Tax Burden in 2020 in Albania Kosovo and Wb-Opm0vi

ALTAX MARCH 2020 altax@altax.
al
Albanian Fiscal Studies 8th Edition www.altax.al
TAX BURDEN
IN ALBANIA, KOSOVO and WESTERN
BALKANS,
2020
Tax Freedom Day in Albania, Kosovo and Western Balkans in 2020
Tax to GDP ratio 2019
Tax burden according to regions in Albania and Kosovo in 2019
Distribution of tax burden based on the destination of expenditures
Investments and tax rates in the Western Balkans
GINI Index and Inequality
Dita e Lirisë Fiskale në Shqipëri, Kosovë dhe Ballkanin Perëndimor në 2020
Tatimet ndaj Prodhimit të Brendshëm
Barra fiskale sipas rajoneve/regjioneve në Shqipëri dhe Kosovë në 2019
Shpërndarja e barrës fiskale sipas destinacionit të shpenzimeve
Investimet dhe Normat Tatimore në Ballkanin Perëndimor
Indeksi GINI dhe pabarazia
Tax Burden in Albania, Kosovo and Western Balkns in 2019 >>>>Tax Freedom Day in 2020 in Albania, Kosovo and Western Balkans
1
TAX BURDEN
IN ALBANIA, KOSOVO and WESTERN
BALKANS
2020
TAX FREEDOM DAY in ALBANIA, KOSOVO and WESTERN BALKANS in 2020
Report of taxes, fees and social contributions to GDP

Fiscal burden according regions in ALBANIA and KOSOVO in 2019
Public investments, FDI in WESTERN BALKANS
Index GINI and inequality
Distribution of fiscal burden
ALBANIAN FISCAL STUDIES

8th Edition

ALTAX Center is an initiative of Albanian researchers aiming at a new approach to assisting Albanian fiscal and
economic policy with an approach to European fiscal policy. The main goal is to promote education of the fiscal
system within taxpayers and to incentivise its adaptation to the economic environment, to assist taxpayers and
stakeholders (students, field experts, researchers) through expertise in order to be informed about the fiscal
environment and the economic climate. On the other side, cooperation with academics and fiscal experts helps to
expand and create a full audience in helping to increase fiscal capacity in Albania and Kosovo.
WE GIVE YOU THE EXPERIENCE, NOT ONLY THE SERVICE!
ALBANIAN FISCAL STUDIES

THEMATIC COLLECTION
TAX BURDEN AND TAX FREDOM DAY
8th Edition
No. 2020/03/05
www.altax.al
altax@altax.al
Date 22.03.2020
Tirana, ALBANIA
2
Tax Burden in Albania, Kosovo and
Western Balkan in 2020
Publication and distribution

ALTAX CENTER
Analysis and comparisons, according to taxes and expenditures carried out during 2014-2018, according to the
administrative areas of Albania serves to see who the geographic area is charged more or less with fiscal obligations.
Meanwhile, a more detailed analysis within the document intends to orient fiscal policy and public debate to verify
burden-sharing and investments for industries or areas that need to shift the burden according to the economic
situation that varies year by year after year.
©ALTAX
MARCH 2020
TIRANE - AL
Keywords: Tax burden, tax, fee, region, tax rate, FDI, GINI, investment, tax freedom, Western Balkans, Albania,
Kosovo
JEL Classification: H20, H26
TERMS OF USE AND DISCLAIMER

The analysis presented in the Tax burden in Albania, Kosovo and Western Balkans in 2020, is based on a methodology
integrating the latest statistics from international organizations and national sources of statistics and finances. The
methodology, developed in collaboration with leading experts and partners through a consultative process, is
designed to support policymakers to identify relevant policies and practices. The findings, interpretations, and
conclusions expressed in this work do not necessarily reflect the views of the ALTAX CENTER. Data in this
Report is subject to change without notice. The terms cover well-defined, geographically economic areas.
When this Report for which the ALTAX CENTER is the source is distributed or reproduced, it must appear
accurately and be attributed to the ALTAX. This source attribution requirement is attached to any use of data and
comments, whether obtained directly from the ALTAX or from another user. Users who make the Report Tax burden
in Albania, Kosovo and Western Balkans in 2020 available to other users through any type of distribution or download
agree to make reasonable efforts to communicate and promote compliance by their end users with these terms.
Users who intend to sell the Report - Tax burden in Albania, Kosovo and Western Balkans in 2020, as a standalone
product, or in part must first obtain the permission from the ALTAX Center (altax@altax.al).
The document is available on the website - www.altax.al
3
Acknowledgements
(ENGLISH) ALTAX CENTER specially thanks the educational and legal staff for the work done in collecting
data, processing them, as well as a dedicated thanks to the designer for the formatting of this publication. ALTAX
is an Albanian think-tank initiative asisted by tax experts and fiscal policy analysts, aiming at a new approach to
Albanian-European fiscal and economic policy. The primary goal is to promote education in taxation, help and assist
the taxpayers and interested parties(students, field experts, civil servants) with the proper expertise. On the other
side, the cooperation with the academics and fiscal experts helps to expand and create a comprehensive audience in
help of increasing of fiscal capacities in Albania and Kosovo. One of our key goals is to achieve a more efficient and
less complex tax system for all. Our comments and recommendations on tax issues are made solely in order to
achieve this aim; we are an entirely apolitical organization.
ALTAX represents the interest of taxpayer and is founded to help, increasing the knowledge and education about
the implementation in the right way of fiscal policies and public finances management. We are organized and work
based on the principle “Right from the start”.
WE HELP YOU TO PAY TAXES!

WE HELP YOU NOT TO PAY BRIBE FOR TAXES!
WE BELIEVE IN SINLESS ADVISE!
Konsiderata
(ALBANIAN) Qendra ALTAX falënderon në mënyrë të veçantë stafin e edukimit dhe atë ligjor për punën e bërë
në mbledhjen e të dhënave, përpunimin e tyre, si dhe një falënderim të dedikuar për dizajnerin për formatimin e bërë
këtij publikimi. ALTAX është një nismë studiuesish dhe analistësh fiskalë shqiptarë me synimin e një qasje të re
analize dhe diskutimi në ndihmë të politikës fiskale dhe ekonomike shqiptare me qasje drejt politikës fiskale
evropiane. ALTAX është një qendër studimore fiskale dhe punon që të rritë mirëkuptimin e qeverisë dhe publikut
për çështje të lidhura me ndershmërinë e sistemit ekonomik, fiskal ne shoqërinë civile ne Shqipëri, si dhe kryerjes së
shërbimeve publike vendore dhe qendrore të duhura dhe të qëndrueshme. Një nga qëllimet tona kyçe është arritja e
një sistemi tatimor më efikas dhe më pak kompleks për të gjithë. Komentet dhe rekomandimet tona për çështjet
tatimore bëhen vetëm për të arritur këtë qëllim. Ne jemi një organizatë tërësisht apolitike.
ALTAX përfaqëson interesat e taksapaguesve, si një qendër kërkimore të pavarur fiskale, në rolin e një komentatori
të financave publike, politikës fiskale, ligjit tatimor, edukimit fiskal, politikave sociale dhe pabarazive sociale në
shpërndarjen e mirëqenies duke vlerësuar zhvillimin e politikave me qëllim promovimin e zhvillimit në Shqipëri të
krahasuara me vendet në rajon dhe botë.
NE JU NDIHMOJMË TË PAGUANI TAKSAT!

NE JU NDIHMOJMË TË MOS PAGUANI BAKSHISH PËR TAKSAT!
NE BESOJMË NË KËSHILLIMIN PA MËKATE!
If you want to send comments, or explanations, please contact us via email: altax@altax.com
4
ABSTRACT
(ENGLISH) This Annual Report on Tax burden is the main output of the monitoring process of the ALTAX 2020 Albanian
Fiscal Studies Series. This report covers the period January 2019 to December 2019 and consists into 5 chapters. The thematic
series of publications that are already a tradition about the debate of the tax burden in Albania and other countries of region as
well, are presented by ALTAX Center again this year, with the lowest tax burden and highest tax burden indicators in 2019, for
each region in Albania and Kosovo, which mean the classification for every of 12 albanian regions and the Saranda city in
Albania, as well as 7 regions of Kosovo, which inlude 38 communes in total. The share of the tax burden is also presented in the
comparison between the countries of the Western Balkans by making the classification for the highest burden and the lowest tax
burden recorded in 2018 and compared with the previous year's rating. A special place of study also is the tax burden in Kosovo,
which is published for the 8th time by ALTAX Center. Calculation of the share they have in relation to budget and domestic
regional production is an indicator that aims to present disproportion between the regions in the two Albanian states, but also
between the Balkan regions themselves, where a special part holds the seven Western Balkan countries. The Balkans are part of
Europe, geographically surrounded by EU members.
With the inclusion of the GINI index in the study is added a depth analysis abou the wealth being, including the interactive effect
of fiscal burden, revenue distribution, and the use of taxes on spending from the budget.
The purpose of presenting this study is to present important implications for the cities and countries involved in the study, since
taxes, and fees are a key part of the tax burden and a source for enabling public services that impact on competitiveness and
quality of life, economy and welfare of countries and cities. The data used for the calculations are obtained from official statistics
sources, from finances, taxes and organizations that keep data and publish them, both domestically and externally. Part of the
data was processed and used to compare and serve as the main reference for the presentation. The study aims to attract
policymakers and scholars attention, fiscal media, fiscal policy analysts and tax administration authorities, as well as critics who
can reserve comment reviews or have questions about the calculations and facts presented in the document.
PËRSHKRIM
(ALBANIAN) Raporti i përvitshëm mbi barrën fiskale është studimi kryesor i procesit monitorues të serisë së
Studimeve Fiskale shqiptare të ALTAX në 2020. Ky raport mbulon periudhën 2019 -2020 dhe është i përbërë në 5
kapituj. Në serinë e publikimeve, një traditë e krijuar për të tetin vit për analizën mbi barrën fiskale, QENDRA ALTAX
prezanton edhe këtë vit, barrën fiskale më të lartë dhe më të ulët, për secilin nga 12 qarqet dhe qytetin bregdetar të Sarandës në
Shqipëri, si dhe për 7 rajonet që përfshijnë 38 komunat në Kosovë. Pesha e barrës fiskale paraqitet në studim edhe në krahasimin
midis vendeve të Ballkanit Perëndimor duke bërë klasifikimin për barrën më të lehtë dhe barrën fiskale më të rëndë të regjistruar
në vitin 2019 dhe të krahasuar me klasifikimin e një viti më përpara. Një vend të veçantë mban barra fiskale për Kosovën. Ajo
trajtohet në nivel shteti, si dhe rajonesh. Qendra ALTAX e publikon për herë të tetë barrën fiskale, si dhe ditën e lirisë fiskale.
Llogaritja e peshës që ato mbajnë në raport me buxhetin dhe prodhimin e brendshëm rajonal është një tregues që synon të
prezantojë disproporcionet midis rajoneve në dy shtetet shqiptare të Ballkanit, por edhe midis vetë vendeve të Ballkanit, ku një
pjesë të veçantë mbajnë 6 vendet e Ballkanit Perëndimor. Ballkani është pjesë e Evropës, gjeografikisht i rrethuar nga anëtarë të
BE-së.
Me përfshirjen e indeksit GINI në studim rritet analiza për mirëqenien ku përfshihet efekti bashkëveprues i barrës fiskale,
shpërndarjes së të ardhurave dhe përdorimit të taksave për shpenzime nga buxheti.
Qëllimi i prezantimit të këtij studimi është prezantimi i implikimeve të rëndësishme për qytetet dhe shtetet e përfshira në objektin
e studimit, sepse tatimet, taksat dhe tarifat janë një pjesë kyçe e barrës së taksave dhe si një burim për mundësimin e shërbimeve
publike, që ndikojnë në konkurrencën dhe në cilësinë e jetës, ekonomisë dhe mirëqenies së vendeve dhe qyteteve. Të dhënat e
përdorura për llogaritjet janë marrë nga burime statistikore zyrtare, nga financat, tatimet dhe organizata që mbajnë të dhëna dhe
publikojnë, si brenda dhe jashtë Shqipërisë. Një pjesë e të dhënave janë përpunuar dhe përdorur për të krahasuar dhe shërbyer si
referencë kryesore për prezantimin. Me anë të studimit tentohet të tërhiqet vëmendja e politikës dhe studiuesve, medias fiskale,
politikes fiskale dhe administrimit, si dhe kritikëve që mund të rezervojnë komente për vlerësimin apo kanë pyetje në lidhje me
llogaritjet dhe faktet e prezantuara në dokument.
5
Terms and definitions
ASK Agency of Statistics of Kosovo

