most affected economic sectors are:<\/p>\n
Construction and trade.<\/em>\u00a0Businesses that usually use seasonal workers and often avoid correct reporting of wages.<\/p>\n Services and hospitality<\/em>. Entities that employ with insecure contracts or informal wages.<\/p>\n Meanwhile, the most affected regions are urban areas, such as: Tirana, Durr\u00ebs and Fier, Vlora due to the high concentration of business, have the highest rate of violations.<\/p>\n Non-payment of social security by entities in Albania, especially those that go bankrupt, is a widespread phenomenon that significantly affects the national economy and social welfare. Legal consequences<\/em> include:<\/p>\n Arrears.<\/em> Entities that do not pay social security contributions are left with outstanding obligations to the tax administration and insurance funds. These obligations include interest and penalties and create a situation of outstanding debt, preventing the reactivation or inflating of debt registers.<\/p>\n Legal procedures<\/em>. In the event of bankruptcy, the bankruptcy administrator must address insurance obligations in the list of priority debts to be paid during the liquidation process.<\/p>\n Sanctions<\/em>. Liability may fall on the administrators or directors of the entity due to evasion of legal obligations.<\/p>\n Economic consequences<\/em> are:<\/p>\n Lost revenue for the budget.<\/em> Non-payment of insurance significantly reduces state revenues, reducing funds for pensions, health and other social benefits. According to the General Directorate of Taxes, losses from tax evasion and non-payment of social security contributions in 2023 were at least 1.2 billion lek. This amount represented potential losses for social security and pension funds, affecting the health system and social service coverage.<\/p>\n Difficulty in the pension system<\/em>. With a part of the population not contributing to the insurance scheme, the state must subsidize pensions through the general budget, increasing the burden on taxpayers. The state budget is obliged to subsidize benefits for individuals who are not insured. This phenomenon increases public spending on social support and pensions, making the budget more burdensome, especially in periods of economic crisis.<\/p>\n Impact to employees<\/em>. If insurance is not paid, employees may lose their rights to benefits, such as pensions or health coverage. The loss of access to health care and pensions directly affects the deterioration of living standards.<\/p>\n Increased informality<\/em>. Non-payment of insurance encourages economic informality and unfair competition between businesses. The informal sector of the economy in Albania is considerable. According to an analysis by the Bank of Albania, it is estimated that the black economy and informality constitute about 30% of GDP, which has a direct impact on the health of social security systems. The social consequences<\/em> are:<\/p>\n Impact on individuals<\/em>. Employees who have worked in such entities may face financial difficulties and lack of security for the future.<\/p>\n Public trust.<\/em> Such practices undermine trust in insurance systems and encourage a culture of evasion.<\/p>\n In the situation created by the non-payment of social and health insurance, there are various reasons why this happens, but from the analysis of the causes identified, they are mostly related to:<\/p>\n – Economic difficulties of businesses. The lack of capital and access to sustainable financing pushes many businesses to reduce costs, including social insurance.<\/p>\n – Culture of informality and tax evasion. Businesses often try to avoid obligations to survive in an economy where informality is common.<\/p>\n – Weak control by law enforcement authorities. The lack of regular inspections and harsh penalties for violators creates an environment where non-payment goes unpunished.<\/p>\n – Inequality of law enforcement. Some larger businesses have access to favoritism from politics or administration, avoiding their obligations.<\/p>\n – Cultural influences and lack of awareness. Many individuals and businesses do not see insurance payment as a priority due to low trust in the system.<\/p>\n The causes of the spread of this phenomenon mainly include:<\/p>\n – High cost for businesses<\/em>. The cost of paying social security for employees is a significant burden for businesses, especially small ones. For an average salary of 50,000 lek per month, the obligation for social security (health and pension) can reach up to 12,000 lek (24% of gross salary), which for some businesses can be a heavy burden.<\/p>\n – Evasion driven by unfair competition<\/em>. Businesses often avoid paying for insurance to reduce costs and survive in a competitive market, where most competitors are informal or do not respect all fiscal obligations.<\/p>\n – Weak controls and unenforced laws influenced by corruption and political patronage<\/em>. Fiscal authorities and inspectors have limited resources and often fail to supervise all businesses. The lack of strict controls encourages evasion and non-payment of obligations.<\/p>\n – Lack of awareness among employees and employers.<\/em> According to a study by the Albanian Business Council, around 50% of employees in certain sectors are not aware of their social security rights, making them less likely to claim the relevant payments from their employers.<\/p>\n The spread of the phenomenon in Albania requires an integrated intervention that addresses not only the direct causes, but also the structural challenges of the economy and the culture of informality. Only through a comprehensive approach can it be ensured that entities respect their obligations and contribute to economic and social stability.<\/p>\n Although it should be mentioned that institutions make daily efforts to address the problems by engaging with the causes, we believe that the responsibility of institutions is a factor with great influence on the entire approach to strengthening the insurance scheme.