BoA Bank of Albania
CE Council of Europe
EU European Union
Foreign Direct
Foreign Direct Investments are net inflows of investments to receive a profit in an enterprise
Investments
operating in a different economy than that of an investor.
(FDI)
GDP Gross Domestic Product
GNP Gross National Product
IMF International Monetary Fund
IAS International Accounting Standards
IFRS International Financial Reporting Standards
Labour Taxes This tax group includes taxes directly related to income generated from work. Such income
is the income tax on employment and the contribution of social and health insurance.
NAS National Accounting Standards

SAA Stabilization Asociation Agreement
Direct income tax. Although the term generally applies to a tax on individuals (where it can
be defined as a personal income tax or personal income tax), it is also used in some countries
for a tax on legal entities, such as societies.
Tax is generally applied annually, ie. on income earned on or related to a particular fiscal
year.
Taxes on income
Two main income tax systems can be distinguished: a global tax system and a tax table on income tax.
However, even in global tax systems, in view of the theoretical different definitions of income, most countries
specify the posts that constitute income for tax purposes. Income tax rates can be applied on a progressive scale
where the tax rate increases with income growth or fixed rate. An overpayment can also be set.
Most countries place income tax on the total income of residents worldwide and on domestic sources of income
in the case of non-residents. Some countries, however, limit income tax on domestic income for both residents
and non-residents according to the principle of territory.
The term is used for statistical purposes by the United Nations to refer to "capital liabilities
Tax on capital (ie those taxes set at irregular intervals and very low on asset values or net assets owned by
gain institutional units) and transfer taxes of capital (ie taxes on assets values transferred between
institutional units as a result of inheritance, inter vivos (ie when the donor is alive) or other
transfers ".
The total amount of taxes and taxes paid, as well as customs and social and health insurance,
Tax Burden (TB) based on the relevant tax base (capital, labor and consumption taxes) by a certain group of
(Fiscal) taxpayers, industries, the region, state etc., comparable to what the groups, industries,
regions, states etc. pay for.
VAT Value Added Tax
Western Balkans composed by Albania, Bosnia-Herzegovina, Kosovo, Montenegro, North Macedonia,
WB6
Serbia
WB World Bank
6
CONTENTS
Introduction Page 8
Data source Page 9
1 Western Balkans - Economy, Governance and Market Development, 2019 Page 10
1.1 Western Balkans and Macroeconomic Overview in 2019 Page 11
1.1.1. Macroeconomic and fiscal indicators of Albania Page 15
1.1.2. Macroeconomic and fiscal indicators of Bosnia and Herzegovina Page 16
1.1.3. Macroeconomic and fiscal indicators of Kosovo Page 17
1.1.4. Macroeconomic and fiscal indicators of Montenegro Page 18
1.1.5. Macroeconomic and fiscal indicators of North Macedonia Page 19
1.1.6. Macroeconomic and fiscal indicators of Serbia Page 19
1.2 Budgetary and tax revenues in the Western Balkans, 2018-2019 Page 20
1.3 Fiscal burden, its structuring and tax rates in the Western Balkans in 2018 - 2019 Page 21
1.4 Fiscal burden in countries with progressive taxation and those with flat taxation Page 27
1.5 Fiscal burden and budget revenue distribution Page 28
1.6 Foreign Direct Investment and innovation related to the fiscal burden Page 30
1.7 The impact of increased investment on competitiveness and not just taxes Page 34
1.8 Double taxation agreements in the Western Balkans and the effect on the fiscal burden Page 36
1.9 The need for effective fiscal reform in Western Balkans Page 38
1.10 The measurement of the informal economy and digitalization serve the fight against Page 40
evasion
2 Fiscal Burden in Western Balkans in 2019 Page 42
2.1 Fiscal burden according to taxes Page 42
2.2 Distribution of fiscal burden in Western Balkans by destination Page 43
2.3 The well-being of individuals and distribution in the Western Balkans in 2014-2019 Page 47
3 Fiscal Burden in Albania in 2019 Page 52
3.1 Budget and fiscal burden performance Page 52
3.2 Shpërndarja e barrës fiskale sipas destinacionit të buxhetit Page 56
3.3 Fiscal burden of DTM and Tirana in the years 2012 - 2019 Page 60
3.4 Local per capita tax by municipalities in Albania in 2019 Page 62
3.5 Fiscal burden on regional GDP in Albania Page 66
4 Fiscal Burden in Kosovo in 2019 Page 69
4.1 Kosovo budget performance Page 69
4.2 Distribution of fiscal burden according to the budget destination Page 71
4.3 Local Taxes per capita by municipalities in Kosovo Page 73
4.4 Regions with the highest and lowest fiscal burden in Kosovo Page 75
4.5 Fiscal burden on the regions of Albania and the regions of Kosovo Page 76
5 Tax Freedom Day 2020 Page 77
Tax Freedom Index and Methodology Page 77
5.1 Tax Freedom Day 2020 in the Western Balkans Page 78
5.2 Tax Freedom Day 2020 in Albania Page 79
5.3 Tax Freedom Day 2020 in Kosovo Page 81
Summary Page 83
ANNEX Fiscal Regimes - Legal Changes in 2019-2020 in the Western Balkans Page 86
7
Introduction
The development of fiscal policies in function of economic and social models depends on the correctness
of the policy, as a reflection of the economic and social environment. In the Western Balkan region, as in
the rest of the world, government budgets need to be supported by tax systems that promote the increase
of incomes per capita by stimulating economic competition.
The growth rate of the economy in 2019 depended mainly on the slow pace of addressing and removing
barriers that have dragged for decades development with full potential of the private sector. Meanwhile,
the institutions that are engaged in enabling the preservation of a business-friendly environment have
reached a level of minimal regulation, which, if follows, increases the pace of implementation of
comprehensive structural, economic and social reforms. An important goal to be implemented is related
to the future improvement of the economic and social climate for better conditions adapted to EU
standards.
The measurement and presentation of the tax burden as well as the presentation of the Tax Freedom Day
Index are in the eighth edition of their publication on the Albanian economic and political environment
and beyond. The fiscal and economic study presented on the results of the methodology used by the
experts and partners of the ALTAX Center for the calculation of Tax Freedom Day, 2020 has become a
reference for researchers, journalists and students and aims to create a model in the Albanian economic
and political environment.
The publication of the fiscal burden shows the effect, in what how a good / bad tax policy fulfills one of
the primary goals, increasing revenue while maintaining the equality of taxpayers for the burden they
should bear. On the other hand, the policy should aim at the effect that equality falls on the distribution
of the burden that taxpayers should bear according to their ability to pay.
Through the measurement of the fiscal burden we aim to analyze the effects of the taxation system on the
distribution of economic well-being in Albania, Kosovo and the Western Balkans. The study is conducted
to show the level of fiscal burden for Albanian regions, commenting on the opportunities that fiscal
policies should be analyzed and administration in increasing revenues by comparing with similar regions.
Its presentation is seen in terms of financing local and central investment spending and increasing the
well-being of citizens, not forgetting that fiscal policy through the burden decides on the redistribution of
income.
On the other hand, given the fact that every citizen is a contributor to the state budget by paying a tax in
a direct or indirect form, then it is interesting for everyone to know how much fiscal burden they bear in
relation to citizens in other regions of Albania, Kosovo as well as in other Balkan countries.
The ranking of regions within Albania and Kosovo, as well as in countries within the Western Balkans
region, according to the fiscal burden gives the business the opportunity to examine the effectiveness of
government policies and initiatives for economic development, and may affect the moment of analysis for
the allocation of public spending in the context of transparency of public finances.
This analysis, according to the administrative areas, serves to see which group or geographical area is the
most charged, and on the other hand a more detailed analysis orients the policy to see which industry or
area should have a different burden from what results from the research.
The object of data comparison is the income taxes paid on behalf of the state budget by residents and
non-residents. Taxes and customs duties included in this analysis are taxes administered by the central tax
administration (including social security contributions), taxes and fees administered by local tax
administrations, and customs duties, all them calculated according to the region where they are collected.
8
The results of this study are based on the income generated by residents by residence where they are,
without excluding tax revenues from large taxpayers of the country and the capital (included according to the
address of residence), which meet close to 3 / 4 of the total total tax revenue for both levels of tax
administration.
Statistical data for regions are the subject of analysis, according to the comparison of budget program
data, level of implementation and various sources.
The structure of this document consists of five parts.
The first part is a presentation of statistical and macroeconomic data for the Western Balkans, as well as
analysis of tax rates and their role, the effect of the burden on foreign investment, and the role of Double
Taxation Agreements.
The second part is the fiscal burden in the Western Balkans and the distribution of the burden according to
the destination of spending in all 6 countries.
In the third part is an analysis and commentary of the fiscal burden in Albania in 2019 and the ranking of
regions and municipalities, according respectively to the level of fiscal burden and local tax burden per
capita.
The fourth part is an analysis of the fiscal burden in Kosovo in 2019 and the ranking of regions and
municipalities, according respectively to the level of fiscal burden and local tax burden per capita.
The fifth part, respectively explains the methodology of calculating the Tax Freedom Index and presents the
Calendar of the Day of Tax Freedom of the Western Balkans, and specifically of Albania and Kosovo together
with the comments of regions according to the ranking.
Data source
The data used belong to the realization of the preliminary budget indicators of 2018 and 2019 and in
certain analyzes also data of the previous years. They are taken from reports published by the Monetary
Fund, the World Bank, the think tank Institutes and the statistical and study center of the European
Union member states, as well as from official financial publications of the Balkan countries.
A special place in the data and information administered and processed by analysis team are the public
reports approved by the Councils of the Municipalities of Albania, as well as the reports of the
Communes of the Republic of Kosovo in the last two years.
The presentation of data on domestic production, payment of taxes and fees are based on the cross-
referencing of information, which is published in the reports of the International Monetary Fund
(Country Reports), World Bank, Regional Cooperation Council, Eurostat etc., which contains tables,
comments and projections for macro data for recent years including the most recent year 2019.
Data on regional domestic production were obtained from the Ministry of Finance in thremester public
debt publications, as well as from the publication of the Statistics Agencies. While macro data on taxes
and fees paid are derived from the processing of statistics and bulletins of the Central Bank and the
Ministry of Finance, as well as from media, and public revenue agencies for all states.
9
1. Western Balkans - Economy, Governance
and Market Development in 2019
All Balkan countries share similar histories of their economies, both in terms of approximation of
structure, but also in terms of influencing factors and culture and approach to market economy norms.
On the other hand, the changes in the social structure between them, which in fact constitutes the main
driving force for the reforms that have begun or are about to begin, still have a long way to go to bring
their mentalities closer to the vision of markets and the economy of the EU.
The rule of law, which is considered a key criterion in the EC Enlargement Policy in the 2018-2019
Progress Reports and before, is seen to be in a slow spread given the need to be functional, with
independent and accountable institutions, as well as a fair judiciary body in law enforcement.
During the second half of 2019, a concrete organization began to strengthen closer regional cooperation
and similar to the relations that predetermined the creation of the EU more than 50 years ago. The EU
accession process has contributed to increasing harmonization between WB61 economies, at least at the
regulatory level, as all countries are in constant agreement of the local legal framework under the
legislation and the institutional system in force in EU countries.
Following the Berlin Process, each of the WB6 economies has launched a new series of reforms seeking
to push further those that have been launched earlier. A good desire by actually governments and
leadership in each country has sought to strengthen the ties of trade and free movement of people and
goods and services, but Kosovo's opposition, as well as the neutral stances of Montenegro and Bosnia
and Herzegovina, have influencing the retention of previous positions.
The SEE 2020 initiative agreed earlier, as an opportunity for this purpose by defining common objectives
for WB6 countries, where the highlighted objectives for eliminating tariffs and quotas for cross-border
trade for industrial and agro-agricultural products have given a small impact to facilitate trade for some
countries. But what needs to be pushed further to benefit the best of such organizations should include
more advanced commitments and objectives related to (a) removing barriers to the free movement of
employees, (b) promoting faster advancement of related projects with Connectivity Agenda2 (which is the
core part of economies, like transporation and energy) (c) progress towards the legal framework and its market-
oriented implementation, and (d) stimulation of business and relationships. between WB6 markets.
The effectiveness of governance is the irreplaceable element of economic development and prosperity.
The relationship between economic growth and the effectiveness of governance is a key issue to be
considered by all other actors who contribute to the economy and society.
WB6 countries went through a large number of economic and financial challenges, but also political
stability challenges, which developed into a governance model with weak institutions and small markets
and no identity put into question in every turmoil the dynamic developments required from the future,
including the quality of economic governance.
The liberalizing trade trends, mostly between border countries, as well as the increase in foreign
investment in some countries that already exceed their higher levels than other WB6 countries, appear to
be improving that part of the business climate. But if progress reforms are not strengthened by other
substantive measures and are in line with EU standards, then it remains for the economy to work again
1 Albania, Serbia, Kosovo, Montenegro, North Macedonia, Bosnia - Herzegovina

2
Western Balkan Investment Framework
10
under its own capacity in the WB6 countries, as well as lose the opportunity to compete in the European
economy with the diversity of products and services generated by these countries.
Although private investment has largely influenced economic growth, what is most important for these
countries is speeding up reforms and their productivity beginning with close implementation, as WB6
taxpayers have shown signs of fatigue and eagerness to lack of visible results in their well-being, as well as
in the environment in which they live and contribute.
Reforms in tax systems and the growth of some sectors have created fiscal space for some of Western
Balkan state budgets, which have rushed to use that for current spending and infrastructure investment.
1.1. Western Balkans and Macroeconomic Overview in 2019
Economies of WB6 maintain a similar economic structure in their contribution to GDP, and
consequently face similar challenges in their efforts for sectoral economic developments.
The GDP of the Western Balkans in 2019 is

estimated to have reached US. D 113.13 billion. If we
analyze the structure of GDP, it is noticed that 45.5%
of it consists of GDP of Serbia. Bosnia and
Herzegovina come in second place with 17.8% of
GDP. Albania ranks third with 13.2% of GDP.
Northern Macedonia's GDP ranks fourth with
11.2%. Fifth place is Kosovo with 7.8% and the last
place is held by Montenegro with 4.8% of GDP.
GDP growth rate in 2018, according to estimates,

reached 3.9%. In 2019, from the preliminary
estimates it is declared to be at the level of 3.3%. The
year-on-year growth rate is down 0.6 percentage
points.
The highest level of economic growth in 2019 is expected to be reached in Kosovo at 4%. In second
Tab. 1 GROWTH OF GDP IN WB6 IN 2018 -2019
place is Serbia with an estimated economic growth of
in %
3.5%. Northern Macedonia is expected to achieve
COUNTRIES 2018 2019*
economic growth of 3%. Meanwhile, Bosnia and
ALBANIA 4.1 2.9 Herzegovina and Montenegro are experiencing
BOSNIA-HERZEGOVINA 3.6 3.0 economic growth at the same level in both countries
NORTH MACEDONIA 2.7 3.2 with 3%. Albania seems to have the lowest level of
KOSOVO 3.8 4.0 economic growth at 2.9%. The decline in growth
MONTENEGRO 4.9 3.0 rates, or the slowdown in economic expansion, is an
SERBIA 4.2 3.5 indicator to be held accountable in almost all WB6
WESTERN BALKANS 3.9 3.3 countries, except Kosovo and Northern Macedonia.
Source: IMF, WB, Stats
The slowdown in the economy in 2019 has come for
* estimation specific factors of each country, but also for common
factors, which are present in each of them.
Among the common factors are (a) public confidence in governance and transparency, (b) corporate
governance and ethics of doing business, (c) infrastructure quality, (d) truncated ownership and property
rights, (e) barriers for trade, (f) low productivity of the economy, (g) informality and high evasion.
Specific factors for each country, although they may seem common, are estimated to be (a) organized
crime, which is more active in Northern Macedonia and Albania, (b) the polarization of political wings
11
and the lack of economic stability, mainly in Albania, Kosovo, North Macedonia, (c) lack of rule of law,
where specifically Albania and Bosnia and Herzegovina are more problematic in this regard.
Meanwhile, other factors may also have an impact on the development of the economy, such as market
dimensions, competitiveness of the economy, diversification of public spending portfolios, and other
challenges that are mentioned in many studies and reports for each country.
According to the OECD 3 , the economies of WB6 have above the world average the Economic
Complexity Index (ECI) and opportunity values (OV). This fact means that while ECI shows the status
of WB6 economies at the level of medium-sized developing economies, their capacities are different. In
this context, these economies can expand towards more complex products, which means similarities of
the economy with more developed countries.
Growth tendency of economies of WB6 in 2019 showed GDP growth at a slow pace that has not
exceeded the 4% level limit. But the tendency to use the economy's capacities and accelerate the pace of
growth is projected to occur during the second half of 2020 for countries that have performed lower than
projected for 2019, because of external and internal risks. These risks are tripled by the effects of natural
disasters and pandemic by Covid-19, which are expected to affect a more resilient structure, which will be
oriented by the external demand for products and services.
In several countries of WB6 it affected a moderate increase in their economies, which are connected
directly or not with each-other. In this economic environment, we see the data about the slowdown in
public investment in Kosovo, but also the slow level of export growth in Albania and Serbia, which
together contribute to an increase of no more than 3.2%. If we compare the pace of economic growth of
the WB6 with the economic growth of the EU, it seems that the trend of economic growth in these
countries is higher than the economic growth of EU countries. However, noting the productive and
developmental capacities of the economy and the labor force of each WB6 country, it can be said that all
of them operate under real opportunities for the use of resources and capacities.
Sustainable growth, which is a common approach for WB6 economies, aims to improve the structured
modeling of the economy through the development of 4 vital sectors in order to strengthen and
streamline capacity, but also to ensure a strong guarantee for the sustainability of economies by improving
the well-being of their citizens. The energy, transport, tourism and environment sectors will be committed
to increasing the competitiveness of the economy to enable the extension of products and services
beyond the physical borders of the WB to EU countries and beyond. The combined approach is aimed at
achieving the objectives that each WB6 country must meet, taking into account that the continued growth
and development of the economy through natural resources as to this day will be limited, as long as these
resources have their limits, both physically and economically to reduce costs and increase benefits by
reducing the impact on the environment.
The main exports of WB6 are electricity, also materials and electrical equipment, as well as machinery and
transport equipment, not forgetting the part of computer services, which is growing in recent years. In
years, if one looks at the export statistics of the last 10 years there is a qualitative increase indicating the
inclusion of technology in generating value added of economy in the external market. From WB6
economy statistics, studies and analyzes, it can be seen that the share of cross-border trade in relation to
GDP, which performs each country in the regional market, has changed slightly in relation to the
traditional partners that each country has had.
In the structural plan of export destinations, WB6 economies are partners and members of agreements
with the same EU countries. While the trade in goods has increased among WB6 countries, it is a
different situation and with little advancement in the trade in services. This fact shows that although free
trade commitments, barriers removal engagements, and competitiveness through increased productivity
and quality of services and goods have enabled the strengthening of economic cooperation, still WB6
economic operators feel ineffective to succeed beyond borders of local markets.
3 OECD, Global South east Europe, Unleashing the Transformation Potential for Growth in the Western Balkans, 2019
12
Competitiveness is not the forerunner of economic development policies, although for this purpose have
been engaged by governments increasing resources and capacities. Inter-regional trade is still an important
component of exports to WB6, although it is not the most essential part of exports, with the exception of
Kosovo and Montenegro, which have major exports to EU countries, as well as Albania and Serbia,
which are more market-oriented in EU countries. Meanwhile, North Macedonia and Bosnia-Herzegovina
have a balanced share between exports within the region and exports outside the region. Cross-regional
trade is mainly focused on semi-finished and agricultural products. Given this fact, inter-regional trade has
not had an impact on changing the structure of exports and in the future may play a small declining role
in relation to the total volume of exports.
However, rising consumer demand and increased access to credit, influenced by the still apparent
competitiveness constraints by WB6 companies, continue to maintain a high trade deficit.
Despite the positive developments in employment growth in the labor market, it is found that close to
half of the labor force is able to have a job. Below this average is Bosnia and Herzegovina with an
employment level indicator of 42.1% of the able-bodied workforce and Kosovo with an employment rate
of 40.9% 4.
The share of labor forces in GDP in 2019 is at the level of 51.6%. The highest level of participation in
work is in Albania with 59.6%, and followed by North Macedonia with 56.9% and continue Montenegro
with level of 56%. Serbia has a 54.5% share of the workforce.
Participation rate of labour forces and structure of labour market, 2019

70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Structure of labour market Partecipation rate of labor forces
Looking at the bottom part of the graph above is the quantitative labor market structure, given the busy
population with at least a job in each of the countries.
Serbia accounts for 41.1% of the labor market structure in the WB6 region. Albania is the second largest
labor market in the WB6 with only 18.6% of this market and less than half of the labor market occupied
by Serbia. Bosnia and Herzegovina hold the third place with 15.9% and North Macedonia is fourth with
12.9% of the WB6 market. Kosovo is in fifth place with a market share of WB6 labor market of 7.9%.
The last place is held by Montenegro with 3.6% of the labor market in WB6.
The level of inflation during 2019 in WB6 has an average annual level of 1.6%, where Bosnia-
Herzegovina, North Macedonia, Montenegro have an inflation rate below the WB6 average (see Tab.2).
4
Rising Uncertainties, Western Balkan Economic Regular Report Nr.16, Fall 2019
13
Tab. 2 Macroeconomic indicators in WB6 in 2019 % of GDP
GDP BUDGET PUBLIC UNEMPLOY TRADE
COUNTRIES GROWTH DEFICIT DEBT MENT BALANCE
INFLATION NET FDI
ALBANIA 2.9 -1.9 63.7 11.4 -15.2 1.8 7.8