<\/p>\n In general, in recent years we have seen uncertain policies and legal shortcomings<\/em>. One of the main causes of non-payment of social security is the lack of a stable and efficient policy that encourages businesses to respect their obligations. The government is responsible for creating laws and regulations that should ensure effective supervision and create conditions for encouraging the payment of insurance.<\/p>\n Another factor is the lack of efficiency<\/em> of the inspectorate and tax administration. Another responsibility of the government is the supervision and control of business entities. The lack of a strong and well-equipped inspectorate has led to the increase in informality and avoidance of insurance payments. Tax authorities and responsible institutions must be equipped with the tools and capacities to control and supervise businesses and individuals that do not contribute.<\/p>\n Likewise, the failure to narrow tax evasion<\/em> and informality is another influencing factor. The government should take effective steps to combat tax evasion and enforce laws that prohibit economic informality. If state authorities do not create a strong legal environment and punish violators, the situation will continue to deteriorate.<\/p>\n Finally, the delayed reform of the social security system<\/em> is also having a negative impact. Another responsibility of the government is the development and modernization of the social security system. In the meantime, the lack of involvement of the private market is a major shortcoming that is affecting the scheme. On the other hand, reforms that improve the registration process and the supervision of employees are necessary to achieve a sustainable and efficient system.<\/p>\n But businesses and employers have a major responsibility.<\/p>\n Non-compliance by private entities and employers is a direct responsibility, which includes registering employees in the social security system and paying the appropriate contributions. Many businesses avoid paying social security, placing the burden of payment on the state and on individuals.<\/p>\n Evasion and informality by businesses operating in informal sectors, such as construction, tourism and agriculture, have often avoided social security obligations. For this, employers are responsible for ensuring that their employees are registered and contribute to insurance schemes.<\/p>\n Insufficient support for employees, where small and medium-sized businesses often do not provide sufficient support for employees, due to financial problems they may have, is a very widespread cause. This leads to a lack of insurance and benefits for employees.<\/p>\n Responsibility for the situation also includes employees and individuals<\/p>\n The lack of information and awareness, where a large part of individuals, especially those working in informal sectors, are not aware of the importance of social security and the consequences of non-payment of contributions is quite widespread. This is a responsibility of individuals to understand how the payment of contributions can affect their health insurance and pensions.<\/p>\n On the other hand, the avoidance of obligations by some individuals, especially those engaged in temporary or uninsured work, has been a trend and preference that still continues by avoiding insurance payments. Their justification is especially among young people who consider insurance an excessive financial burden.<\/p>\n The responsibility of the entire market has a strong impact<\/em> on the situation of non-payment of insurance.<\/p>\n Some businesses, especially small ones, face financial difficulties and are unable to fulfill their insurance obligations. Banks and financial institutions can provide greater support to businesses through credit lines that can help meet these obligations.<\/p>\n Monitoring the financial flows of businesses and individuals by financial institutions also plays an important role, to identify the possibility of evading obligations and to prevent abuses of the insurance system.<\/p>\n Trade unions and NGOs still do not play a sufficiently active role in educating workers on the importance of social security and the help they can provide to improve conditions for workers, especially in sectors that face the highest informality.<\/p>\n Trade unions should advocate for necessary reforms in insurance policy and for the protection of workers\u2019 rights. They can also influence employers to help ensure that workers are covered by social security.<\/p>\n In these conditions, our analysis orients us towards those moments for reflection and to propose approaches that should be integrated with the policies in force, as well as policy documents for the future, in the context of updating the pension scheme reform. In fact, we understand the reform of the scheme by understanding how to address the solution of problems and strengthen the fight against informality.<\/p>\n Among our comments in this regard are:<\/p>\n Strengthening monitoring<\/em>, which means a qualitative improvement in control and inspections. An increase in inspections to verify social security payments could help reduce evasion. About 70% of entities inspected by fiscal authorities were found to be in violation of tax and insurance rules. Strengthening control<\/em> and inspectorate is a very important step to reduce informality and non-payment of insurance. The government should operationalize and invest in advanced programs to monitor informality in economic activities, as well as engage specialized inspectors to monitor insurance payments and help assess the risk of tax evasion.<\/p>\n Stronger supervision<\/em> for high-risk sectors, such as construction, tourism and services, is necessary not with campaigns, but with medium-term plans and as a comprehensive package of control and assistance. The combined use of technology and data analysis can help to quickly identify businesses and individuals that do not meet their obligations.<\/p>\n Small business facilitation policy.<\/em> Proposing a payment facilitation program for small businesses, by offering debt restructuring opportunities, can help them meet their insurance obligations. Debt restructuring schemes can help entities in difficulty avoid bankruptcy.