BOSNIA - HERZEGOVINA 3.0 -1.2 33.3 21.2 -23 1.1 2.3
NORTH MACEDONIA 3.2 2.3 40.7 17.9 -16.5 0.9 3.2
KOSOVO 4 -2.8 17.1 24.5 -29.2 2.8 3.8
MONTENEGRO 3 -3.6 81.1 15.7 -24.8 1.1 8
SERBIA 3.5 -0.2 52.7 13.5 -12 1.9 6.2
WESTERN BALKANS 3.3 -1.2 48.1 17.4 -20.1 1.6 5.2
Source: IMF, WB, MoF, CB, Eurostat, Official Statistics
The need to increase the level of technology of traditional and new products, as well as to improve
macroeconomic indicators has forced WB6 governments in the last 10 years to adopt reforms in almost
all major productive sectors of the economy. These reform initiatives have been the strongest incentive to
focus on attracting FDI as well.
Talking of indicators linking the development of foreign investment with the part of the integration of
WB6 domestic economies with the EU, it is seen that the inflow of foreign investment in these countries
has reached levels that exceed expectations, reaching the average level by the end of 2019 totaling 5.2% of
regional GDP.
The FDI level is 0.3 percentage points lower than in 2018. FDI inflows in 2018 and 2019 remain the
highest in the last 5 years. According to the WB Autumn Report 20195, Montenegro and Albania hold the
top positions with a net FDI inflow rate respectively of 8% and 7.8% of GDP. Serbia ranks third at the
level to 6.2% of GDP. Meanwhile, Kosovo, North Macedonia and Bosnia and Herzegovina hold the last
places with investment levels in a downward order below the regional average, where Bosnia and
Herzegovina maintain the lowest level with 2.3% of GDP.
The composition of FDI for this period consists of the automotive industry and car parts, renewable
energy and tourism and technology services.
FDI in WB6, however, is considered limited if compared to the FDI per capita in EU countries, as well as
the potential for attracting investment from these countries, or even from other fast-growing countries.
GDP per capita in WB6 is as much as half of GDP per capita in EU countries.
Investments in research and development (R&D) continue to be at low levels, reaching up to 1% of the
total budget expenditures planned and realized in the WB6, with the exception of Montenegro, which has
increased expenditures for 2019, by changing the approach as early as 2018. This approach, if not
changed in practice will cause shortages in the product of scientific research, but also in goods and
services generated by advanced technology. Lack of attention needed to change both the capacities
needed, but also the resources to enable change will produce negative effects that time will not be able to
heal or systematize, as the development of this sector requires time to be effective in economy and social
life. It is appropriate that development strategies should consider a balance between long-term
productivity and those that can be considered future products, which are considered valuable capital
reserves to reshape the economy in difficult times, as well as to serve growth. qualitative economics
towards more complex products.
However, WB6 countries have stepped up efforts to improve the research and innovation sector by
adapting policies, as well as regulatory frameworks and action plans to change current performance and
increase the impact of innovation on education and the economy. To this end, this approach, which is
expected to advance further in 2020, is seen in certain cooperation at the regional level, with the EU
framework in mind, as well as some objectives set with the launch of the Berlin Process.
5 Rising Uncertainties, Western Balkan Economic Regular Report Nr.16, Fall 2019
14
Although fiscal consolidation, for each WB6 country, remain the key word in public finances, it is a fact
that the high level of public debt remains unchanged, albeit with slight reductions. Even in those cases
when there is a decrease in public debt, it is seen that governments control public spending, mainly
capital, thus curbing the effect that this category of investment has on the economy, but justifying
keeping the budget deficit under control. Meanwhile, the risks of maintaining and increasing social
spending, local government, and keeping pace with reforms are associated with a risk that remains a
threat to the long-term consolidation of public finances.
The banking sector has shown signs of recovery of bad debt recovery (non performin loans = NPL),
affecting their good capitalization and increasing liquidity for lending to businesses and individuals. But a
more efficient link between the banking sector and businesses is still a partially addressed problem, but it
also affects the financial market of WB6 countries, as well as maintaining still low levels of innovation and
its greater reach in the economic environment.
1.1.1. Albania's macroeconomic and fiscal indicators
According to forecasts announced by MeFE, BoA, IMF and WB, Albania's economic growth for 2019 is
estimated to have reached 2.9%, down by 1.2 percentage point from 2018, when economic growth
reached 4.1%. Economic growth during 2019 was also affected by the effects of the earthquake that hit
Albania in November 2019. Economic growth was achieved mainly by domestic consumption as well as
domestic demand on the one hand, but also by the investment of TAP project and private investments in
renewable energy that are nearing completion, as well as a slight increase in exports of mineral products
and tourism.
The positive contribution of exports of goods and services was offset by the negative effect of imports,
due to their specific growth and high share, making net foreign demand in aggregate only a slightly
positive effect on real economic growth. The sectors that made a contribution to economic growth were:
(i) Financial and insurance activities with a real annual growth of about 11.6% and a contribution of 0.34
percentage points; (ii) Immovable property activities with an annual growth of about 7.61% and a
contribution of 0.45 percentage points; (iii) information and communication with an annual growth of
about 6.38% and a contribution of 0.18 percentage points; (iv) Scientific, professional and technical
activities with a real annual growth of about 6.31% and a contribution of 0.37 percentage points; (v)
Wholesale and retail trade etc. with an annual increase of about 5.77% and a contribution of 0.9
percentage points6.
However, the slowdown in growth rates from the fourth quarter of 2018 was a forecasting signal for the
continuation of the economy with an upward trend according to the optimistic forecasts that stated that
they would exceed the level of 4% economic growth.
Political developments, which marked the prolonged period of political crisis that began in February 2019
and lasted almost all year, failed to materialize the full potential for economic development, but also the
implementation of more appropriate fiscal initiatives to change the climate. of doing business. The impact
of the political crisis was multifaceted, where on the one hand it did not mark the expected economic
growth declared in the forecasts for 2019, and on the other hand it increased the costs of doing business
by exposing the defects of government capacity in the implementation of reforms at the projected pace.
Foreign direct investment recorded a level of 7.8% of GDP in 2019, down 0.2 percentage points
compared to 2018. Total investments decreased by about 0.37% in real annual terms during 2019.
6 Kuadri makroekonomik dhe fiskal 2021-2023, VKM 53, datë 29.01.2020
15
The labor market dynamics has continued to perform positively. Referring to the quarterly survey of the
labor force by INSTAT, employment until the third quarter of 2019 increased by 2.6% compared to the
same quarter of the previous year, or about 31 thousand employees. The unemployment rate (for the age
group 15-64) has continued its downward trend since T1-2014 where it recorded its highest value of 18%,
already decreasing to 11.8% at T3-2019, with a reduction of 0.8 percentage points compared to a year ago
(T3-2018), or with a reduction in the number of unemployed persons of about 8.2 thousand in the time
frame of one year. Meanwhile, for the age group of 15 years and over, the unemployment rate during the
third quarter of 2019 recorded 11.4%.
The trade deficit deepened slightly during the first nine months of 2019 by about 12%, as a result of a
contraction in exports, where the dynamics of electricity compared to the previous year was a dominant
factor, and on the other hand, there was an increase in exports. import volume. The deepening of the
trade deficit during the first half of the year has been offset to a considerable extent by the surplus of the
balance of services, which mainly reflects the good performance of tourism services during this year as
well.
Also, the current account deficit deteriorated by about 40% over the 9-month period. The deepening
current deficit has been largely dictated by the widening trade deficit in imports, reflecting rising spending
on imports and declining export earnings. At the same time, the expansion of the negative (primary)
income balance from investments has been an additional factor in deepening the current deficit. The
general balance of payments and the external position of the economy remain quite stable, where the
accumulated stock of foreign exchange reserves remains at a sufficiently high level, equivalent to over 6
months of import of goods and services.
The private sector lending to the economy is expanding in 2019, recording an increase of over 7%
compared to a year ago. This lending is extended to businesses as well as to consumers. Non-performing
loans (NPLs) have continued to decline, already at around 11%.
Inflation over 2019 has recorded lower rates compared to a year ago. According to the latest data from
Instat, the average inflation for 2019 is at the level of 1.7%.
Albanian specifics: Justice reform and the impact on the macroeconomic environment
The justice system in Albania is undergoing a series of profound reforms in order to meet them European standards
in this system. Through the adoption of Law no. 76/2016 "On some additions and amendments to the law no.
8417/1998" Constitution of the Republic of Albania ", as amended, Albania began to implement justice reform.
Justice reform is expected (a) to fight corruption within the justice system, (b) to punish organized crime at all levels
in the fight against corruption. A package of laws has been passed, covering all aspects of judicial reform, where the
Assembly has passed 22 laws, as well as a decision, thus concluding the package of reform laws in the justice system.
Similarly, from last year, Albania had a new development in the implementation of fiscal policies related
to the tax burden, emphasizing the fight against informality. The context in which policymakers reacted
nevertheless changed significantly in relation to the unproductive year, both in terms of political stability,
but also in terms of economic aspects and economic orientation.
1.1.2. Macroeconomic and fiscal indicators of Bosnia and Herzegovina
Bosnia and Herzegovina reached a GDP level of 16.7 billion euros, according to WB data and projections
from Trading Economics. Economic growth for 2019, according to the IMF estimate is not expected to
be further than 3.1%, while in 2018 growth was at the level of 3.6%. The economy had a lower demand in
2019 than the EU market. While industrial production fell sharply, due to the supply of energy, tourism
grew significantly from neighboring Bosnia and Herzegovina. Another pace for the economy is expected
to come from investment in infrastructure, as well as increased consumer demand and public spending.
16
Bosnia and Herzegovina's economy is dominated mainly by services at 55.8% of GDP, as well as by the
manufacturing industry at 24.5% of GDP, and agribusiness at only 5.9% of GDP.
In 2019, it is estimated that the budget deficit is 1.2% of GDP. Meanwhile, public debt is estimated to
have reached 33.3% of GDP. Compared to 2018, the level of public debt has decreased by 0.9 percentage
points. Public finance management needs to adapt to international standards in terms of its budgeting and
monitoring process, transparency and forecasting methods.
The contribution of investments is at unchanged levels from a year ago despite a slight increase in private
business lending. One of the main reasons for this situation in carrying out capital expenditures with
public funds is the lack of formation of the federal government.
Foreign direct investment recorded a level of 2.3% of GDP in 2019, with a slight increase of 0.1
percentage points compared to 2018.
The average inflation rate for 2019 was 1.1%, while in 2018 it was 1.4%.
The lack of a common economic space, due to ethnic segregation, is a serious obstacle to private sector
development and foreign investment. The environment for doing business is considered difficult, due to
the existence of market fragmentation and a high level of informal economy.
According to official statistical data, the unemployment rate in 2019 was as high as 18% of the workforce.
In the agro-agricultural sector is employed 16.4% of the workforce, in industry are employed 29.7% and
53.9% of the workforce is employed in services and commerce.
1.1.3. Kosovo's macroeconomic and fiscal indicators
Kosovo's economy has shown progress in its transition to an open and competitive market economy
while maintaining macroeconomic stability. According to MeFT, for the first three quarters of 2019,
preliminary data from KAS shows that the GDP growth rate was on average 4.25%, driven mainly by
total investment and consumption (especially private), with a contribution to GDP, respectively, of 1.8
percentage point, respectively. Another positive contribution to growth came from net exports, with
about 0.62 percentage point. In the absence of official data on national accounts, indirect indicators
available for economic activity in the fourth quarter of 2019, suggest a similar trend of GDP growth.
Domestic demand is expected to be the main driver of economic growth in the fourth quarter of 2019.
However, its economy is still dependent on international community assistance and remittances in terms
of financial and technical support.
Remittances are estimated to make up about 17% of GDP in 2019. While, assistance from the
international community amounts to 10% of GDP in 2019. This aid has served in particular for the
privatization of state-owned enterprises.
According to the latest estimates of the European Bank for Reconstruction and Development, Kosovo is
expected to have achieved economic growth of 4%7, which may continue in 2020. Meanwhile in 2018,
economic growth was 3.8%. The main contributor is the demand of domestic consumers. Meanwhile,
public spending, remittances and domestic consumption are among the other important contributors to
GDP growth.
At the end of 2018, Kosovo applied an import tariff at 100% on the value of products imported from
Bosnia and Herzegovina and Serbia. With its introduction, the structure of imports has changed. While
this fee is expected to be removed in the first quarter of 2020, the market is currently filled with products
mainly from Northern Macedonia, Albania and Turkey.
7 IMF forecast and estimates an economic growth up to 4.2%
17
Kosovo has a decrease in 2019 of the contribution of investments in GDP at the level of 1.1% compared
to the forecast which was 1 percentage point higher. Meanwhile, Foreign Direct Investment accounted
for 3.8% of GDP in 2019, up to 1 percentage point from 2018. However, careful financial, public, and
budget management investments are helping the country secure minimizing investment-related fiscal
risks, which should ease the pressures on medium-term debt sustainability.
Kosovo for the first 9 months of 2019 resulted in a surplus of 14 million Euros, unlike the previous year
which resulted in a deficit of 21.6 million Euros. Anyhow, the budget deficit for 2019 was 2.8%, while the
fiscal burden resulted at 27.2% of GDP. Kosovo's public debt for 2018 was 17.1% of GDP and
according to estimates for 2019 it can reach the level of 20% of GDP. External debt was 9.3% of GDP
with an increase of at least 3 percentage points compared to 2018.
The bad debts of commercial banks were at the level of 2.5% in relation to total loans.
Inflation rate, measured by the annual changes in the consumer price index (CPI), recorded an average
annual growth of 2.8% during 2019.
Job participation rate at the end of 9-month 2019 was 41.9%. The unemployment rate still remains the
highest in WB6 with a situation of 24.5% unemployment at the end of the 9-month period 2019, the
most prominent of which is the level of unemployment for the young age of the workforce. The main
sectors that bear the employment burden are agribusiness with a level of 7.4% of the total labor force,
industry with 18.1% and services with 74.1%.
1.1.4. Montenegro's macroeconomic and fiscal indicators
Montenegro’s economy went through its growth in all four quarters of 2019, with industry making the
biggest impact in late 2019 and tourism during the second and third quarters. While Moody’s reaffirmed
the level of lending to the economy at B1 level did not give a positive assessment regarding the expected
fiscal risks associated mainly with financing the infrastructure project8.
Despite the development at good levels of the economy, it remains fragile depending on the change of
internal and external factors. Economic growth for 2019 is estimated to have reached 3%. The
composition of GDP is from agribusiness with 6.7%9, from industry 15.9%, from production 4%, from
services 54.5%10 and the rest from other activities.
Private consumption is one of the main factors influencing economic growth and is expected to continue
to be so in 2020.
Despite the government's control over the budget deficit in 2019, with a positive primary balance of
1.5%, public debt has increased by 8.5 percentage points, reaching the level of 81.1% of GDP11. This
increase at this level is as a result of the loan taken by the Montenegrin government from China
Eximbank for financing the infrastructure project.
The country's trade deficit (export-import) is as much as ¼ of GDP.

Foreign direct investment recorded a level of 8% of GDP in 2019, an increase of 1 percentage point
compared to 2018.
The average annual inflation in 2019 is at the level of 1.1%, below the target of the Central Bank.
8 The first phase of the highway investment between the port in Bar and Boljare, recording 6% of GDP
9 Agriculture is composed by 60% livestock and 40% cultivations
10 Tourism is about of ¼ of GDP (around Euro 1 billion) and absorbs 34% of total of FDI
11 GDP is calculated to be in value of Euro 4.51 billion
18
The financial system is dominated by foreign capital banks and has a persistent history of deteriorating
bad debts.
The level of unemployment is decreasing, but still high, marking a level at the end of the 9-month period
of 2019, as much as 15.2% of the able-bodied workforce, being also hampered by the high level of
informality in the labor market.
1.1.5. The macroeconomic and fiscal indicators of North Macedonia
The economy recorded a slight increase in exports. According to data from the World Bank and Trading
Economics, GDP in 2019 is estimated at Euro 11 billion with an increase of 3.2%, while in 2018 the growth
was 2.9%. However, private consumption was an influential factor and investments had a moderate
growth, which has influenced the economic growth of 2019. In these investments, the most significant
impact was held by them from the state budget, giving a positive and stimulating impact on the economy,
which has had a slow pace of its performance throughout the start of 2019.
However, the slow growth of the EU economy also affected the exports of North Macedonia.
Meanwhile, parliamentary elections, as well as delays in opening EU accession talks, have had a minor
impact in 2019.
Industrial production increased by 8.8%, while exports increased by 16.8%. Bank bad debts account for
only 5% of total loans granted, having a performance below the average level of WB6 bad debts.
The budget deficit did not exceed 2.5% of GDP, and at best it was financed by domestic debt and foreign
borrowing, maintaining a positive primary balance of the annual budget. Public debt is expected to grow
to 43.1% of GDP in 2020, while not exceeding 40.2% by the end of 2019, while a year earlier its level was
as high as 40.6% of GDP.
Foreign direct investment recorded for 3.2% of GDP in 2019, with a significant decline of 2.6 percentage
points compared to 2018, mainly due to the unstable political situation.
Inflation in 2019 remained at the level of 0.9% being within the targets set by the Central Bank.
The unemployment rate fell to 17.1% at the end of the 9-month period of 2019, while the workforce
increased to 57.2%.
Ongoing reforms addressing labor market weaknesses and strengthening institutions are the most
effective drivers in helping to boost the economy in the medium term.
1.1.6. The macroeconomic and fiscal indicators of Serbia
Serbia has maintained an upward trend of the economy in 2019, which since 2018 turned out to be at the
level of 4.2%. Economic growth for 2019 is estimated to have reached 3.3%, mainly due to the increased
pace of investment.
In 2019, a budget deficit of 0.2% of GDP was recorded, while in 2018 it resulted in a surplus. Public debt
is at 52% of GDP. The deficit was the result of public investment, which increased by 33.6% in 2019
compared to a year ago, reaching 4.9% of GDP.
The average inflation rate in 2019 reached 1.9%, within the Central Bank's forecasts.
In 2019, the level of exports increased by 10.5% compared to a year ago. Exports were dominated by
agri-food products, services and parts for the automotive industry. Serbia accounts for half of WB6's
19
exports and accounts for 44% of regional imports. Moderate demand from EU countries was offset by
rising exports to other markets outside the EU, indicating growing production capacity. Imports of goods
and services increased 10.7%.
Based on a stabilized macroeconomic situation, as well as improving the environment to attract investors,
there was an increase in foreign direct investment at the level of Euro7.3 billion, both for 2018 and 2019.
The net FDI level was 6.7 billion Euros. However, foreign direct investment in 2019 recorded a level of
6.2% of GDP, down 1.2 percentage points from 2018.
The lending expanded by 9.8%, being more favorable to businesses and in line with sustainable economic
growth, due to increased investment lending by large businesses, as well as an increase in home loans for
individuals.
Unemployment at the end of the 9-month period of 2019 marks 9.5%, reaching a lower level of 1.8
percentage points than a year ago.
1.2. Budgetary and tax revenues in the Western Balkans, 2018-2019
Economic growth combined with fiscal discipline and good public debt management seems to have
affected Serbia, Albania and Bosnia and Herzegovina. However, high levels of public debt remain a risk
present in most countries in the region.
A peculiarity for 2019 is the non-approval of the budget of Bosnia and Herzegovina, due to its blockade
by the Serbian co-president, forcing the federal government to operate based on the terms of the 2018
budget.
Tab. 3 BUDGET REVENUES IN WESTERN BALKANS IN 2018-2019 % of GDP

50.0 2.0
COUNTRIES 45.0 1.5 2018 2019 DIFFERENCE
40.0
35.0 1.0
MONTENEGRO 30.0 MONTENEGRO
0.5
42.4 43.0 0.6
25.0
SERBIA 20.0 SERBIA 0.0 41.1 40.8 -0.3
15.0 -0.5
10.0
KOSOVO 5.0 KOSOVO -1.0 26.1 27.3 1.2
0.0 -1.5
BOSNIA-HERZEGOVINA BOSNIA-HERZEGOVINA
42.8 41.8 -1.0
NORTH MACEDONIA NORTH MACEDONIA
30.4 32.0 1.6
ALBANIA ALBANIA 27.6 27.3 -0.3
WESTERN BALKANS WESTERN BALKANS
35.1 35.4 0.3
Source: WB, IMF, MoF 2018 2019 DIFFERENCE
Budget revenues in GDP in 2019 marked an increase of 0.3% of GDP compared to 2018. In 2018 budget
revenues reached the level of 35.1% of GDP and in 2019 at a slightly higher level (35.4% of GDP). The
highest increase of budget revenues is marked by North Macedonia with 1.6% of GDP and Kosovo with
1.2% of GDP. Their reductions for the comparative fiscal years 2018 -2019 present Bosnia and
Herzegovina with a level of 1% less GDP, as well as Serbia and Albania with 0.3% less.
20
Tab.4 TAX REVENUES IN WESTERN BALKANS IN 2018-2019 % of GDP
COUNTRIES 40.0
35.0
0.2
0.1
2018 2019 DIFFERENCE
30.0 0.0
-0.1 36.5 36.4 -0.1
20.0 -0.2
SERBIA 15.0 SERBIA -0.3 36.0 36.0 0
10.0 -0.4
KOSOVO 5.0 KOSOVO -0.5 24.0 24.1 0.1
0.0 -0.6
BOSNIA-HERZEGOVINA BOSNIA-HERZEGOVINA
34.4 34.5 0.1
NORTH MACEDONIA NORTH MACEDONIA
26.0 25.9 -0.1
30.4 30.3 -0.1
Source: WB, IMF, MoF 2018 2019 DIFFERENCE
In 2018, tax revenues account for 87% of total budget revenues. In 2019, tax revenues account for 86% of
budget revenues, with a decrease in their share in contributing budget revenues by 1 percentage point. The
budget revenue trend has not had the same trend as tax revenues. Thus, Montenegro and Northern
Macedonia have declining tax revenues, but an increase in budget revenues.
Whereas, the direction of budget revenues in terms of tax revenues for Kosovo (increasing) and for
Albania (declining) are the same. Meanwhile, for Serbia there is the same situation and unified both for
budget revenues, but also for tax revenues. For Bosnia and Herzegovina, the decline in budget revenues
has apparently not been affected by tax revenues, which have increased.
1.3. Tax burden, its structuring and tax rates in the Western Balkans in 2018 - 2019
Budget revenues through the approval of the budget for the fiscal year contain within them the tax
burden, which the government decides to be paid by taxpayers of their country for every year through the
implementation of the tax system in the country. The Tax Burden (fiscal burden) includes direct taxes, in
terms of individual and corporate income tax levels, and general taxes (including all forms of direct and
indirect taxes at all levels of government), as a percentage of GDP.
Tab.5 TAX BURDEN IN WESTERN BALKANS IN 2018 - 2019 % of GDP
TAX BURDEN
COUNTRIES
2018 2019
KOSOVO 24.0 24.1
ALBANIA 25.7 25.2
NORTH MACEDONIA 26.0 25.9
BOSNIA-HERCEGOVINA 34.4 34.5
SERBIA 36.0 36.0
MONTENEGRO 36.5 36.4
WESTERN BALKANS 30.4 30.3

Sourc e: IMF, MoF
Tax burden in WB6 countries is an indicator of tax liabilities that are poured into the budget by its
citizens in respect of their return to public goods and services. In the last two years, 2018-2019 fiscal
burden is respectively, at the levels of 30.4% and 30.3% of GDP in the Western Balkans. The average
fiscal burden level is below the EU burden level by at least 10 percentage points. This fact points to a
21
reserve in fiscal revenue capacity, which should be used as an incentive instrument along with other
reforms to promote investment and productivity.
In 2019, Kosovo has the lowest fiscal burden in all Western Balkan countries. Serbia, Bosnia and
Herzegovina, Montenegro have budgetary payments of 14.5% to 16.4% higher than the PB average.
Comparing the fiscal burden in the Balkans in 2018-2019, it can be seen that countries with a burden
below the WB6 average (North Macedonia, Albania, Kosovo) have fluctuated over the years, moving at a
slow pace and with ups and downs over the years.
The still low fiscal burden compared to the average of EU countries is mainly influenced by easing
policies in fiscal legislation, which include tax rates with reductions to affect investment and ocasionally
operations of fights against informality. In fact, poor administration capacity and level have a negative
effect on maintaining a low level of burden. This factor creates a gap between the budget program to
collect tax revenues and actual receipts from fiscal administrations.
Tab.6 Tax Burden - Direct, Indirect and other taxes and social contributions in WB6 in 2018 - 2019 % of GDP
2018 2019
Other Taxes, Other
COUNTRIES Indirect Indirect
Direct Taxes social Direct Taxes Taxes, social
Taxes Taxes
contributions contribution
KOSOVO 3.5 20 0.5 3.7 20 0.4
ALBANIA 7.2 11.3 7.2 7.1 11.0 7.1
NORTH MACEDONIA 5.2 12.2 8.6 4.8 12.2 8.9
BOSNIA-HERZEGOVINA 4.1 16.3 14.0 3.9 16.1 14.5
SERBIA 5.8 16.5 13.7 6.1 16.4 13.5
MONTENEGRO 5.5 18.6 12.4 5.2 19.1 12.1
WESTERN BALKANS 5.2 15.8 9.4 5.1 15.8 9.4
Sourc e: IMF, MoF
The structure of fiscal burden in 2018 and 2019, as presented in Table 6 has changed only in direction of
direct taxes. Fiscal burden consists mainly of indirect taxes and other taxes and social contributions
(83%). Direct taxes, including capital tax and labor tax, account for 17%. Kosovo is more specific in its
fiscal burden, as indirect taxes account for 83% of the total fiscal burden.
This indicates an extreme dependence of tax revenues on consumption taxes. Montenegro also has an
extreme dependence on consumption taxes and other local and national taxes as well as social
contributions with a share of as much as 86% in budget revenues. With a better distribution of the fiscal
burden structure in relation to other WB6 countries, Albania is presented, which has the highest
percentage of direct taxes (7.2% of GDP), while the average direct taxes of WB6 are 5.2% of GDP.
In 2019, the direct tax burden has increased in Serbia. Meanwhile, the countries above the WB6 average
are Albania, Serbia and Montenegro. Albania with the lowest fiscal burden that these two countries
present a reserve in the collection of consumption taxes, as well as other taxes.
22
Tab.7 Tax Burden - Direct, indirect and other taxes and social contributions - Tax Norms in WB6 in 2019 % of GDP
OTHER TAXES - SOCIAL
DIRECT TAXES INDIRECT
CONTRIBUTIONS
COUNTRIES SOCIAL
STANDARD
TAX BURDEN CIT RATES TAX BURDEN TAX BURDEN CONTRIBUTIONS
VAT RATES
RATES
KOSOVO 3.7 10 20 18 0.4 10
ALBANIA 7.1 15 11 20 7.1 27.9
NORTH MACEDONIA 4.8 10 12.2 18 8.9 27
BOSNIA-HERZEGOVINA 3.9 10 16.1 17 14.5 41.5
SERBIA 6.1 15 16.4 20 13.5 37.05
MONTENEGRO 5.2 9 19.1 21 12.1 32.3
WESTERN BALKANS 5.1 15.8 9.4
Sourc e: IMF, MoF
This specificity of the share of direct, indirect taxes and other taxes and social contributions, etc., if we
look at it according to Table 7 in line with standard tax rates, it is noted that:
- in terms of direct taxes, countries such as Albania and Serbia that apply higher profit tax rates
than others have a larger share of direct taxes on the fiscal burden in GDP.
- regarding the part that indirect taxes perform in the fiscal burden, when we look at it related to
the standard VAT rate, there is another correlation, which does not correspond between them.
Thus, Montenegro, which has the highest standard VAT rate (21%), actually has a high share of
the fiscal burden, which is significantly higher than in other countries. But Albania and Serbia
that implement the same standard VAT rate of 20% have differences in the respective parts that
bear indirect taxes on the fiscal burden. This fact shows that the fiscal burden is closely related, in
addition to the VAT rate, to the flow of goods and services, the extent of tax exemptions, as well
as the level of informality and reserves in the administration of VAT and other taxes in general.
- if we look at the relationship between the fiscal burden of social contributions and other taxes on
the rate of contribution, which is the main part of this group, it is observed that Serbia, Bosnia
and Herzegovina and Montenegro, which implement higher contribution rates than others
countries that have higher fiscal burdens. But even in this case, it is worth noting the fact that it is
related to reserves in fiscal administration capacities and the fight against informality in the labor
market in all WB6 countries.
Tab.8 TAX RATES of Direct Taxes in WESTERN BALKANS in 2020 in %