<\/p>\n Tougher penalties for violators.<\/em> Increasing the size of fines and up to criminal penalties should be commensurate with all other developments in the administration of the insurance scheme. Penalties for tax evasion and non-payment of insurance should include fines and suspension of licenses for businesses that do not meet their obligations. Emphasizing responsibility for payment avoidance can act as a deterrent.<\/p>\n Meanwhile, among other possible measures for sustainable development of the insurance scheme, we believe that the following are also needed:<\/p>\n – Increasing information exchange and inter-institutional and inter-state cooperation<\/em><\/p>\n To combat tax evasion and informality, the administration should refocus cooperation and joint implementation programs on the ground, based on the coordination of policy points to be implemented. Meanwhile, Albania could be more involved in regional projects for the exchange of tax and insurance information with neighboring countries. This could include assistance from international organizations and banks, as well as technical assistance from the EU and the International Monetary Fund.<\/p>\n For example, Greece has a strong information exchange system to detect tax evasion. Albania could improve this by implementing a centralized system that connects tax and social security authorities, enabling closer supervision of entities and individuals that evade payments.<\/p>\n To help formalize the market, Albania could become more actively involved in specific international projects that promote the formalization of businesses, especially small ones. Participation in EU or international financial institution projects could provide opportunities to develop other options for financial and technical support.<\/p>\n For example, North Macedonia has implemented several successful projects to promote business formalization and to provide opportunities for subsidizing insurance premiums, especially for small businesses. Albania could adopt similar measures to facilitate support for new employers and those facing financial challenges.<\/p>\n – Insurance policy reform and boosting participation<\/em><\/p>\n Albania has embarked on a process of reforming social security policies, including measures to encourage more individuals and businesses to register and contribute. However, we see it as a closed process with consultations that do not include interest groups and implementers, and in a way and mindset that have shown to be unsuccessful in functioning as such.<\/p>\n What we suggest are flexible schemes for small businesses. It is recommended to create low-cost insurance schemes for small businesses and young entrepreneurs, to encourage the formalization of economic activities.<\/p>\n Also, facilitating access for young workers and specific sectors is a sensible approach. Creating an \u201cincentive program\u201d for young workers and those working in difficult sectors (such as construction, agriculture, tourism) could help increase participation in social security by coordinating costs with businesses to ease the transition to the market. For example, bonuses or benefits may be offered to those who regularly pay contributions.<\/p>\n Responsibility for the situation of non-payment of social security contributions and bankruptcy of entities is a shared responsibility between the government, businesses, employees, financial institutions and unions.<\/p>\n Each actor has a key role in creating a stable and efficient environment for the insurance system, and to mitigate the phenomenon of informality and tax evasion. To address this problem, close cooperation between these actors and the implementation of a series of coordinated measures are required that may include law enforcement, support for small businesses, education of individuals and a stronger and more efficient inspectorate.<\/p>\n In conclusion, the phenomenon of non-payment of social security contributions and bankruptcy of entities that violate the law is a complex problem that has profound economic and social effects. To solve it, a tougher approach is required, with reforms in the law and strengthening its implementation, as well as facilities for businesses that engage in insurance payments. Albania faces a major challenge related to informality and non-payment of social security, which has negative effects on the economy and social systems. However, comparison with neighboring countries such as […]<\/p>\n","protected":false},"author":2,"featured_media":19882,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[9756],"tags":[14545,14544,9824,14543,14546,11575,14547,8842],"class_list":["post-19884","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-bankruptcy","tag-contributions","tag-informality-en","tag-non-payment","tag-small-businesse","tag-social-security","tag-stronger-supervision","tag-tax-evasion"],"featured_image_src":{"landsacpe":["https:\/\/altax.al\/wp-content\/uploads\/2024\/12\/sigurimet-640x445.jpg",640,445,true],"list":["https:\/\/altax.al\/wp-content\/uploads\/2024\/12\/sigurimet-463x348.jpg",463,348,true],"medium":["https:\/\/altax.al\/wp-content\/uploads\/2024\/12\/sigurimet-300x300.jpg",300,300,true],"full":["https:\/\/altax.al\/wp-content\/uploads\/2024\/12\/sigurimet.jpg",640,640,false]},"yoast_head":"\n
\nNon-payment of social security also results in various consequences, which are summarized in legal, economic and social consequences. To analyze this situation, we can address several main aspects:<\/p>\n
\nAround 40% of individuals working in sectors such as construction and services are uninsured, resulting in low reliance on insurance and health systems.<\/p>\n
\nFiscal authorities and social security should implement stricter monitoring of payments.<\/p>\n
\nCompared to neighboring countries, it appears that Albania has some major challenges related to informality and non-payment of social security, but there are also opportunities to improve the insurance system and reduce the debts accumulated by bankrupt businesses.<\/p>\n","protected":false},"excerpt":{"rendered":"