NORTH BOSNIA AND
TAX RATES MACEDONIA
KOSOVO MONTENEGRO
HERZEGOVINA
SERBIA ALBANIA
PROFIT TAX 10 3; 9; 10 9 10 15 5; 15
PERSONAL INCOME TAX 10 10 9; 11; 15 10 10 - 25 0 - 13 - 23
WITHHOLDING TAX 10 0; 5; 10 9 5; 10 15; 20; 25 8; 15
Sourc e: Deloitte, MoF
The tax rates on capital, personal income and wages (Tab.11) for 2020 have not changed, except for Albania,
which has reduced the dividend tax rate to 8% from 15% which was before 2019. Meanwhile, it has also
changed the income limit from employment for the middle band that is taxed at 13% in accordance with
the progressive wage tax scheme with three income bands. It is noted that WB6 countries have a
significant level of compliance with the IMF mission recommendations, and all international monitoring
institutions have presented a stability of tax rate policy.
When analyzing these tax rates, as indicators of fiscal burden from the perspective of the fiscal revenue
that has entered the budget of each WB6 country, it can be seen that the lower rates on direct taxes have
not affected the reduction of the fiscal burden, but on the contrary the fiscal burden has increased. This
shows that administration and the fight against informality make the difference and are dominant over
fiscal policy.
23
TAX BURDEN in EUROPE and EU in 2018
45
40
35
30
25
20
15
10
5
0
-5 TOTAL VAT TOTAL ON ON PERSONAL
HOUSEHOLDS AND
CORPORATE
TAX ON PRODUCTION AND TAX ON INCOMES AND WEALTH SOCIAL TOTALI
IMPORTS CONTRIBUTIONS
EUROPE EU DIFFERENCE
On average, the fiscal burden in Europe is as much as 40.1% of GDP. Taxes on production and imports
account for the bulk of tax revenues with a share of 13.6% of GDP, with VAT accounting for 7.1% of
GDP. The fiscal burden from social contributions accounts for as much as 13.3% of GDP. Income and
wealth taxes account for 13.2% of GDP, with household income tax accounting for 9.5% of GDP and
personal income tax and profit tax as much as 2.7% of GDP.
In EU countries, the fiscal burden is 41.5% of GDP. Fiscal burden from production and import taxes
occupies 13.3% of GDP, with VAT accounting for 6.9%. Fiscal burden from social contributions
accounts for 15.2% of GDP. Income and wage taxes account for as much as 13% of GDP, with
household income tax accounting for 9.5% of GDP and personal income tax and profit tax accounts for
2.5% of GDP (see Table in Annex).
The average standard VAT rate in 2019 for the WB6 is 17% in Bosnia and Herzegovina, 18% in Kosovo and North
Macedonia, 20% in Serbia and Albania, 21% in Montenegro.
Kosovo, North Macedonia and Bosnia and Herzegovina apply the standard VAT rate below the regional average
(19.9%). All other Balkan countries, except Bosnia and Herzegovina, apply reduced VAT rates, mainly for basic
consumption, health, energy supply, urban transport, as well as education, books, magazines and cultural and sports
activities. Montenegro has started implementing the standard rate of 21% from 2018. Kosovo has started to
implement a reduced VAT rate, at the end of 2015, and has increased the standard rate by 2%, in order to maintain
fiscal stability. of the budget. Montenegro and Serbia adopted a reduced VAT rate in 2016, at 7% and 10%,
respectively. Albania and Serbia apply a standard VAT rate of 20%.
Tab.9 VAT RATES in WESTERN BALKANS in 2020 in %

NORTH BOSNIA AND
TAX RATES MACEDONIA
KOSOVO MONTENEGRO
HERZEGOVINA
SERBIA ALBANIA
VAT (STANDARD) 18 18 21 20 20
17
VAT (REDUCED) 5 8 7 10 6
Sourc e: Deloitte, MoF
VAT is the main tax in all WB6 countries, unlike EU countries, which have the main tax not VAT, but
personal income tax and profit tax. The Value Added Tax (VAT) burden compared to its tax rates (excise
tax taxes a specific category of goods), as in the case of profit tax and wage tax, highlights the problem
with fiscal administration capacity. The VAT burden trend does not correspond to the VAT rate levels.
In cases when the VAT rate is above 18% (Albania, Croatia, Montenegro and Serbia) the highest fiscal
burden is not in Albania, but in Montenegro and Serbia. Although Albania implements a higher VAT rate
than North Macedonia, it has a lower burden than that.
Fiscal policy in this case seems to need to be approached more closely with taxation modeling, as its
productivity in is lower than the neighboring countries.
24
Tab.10 SOCIAL and HEALTH CONTRIBUTION RATES in WESTERN BALKANS in 2020 in %
SOCIAL and HEALTH NORTH BOSNIA AND REPUBLIKA
KOSOVO MONTENEGRO SERBIA ALBANIA
CONTRIBUTIONS RATES MACEDONIA HERZEGOVINA SRPSKA
EMPLOYER 27 5 10.3 10.5 0 17.15 16.7

EMPLOYEE 0 5 24 31 33 19.9 11.2
TOTAL 27 10 34.3 41.5 33 37.05 27.9
Burimi: Deloitte, MeF
Social and health insurance rates have been stable, except for Montenegro since 2019 has reduced the
employer's contribution to social security by 2%. Bosnia-Herzegovina (without Republika Srpska) and
Serbia have the highest tax rates. Kosovo and North Macedonia have the lowest rates. However, Albania
is only 0.9 percent higher than North Macedonia (Tab.10) and this fact is present with the low share in
budget revenues. The social and health insurance burden is highest in Bosnia and Herzegovina, Serbia
and Montenegro. Meanwhile, taxpayers in Kosovo, North Macedonia and Albania have a lower real
burden, given the payments they made to the budget in 2019.
When we compare the burden of labor taxes, which includes both taxation on wages and contributions,
the increase in the burden of contributions varies at the level of 2 % -2.6 % for Albania, North
Macedonia, Kosovo and Bosnia and Herzegovina. Meanwhile, in Serbia and Montenegro, a tax burden of
3.2 % to 4.3 % of GDP is added to the contribution burden. Given this joint calculation of the two levels
of burden that constitute the burden of labor taxation, it appears that the fiscal burden on labor is
between 4.5 percent (Kosovo) to 17.5 percent (Bosnia and Herzegovina).
In EU countries, the labor tax burden is 44.5% in 2018. Although with a decrease, the fiscal burden on
labor in EU countries is over twice as high as in Western Balkan countries.
Comparing tax rates between WB6 countries applying a progressive tax rate (Montenegro, Kosovo,
Albania, Serbia) with countries applying a flat tax rate (Northern Macedonia, Bosnia and Herzegovina)
regarding with the burden being paid on the budget there is a noticeable gap between them.
Given the effectiveness of the progressive tax burden, it can be seen that this model guarantees more
revenue in the budget than the income guaranteed by the flat tax model.
The average marginal tax rate in the Western Balkans for individual income tax / salary12 is 14.5%.
- Albania (23%) and Serbia (25%) apply rates above this average;
Kosovo (10%), Bosnia and Herzegovina (10%), Northern Macedonia (10%), Montenegro (9%) apply
below-average rates.
Meanwhile, for individual income, which is taxed at source, each state implements progressive policies
scaled according to segments of personal income.
Tax rates for withholding taxes are:
- below the Balkan average are 4 countries; Montenegro (flat tax 9% withholding tax), Kosovo (flat tax 10%,
with no dividend tax), North Macedonia (flat tax 10% on all personal income), Bosnia and Herzegovina
(tax) flat 10%, where only the dividend is taxed at 5%);
- above the average of the Balkans they hold 2 countries; Albania 13 (flat tax 15% withholding tax, where
dividend is taxed at 8% from 2019), Serbia (progressive tax 15% - 20% - 25% withholding tax).
12including withholding taxes, like: tax on dividend, interests, capital gain etc.
13The case of the tax rate for this group in Albania has an explanation, because the tax rate of 13% on personal income includes
over 95% of their tax base
25
The average total rate of social contributions14 in the Balkans is 29.8%.
Below this average rate are listed 3 countries:
- Kosovo (10%), Northern Macedonia (27%), Albania (27.9%);
Above this average rate is listed 3 countries15:
- Bosnia - Republika Srpska (33%), Montenegro (32.3%), Bosnia - Federation (41.5%), Serbia (37.05%).
The countries of the group with the burden of high tax rates have a significant difference ranging from 7% to 14%.
Meanwhile, starting from the policies for increasing pensions, for transfers to the needy, but also for vocational
education and capacity building of employees, they are increasing as a need to face the increase of competitiveness
of human capacities, but also the economy. The policy of burden of contributions needs to be revised to narrow this
gap in Kosovo, North Macedonia and Albania. Low levels of contribution rates risk in the medium and long term
also the implementation of current schemes based only on the fact of increasing age for the benefit of retirees.
The diagram below shows that even in 2019 the main share of the fiscal burden in the Western Balkans
belong to consumption taxes and less burden is left on direct taxes. Meanwhile, the policy on social funds
is seen as not aiming to be competitive while maintaining the same burden as the previous year.
TAX RATES STRUCTURE IN WB6, 2020

100%
90%
27.9 27 37.05 32.3
80%
41.5
70%
60% 23 18 15
25
50% 9
13 10 10
40% 10
15
30% 10 9 15 10
20% 20 21
20 18
10% 17
6 5 10 7
0%
VAT REDUCED VAT STANDARD C.I.T. (MAX) P.I.T. MIN P.I.T. MAX SOC.&HEALTH CONTRIBUTIONS
In the context of the application of tax rates, if we analyze them 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 tax
burden in each WB6 country. But even for direct taxes, the management capacity still remains completely
unrealized. This confrontation requires a review of the tax rate adjustment model with capacity building,
adaptation to the economic and social environment of taxpayers.
From a practical case-based perspective, there is no doubt that fiscal policy affects business economic
choices. If tax rate reductions are not harmonized with one another considering the expansion of tax
bases, then a budgetary situation is created that negatively impacts fiscal consolidation, as well as the
strengthening of voluntarism in paying taxes and enhancing fiscal culture.
From the horizontal comparison of the rate of social contributions in total there is a regional tendency to
keep them at the same level as in 2018. The non-change of social contribution rates shows that politics is
relaxing the labor market and aims to help budgetary policies, despite the fact that some countries such as
14 for employer and employee

15 Republika Srpska is included as part of Federation of Bosnia and Herzegovina,
26
Albania, Kosovo and perhaps even North Macedonia need to increase their contributions to some sharp
social policies regarding employment training policies and to certain categories such as: people unable to
work, young people who are new to the job market as well as the poor.
If we analyze more deeply, it is concluded that some countries have a low fiscal burden (Albania, Kosovo,
Macedonia). Reducing a tax rate of a certain tax is not the solution of the demand of the citizens and the
budget. A complex tax system, which in recent years is being implemented in an economy that needs to
be competitive in the regional market needs a harmonization of fiscal policy with tax rates. But on the
other hand, the complexity of the fiscal system increases the difficulty of voluntary cooperation with the
law by small and medium taxpayers, who are the majority of the tax base. Although recent studies by
various organizations and researchers confirm that changes in consumption and capital tax rates are less
influential in the economy than changes in individual and labor tax rates, it is worth noting that shifting
the fiscal burden from consumption and capital to the individual and labor is quite a difficult task for any
government.
Fiscal policy regarding low tax rates for capital has not had the expected impact on investment absorption
and consequently on economic growth. This shows that fiscal policy is a very strong stimulating /
inhibiting tool for the movement of capital and consumption. But it cannot be ignored that the budget
needs enough money to make policies to increase the labor market through stimulation and capacity
building, but also through the infrastructure line and the creation of the environment for the introduction
of modern technology.
For example, let's look at the case of Montenegro, which has applied capital tax rates among the lowest in the Western
Balkans. GDP in this country has not increased significantly, but has decreased over the last 5 years. The same
happened with North Macedonia, which is held for lower tax rates even at European level. The country's GDP has
remained at around 10 billion euros, with a decrease in national added value.
The implementation of a comprehensive reform policy must be based on a level of administration and
strong capacity. Improving the tax system should address both the policy of tax rates and the
strengthening of administration in a harmonization between them, because this gap between policy and
administration always is being considered a necessary condition for the functioning of the development of
the fiscal system in accordance with the objectives of economic development.
The tax rates for all Balkan countries can be found in the Annex.
1.4. Fiscal burden in countries with progressive taxation and those with flat taxation
Fiscal revenues from WB6 countries applying progressive taxation (Montenegro, Kosovo, Albania,
Serbia) compared to countries implementing flat taxation (North Macedonia, Bosnia and Herzegovina)
have a higher burden, respectively of 1.8% and 2.1% of GDP in 2018 and 2019.
Tab.11 TAX BURDEN IN FLAT TAX COUNTRIES AND PROGRESSIVE TAX COUNTRIES in WB6 in 2018 - 2019 % of GDP
2018 2019
OTHER TAXES - OTHER TAXES -
COUNTRIES
DIRECT TAXES INDIRECT TAXES SOCIAL DIRECT TAXES INDIRECT TAXES SOCIAL
CONTRIBUTIONS CONTRIBUTIONS
KOSOVO 3.5 20 0.5 3.7 20 0.4
ALBANIA 7.2 11.3 7.2 7.1 11.0 7.1
SERBIA 5.8 16.5 13.7 6.1 16.4 13.5
MONTENEGRO 5.5 18.6 12.4 5.2 19.1 12.1
AVERAGE TAX BURDEN 5.5 16.6 8.5 5.5 16.6 8.3
NORTH MACEDONIA 5.2 12.2 8.6 4.8 12.2 8.9
BOSNIA-HERZEGOVINA 4.1 16.3 14.0 3.9 16.1 14.5
AVERAGE TAX BURDEN 4.7 14.3 11.3 4.4 14.2 11.7
Sourc e: IMF, MoF
27
The taxation model for capital and personal income is seen to be unrelated to the burden of insurance
contributions, or even indirect taxes.
Albania and, in part, Montenegro and Serbia (as of 2019) apply a progressive personal income tax system, which still
carries with it a sharp and yet unaddressed problem for solutions related to the expansion of the narrow tax base on
capital and labor. The Balkans have been characterized by fiscal policies that have focused on stabilizing the profit
tax rate, a tendency to adapt to progressive taxation on personal income, and a slight reduction in the rate of social
contributions.
Countries implementing progressive taxation have an average contribution burden for 2018 lower than
countries implementing flat taxation with 2.7% less and for 2019 it is 3.4% less. But this difference is a
result of the high level of fiscal burden in Bosnia and Herzegovina. This fact seems to affect the average
fiscal burden from social contributions and is the same reason for the average tax burden on indirect
taxation in countries with progressive taxation, which are 2.3% and 2.4% above 2.4% and 2018,
respectively other WB6 countries with direct flat taxation regime.
Comparing the level of fiscal burden for direct taxes in the Western Balkans with the EU-28 average, the
difference is more than double.
This fact between comparisons for the same model, on the one hand comparing fiscal policies through
tax rates, while comparing fiscal burdens on the other, shows once again that the administration is still
working below the capacity provided by fiscal legislation in the respective states, which implies, inter alia,
the presence high tax evasion.
In the total fiscal burden, according to the graph below, it appears that countries with low productivity in
the collections of a constituent group of total fiscal burden (eg insurance, and other taxes in Kosovo) are
offset by higher receipts from another constituent group (Indirect Taxes in Kosovo).
TAX BURDEN IN FLAT TAX COUNTRIES AND PROGRESSIVE TAX

COUNTRIES in WB6 in 2018 - 2019 (% e PBB)
18
16
14
12
10
8
6
4
2
0
CONTRIBUTIONS
CONTRIBUTIONS
INDIRECT TAXES
INDIRECT TAXES
DIRECT TAXES
DIRECT TAXES
SOCIAL
SOCIAL
2018 2019
PROGRESSIVE TAX FLAT TAX
The various studies conducted on informality in the labor market in the Balkans show the concern of a
labor market informality that is changing and decreasing at a slower pace than the forecasts and programs
of the Balkan governments. A narrow base of direct taxes still shows a still-closed transition in terms of
the greater contribution that direct taxes on capital and labor income (companies and individuals) have to
budget.
All Western Balkan countries apply a flat rate of profit tax, except for Albania and Kosovo.
28
1.5. Fiscal burden and budget revenue distribution
The distribution of budget revenues shows at least the level of taxes on spending on money transfers to
the working age population and beyond. It also aims to achieve that personal income taxes are
progressively collected according to income levels and the orientation in which money transfers go where
the needs of the population are most necessary in relation to improving living standards.
The high level of income inequality in the Western Balkans continues to receive growing attention from
governments, despite the political wing. Governments tend to address the phenomenon of inequality as a
challenge that each country must address. But it is now imperative that income redistribution be clearly
addressed through fiscal policy and administration.
Before being treated as a flaw in capitalist system enlargement, it is necessary for countries to first update
the data and raise awareness of all segments related to the means of correcting social polarization.
The measurement of inequality in individual income, according to the GINI index16 (coefficient) should
be seen in connection with the fact that inequality is significantly affected by taxes and fees. One of the
studies conducted published by the OECD17, income inequality is mainly reflected in the impacts that
come from inequality in the labor market, but not only. Income inequality from work is the main
contributor to household income distribution. If we look at the case of Albania, most of the income from
work goes to high wage levels for a minority of less than 1% of employees.
Also, the decrease in the distribution effect according to the current fiscal policy has been accompanied
by an increase in inequality in the labor market, but also in the taxation of income circulating in the
informal market. In some cases, the latter circulates more income than the formal labor market itself.
SOCIAL EXPENDITURES IN WB6 IN 2018-2019

18 17.0
16 15.4
14.7
14 15.3
11.8 14.6 15.2
12
11.6 10.4
10
10.2
8 6.4
6
6.2
4
2
0
MONTENEGRO SERBIA KOSOVO BOSNIA N.MACEDONIA ALBANIA
SOCIAL EXPENDITURES 2018 SOCIAL EXPENDITURES 2019
Money transfers from the budget to various population groups, such as retirees, the unemployed, the
disabled people account for 12.3% to 12.5% of budget expenditures in the Western Balkans, respectively
for 2018 and 2019. These transfers are mainly aimed at redistributing income throughout the lives of
individuals following the principle of their distribution according to the historical level of the contribution
of individuals to the budget. Although the values of these transfers per individual represent modest or
very small amounts of money in relation to individual consumption, they remain a permanent instrument
of income redistribution for long-term or permanent periods. Meanwhile, government transfers in the last
2 years, e.g. in Albania they have maintained levels that have little difference (10.2% - 10.4% of GDP),
16 The Gini index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among
individuals or households within an economy deviates from a perfectly equal distribution. The Gini coefficient can theoretically
range from 0 (complete equality) to 1 (complete inequality); it is sometimes expressed as a percentage ranging between 0 and 100.
In practice, both extreme values are not quite reached.
17 Income redistribution across OECD countries - Main findings and policy implications, September 2018
29
without being able to reach the level of countries with more well-funded social policies such as in Serbia,
Montenegro.
If we focus on the distribution of income by fiscal burden and the type of taxes applied, it can be
mentioned that the tax burden shows little progressivity in the redistribution of income by geographical
area and employee wage bands by economic sector, as the development of economic sectors and
geographical areas themselves there are historical, economic, cultural, educational and environmental
differences.
But even demographic shifts along with changing middle age are factors that change income equality.
Changing progressivity in the upper levels of payroll taxation is more effective in reducing inequality than
similar changes in the bottom end of the income scale.
In particular, the higher the fiscal burden, the lower the Gini Index. This can be argued by explaining why
countries like Sweden, Germany and France, which have high tax rates on the wealthy individuals, suffer
less from inequality compared to the US, which has a relatively low fiscal burden.
Although it is not possible to find official data for each Western Balkan country, explicitly this conclusion
seems to hold true. Because tax evasion is so widespread in the Western Balkan countries, the indicators
of burden and fiscal productivity from the study's findings may make it clear that countries face lower
costs of efficiency in reducing tax inequality.
Tab.12 DIFFERENCE of INCOME per CAPITA in WB6 in 2012 and 2019 in %

GROWTH of
INCOME PER CAPITA
COUNTRIES INCOME/
USD 2019 Euro 2019 USD 2012 Euro 2012 CAPITA 2019/2012
MONTENEGRO 8,703 7,746 6,587 4,995 74.2
SERBIA 7,397 6,583 6,016 4,562 62.1
NORTH MACEDONIA 6,096 5,425 4,699 3,563 71.1
BOSNIA-HERZEGOVINA 5,741 5,109 4,779 3,624 58.4
ALBANIA 5,372 4,781 4,248 3,221 66.8
KOSOVO 4,442 3,953 3,600 2,730 62.7
Source: Eurostat,WB, IMF
Comparative analysis of average per capita income (Tab.12), as a result of economic growth during 2012-
2019 shows that Montenegro has the highest increase in per capita income. In this country, per capita
income in relation to the population increased by 74.2%. Even in North Macedonia, per capita incomes
have risen sharply to a high of 71.1%. Meanwhile, Albania has an increase in per capita income at a high
level of 66.8%, but with a difference of at least 5-8 percentage points from the two neighboring countries.
Serbia and Kosovo have an increase in per capita income almost at levels similar to 62.1% and 62.7%,
respectively.
The country with the lowest growth rate compared to other WB6 countries is Bosnia and Herzegovina
with 58.4%. This comparative analysis is in fact the most visible indicator of the productivity of the
economy, development policies and strategies, and the appropriate level of addressing economic models
towards increasing the well-being of WB6 taxpayers. While it is said that Albania has effectively used its
natural resources in recent years, and has tried to increase capacity, it is noted that it has not managed to
increase welfare in the same way as its closest eastern and northern neighbors.
Although both of these countries do not have the potential that Albania possesses, they appear to have
made better use of the available domestic resources and capacities as well as foreign and domestic
investment creating a higher welfare than Albanians.
30
1.6. Foreign Direct Investment and innovation related to the fiscal burden
The average foreign direct investments in WB6 in 2019 are in the level of. 6.2% of GDP. What matters
for FDI relates to their treatment as one of the factors that need to be integrated with internal elements
and under specific conditions, where their synergy can improve the economic development of the Balkan
countries.
However, in order to be competitive in the Balkan and European markets with the aim of attracting a
considerable amount of investment, it is inevitable that the necessary reforms will be implemented, with
the most important being: reducing corruption, improving the efficiency of the administration to reduce indirect costs. On
the other hand, effective strategies should be devised for direct and personalized attraction of investments
that are likely to occur, ie. create an attractive and family business environment for investment.
It is important to maintain a sound economic and financial model, as well as a competitive tax system, but
with content and taking into account the fulfillment of budgetary objectives, before considering
competitiveness.
But FDI depends not only on domestic policies but also on regional policies as a whole. Issues such as
transport and energy interconnections, disputes between countries, arbitrary decisions on customs duties
directly affect each other and where relevant, may not create incentives for foreign investors.
The FDI in the WB6 region remains limited, where the average stock of FDI per capita in the WB6 is less
than half the value of FDI per capita in Eastern Europe (members of the EU), and only as much as 1/7
of the average FDI per capita in other EU countries. However, the region still has the potential to invest
in WB6, attracting investment from EU countries as well as East Asian countries.
From the FDI structure it is clear that there is still a dominance of the services sector and the inflow from
large European and Asian countries, which are part of the market programs and territories of large
foreign companies.
The total FDI shows that only the Republic of Serbia has more than half of the total FDI stock in the
region, while the rest is divided between five other countries, which roughly corresponds to the size of
the market and their economies.
The service sector is dominated by the financial services sector, as well as the trade and manufacturing
sectors, which account for about 1/5 of the FDI stock of the chemical, food and beverage industries, as
well as products for the automotive industry. The region's efforts seem to need to focus on investments
that require efficiency. Export-oriented FDI needs to foster competitiveness and efficiency, which in fact
depend on foreign-domestic interaction with the acquisition of innovative knowledge and technology to
become part of the future economy for the domestic market.
In support of the economic purpose to esase the inflow of FDI, tax incentives in respect of R&D in WB6
countries should become a day-to-day policy of widespread adoption. Although tax incentives are no
different from incentives for economic development policies, they are far from the strategy for a research
and development system.
Tax incentives must necessarily be specific to market developments and innovation appropriate to its
development.
Taxable income deductible expenses are the most popular current R&D policy, followed by recognition
for most of them, as recognized expenses. Other stimulus policies push the depreciation rate for R&D
higher than usual.
The vast majority of tax incentives are based on corporate income tax, while some countries have
(additional) incentives that apply to social security contributions and / or payroll tax. The individual tax
31
would be broader, if individuals would prefer to finance their own research with their own resources, or
with funding from private organizations and investors. The tax benefits that apply to innovation income
(mainly patents) are increasing both in number and in the types of patents being registered.
In the last two years, eleven EU member states have offered a reduction in corporate income tax, for
income derived from intellectual property, as well as a reduction in personal income tax in the case of the
self-employed.
Currently, only a few WB6 countries still have tax incentives closely linked to specific R&D. Usually today
the incentives are based on a combined model between the specific research expenditure scheme and the
scheme based on their volume. Promoting FDI from competitive tax policies with low rates is more
effective if FDIs are withdrawn, aimed at efficiency based on low production costs, which means low
fiscal burden on labor. In this context, if Kosovo, Albania and North Macedonia keep their labor costs
low compared to other WB6 countries, what needs to be taken into account is transparency and strong
fiscal policy management.
Tab. 13 NET FDI PER CAPITA IN WB6 IN 2019 In Tab.13 when we look at foreign net
investment as percentage of GDP in
NET FDI (% FDI/CAPITA 2019, it turns out that labor costs should
COUNTRIES GDP) (US.D) be seen as closely related to per capita
ALBANIA 7.8 415 income or the well-being of employees
BOSNIA - HERZEGOVINA 2.3 132
in countries where investment is
invested and the cost as a single element
NORTH MACEDONIA 3.2 193
does not has a reflective relationship
KOSOVO 3.8 169 with FDI. From this comparison,
MONTENEGRO 8 723 although it should be seen as related to
SERBIA 6.2 456 the fiscal burden as a whole, it can be
Source: IMF, WB,CB concluded that beyond the low cost of
labor and the fiscal burden it is necessary to have a balanced economy, low cost administration and
transparent policy in a financial market. developed and linked to world markets. Expansion of foreign
trade disparities of the Western Balkan countries during 2019, as well as in 2018, were financed by the
increase in foreign capital inflows, mainly through FDI.
But according to WB studies and research reports from EBRD, and the IMF country reports, all of them
suggests that the size of capital inflows is not related to an interdependent relationship with the lack of
capital. Furthermore, FDI inflows were directed to investments in sectors such as financial services, real
estate and construction, which do not generate strong performance for export and increase the
competitiveness of the economy.
N E T F D I I N WB 6 I N 2 0 1 9 ( % O F G D P )
ALBANIA 7.8 MONTENEGRO

8
SERBIA 6.2
N.MACEDONIA
3.2 KOSOVO 3.8
BOSNIA -
HERZEGOVINA
As can be seen in the graph above, the first place for FDI stock according to GDP is held by
Montenegro, followed by Albania. But Serbia remains the most important country for FDI volume in the
32
Western Balkans, although it holds the third place for net FDI stock to GDP, with an approximate inflow
as in 2018. Albania benefited from large volume of foreign investment directly in the region, mainly in
energy projects and financial services, as a continuation of large projects started several years ago. In
contrast, Bosnia and Herzegovina was weak, perhaps due to its increasingly segmented economic
environment and lack of political stability in the country.
North Macedonia and Kosovo received more FDI than a year ago, despite growing political debate in
those countries. Suppliers of the automotive and electronics industries make North Macedonia the only
country in the region with the highest share of FDI in production. The analysis of FDI of WB6 countries
identifies different relations of foreign direct investment, exports and imports in the GDPs of these
countries, as well as the different composition of their GDPs. According to the analysis, the impact of
FDI on the economic development of Bosnia and Herzegovina, North Macedonia and Montenegro in
recent years has not been the main influencing factor.
On the contrary, in Albania and Serbia, FDI has had an impact on the GDP of respective countries, being
reflected in their levels of economic growth. This attitude does not exclude the specific importance of
foreign direct investment, but of course they are not the decisive factor in the development of these
countries. If the period of about twenty years is analyzed, almost all the economies of the Western
Balkans can be observed to be quite weak.
FDI inflows, while showing a positive trend, are still below their level to reach the ambitious target of
doubling FDI by the end of the current decade. In addition to the traditional channel of privatization
through mergers and acquisitions of local businesses for FDI inflows, investors are also increasingly
turning to renewable energy investments. This interest is partly generated by investment incentives
currently offered and the spread of specific economic zones in the region.
If we start from the logic of economically developed countries, as well as those that are moving at an
accelerated pace of development, it can be noted that if the economy relies on a developed infrastructure,
services and effective public administration, increasing productivity to target a relatively relative market.
greater, then the competitiveness of the tax rates and fiscal burden wins only advantages granted or when
these conditions exist.
These conditions are mostly achieved in the largest number of OECD member countries, which although
have a high fiscal burden, they are much more effective in attracting foreign investment. A low tax
burden on the other hand cannot compensate an unattractive economic environment for investors. Tax
incentives can be used in a more oriented way and to be cost effective for the expenses that investors will
incur, but also to meet the needs of the budget.
Taxes are only one of the elements that even in the conditions of a low rate offer can not compensate for
the poor infrastructure, poor market access and other conditions on which an investor is based, such as p.
sh. space to move freely in the financial market. If businesses (especially SMEs) do not have sufficient
lending and low cost, then their growth will continue to be weak and of course investment and labor
market will be affected.
Balkan governments have responded to these pressures of competition in various ways. Many countries
have lowered profit tax rates, as the shortest and most easily monitored way to achieve investment
objectives.
In fact, what they need to do is tax cooperation between them. Interaction and coordination of fiscal and
economic policies should be conceived to be implemented within the borders of the Western Balkans,
without returning to the policy of non-cooperation. Fiscal policy competition does not work within the
Western Balkans.
But, if the states were part of the big market, they would have a real opportunity to compete with the
policy of lowering tax rates. The competition between each other helps powerful states and companies to
easily enter through the policy of disintegration of the Balkan states.
33
However, lowering tax rates tends to be costly for the budget, as the revenues that are deducted from the
budget from the policy of lowering tax rates actually undermine fair competition in the country, but also
turn into an added burden for certain segments and groups of taxpayers.
On the other hand, the reduction of tax rates turns into a culture for citizens to put pressure on
governments to maintain such a policy permanently, without having an effect on the need to expand the
base and distribute the burden equally.
1.7. The impact of increased investment on competitiveness and not just taxes
Host countries of FDI in the Western Balkans have been applying low profit tax rates for over a decade.
However, it can still be seen that the attraction of investment has not tended to increase significantly,
even in countries where this decline has been among the lowest in the Balkans.
When we analyze the effect of the fiscal burden according to net investment statistics as a percentage of
domestic production, it is noted that countries with higher FDI do not have the same trend as the fiscal
burden. The reason for not exceeding the fiscal burden and foreign investment is the strongest indicator
of the role that the investment climate in a given country has in the first place.
Fiscal policy has the effect of boosting investment, but this is because market conditions and rules are
perceived by investors according to investment indicators with positive situations and above their average
levels. On the other hand, the need for developed systems of financial markets, road and energy
infrastructure, capacities and deficient labor market capabilities along with the level of corruption have
another influential effect on attracting investment and developing the domestic market.
Following the response from the representative indices of the above indicators, in accordance with the
planning for attracting foreign investment, it is worth drafting fiscal policy that adjusts capital and labor
tax rates according to market level and vision for capital and future market.
The perception that only low tax rates can attract FDI has had little effect on policy-making in the
Western Balkans in the last decade. In theory, if a country applies low profit tax rates and generally
capital, it becomes more attractive to shift the profits of investment companies, as it affects the dividend
that remains as profit after tax. Albania and Kosovo are comparable in their policies with other Western
Balkan countries.
But the problems of corruption and inadequate administrative capacity, the lack of transparency, and the
mechanisms used in low-tax systems with the weaknesses they carry make these two countries still far
from quality and long-term investment.
However, from the cross check of investment indicators, with tax rates it remains unclear whether a tax
rate should really be reduced in order to attract the attention of investors, as indicators of fiscal burden in
these two countries show that they are much lower than other countries. neighbors with them.
From the history of competition between the countries of the Western Balkans for tax rates as low as
possible, the facts of investments made over the years show that it is not clear whether the reduction of
the profit tax burden is able as the only instrument to attract large investors, but also medium ones.
But what remains unaddressed until the solution are the main structural barriers to competition, which
include a relatively poor business environment18, uncompetitive and rigid markets for industries that are
18 reaffirmed by the World Bank's Doing Business 2020 report, with few exceptions
34
interconnected with other markets, a difficult regulatory environment, and unpredictable, poor access to
the financial market, high FDI stock in non-exporting sectors, and a large informal sector.
Competition of tax rates for FDI is a reality in today's global and Balkan environment. It is true that
investors routinely compare the burden of direct taxes in different countries, as policy makers typically do
for countries that are similar in terms of market location and size.
CORPORATE PROFIT TAX RATES in WB6 in 2019-2020
16
14
12
10
0
KOSOVO MONTENEGRO BOSNIA AND SERBIA ALBANIA
HERZEGOVINA
STANDARD REDUCED
A widely held view is that taxes are likely to be more important in choosing an investment host country if
non-tax barriers are removed and if national economies converge with investment recovery requirements
in the most competitive form and manner among countries. While profit tax is recognized as an
important factor in investment decisions, in fact practice shows that it is not the main determinant.
Tab.14 INDEX OF COMPETITIVENESS IN WESTERN BALKANS IN 2019 points
Macroeconomic Product Labor Financial Market Business Innovation

COUNTRIES* Institutions¹ Infrastructure² ICT adoption³ Health ⁵ Skills⁶
stability⁴ market⁷ market⁸ system⁹ size dynamism¹⁰ capability¹¹
MONTENEGRO 53 83 57 104 65 53 42 26 44 134 50 69

SERBIA 75 51 77 64 76 55 73 54 82 74 54 59
NORTH MACEDONIA 84 75 70 82 64 83 110 82 83 109 65 97
BOSNIA - HERZEGOVINA 114 84 80 64 73 82 108 107 80 101 117 117
ALBANIA 76 98 75 104 46 50 75 38 102 111 63 110
WESTERN BALKANS 80 78 72 84 65 65 82 61 78 106 70 90
Sourc e: WE forum, Global Competitiveness Report 2019
* Kosovo has no data in Global Competitiveness Report 2019
¹ including "Scurity, Social Capital, Checks and Balances, Public-sector performance, Transparency, Property rights, Corporate governance, Future orientation of government"
² including "Transport infrastructure, Utility infrastructure"
³ including "Mobile-cellular telephone subscription,Mobile-broadband subscription, Fixed-broadband internet subscription, Fibre internet subscription, Internet users"
⁴ including "Inflation, Debt dinamics"
⁵ including "Healthy life expectancy"
⁶ including "Current workforce, Skills of current workforce, Future workforce, Skills of future workforce"
⁷ including "Domestic competition, Trade openes"
⁸ including "Flexibility, Meritocracy and incentivization"
⁹ including "Depth, Stability"
¹⁰ including "Administrative requirements, Entrepreneurial culture"
¹¹ including "Interaction and diversity, Research and Development, Commercialization"
Table.14 shows that the lowest points (show the most advanced position) compared to the WB6 average
are held by Serbia with 9 pillars, Montenegro with 8 pillars, Albania with 6 pillars, North Macedonia with
5 pillars and Bosnia and Herzegovina with 2 pillars.
35
The dimensions of the economy are important to see the weight of fiscal policy in relation to its current
maturity, as the larger the economy, the slower the performance of a fiscal reform / policy. On the other
hand, the dimensions of an economy are directly related to the tax base, determining the trend of its
expansion. In the case of a small economy this expansion is more difficult to happen, due to the conflict
that the tax base has with the differentiated tax policy by segments.
FDI are apparently oriented towards countries that have offered access to markets and profit opportunities; a
predictable and non-discriminatory legal and regulatory framework; macroeconomic stability; skilled and responsible
labor markets; well-developed infrastructure and innovation; developed financial system and interconnected with the
world network, meritocracy and entrepreneurial culture and an advanced level of corporate governance and growing
investment in research and development.
The Balkan countries which are members of the EU, although they have a higher profit tax burden, the
fact that they are part of a market with standartized rules, but also due to the guarantee of a developed
infrastructure, public services and hospitable environment and attractive to business, reasonable
transportation costs, including market size, then it is futile to be required to compete by Western Balkan
countries only with low tax rates, without offering similar advantages as those of the Balkan member
states of EU.
A low fiscal burden cannot compensate for a generally weak or unattractive environment for FDI. Also,
while attention is often focused on corporate income tax, the importance of other taxes needs to be
recognized.
Some businesses find that they can reduce tax burdens by changing from one form of business
registration to another. This election eliminates corporate income taxes paid at the medium and large
business level. Meanwhile, governments often change fiscal laws to address this avoidance or even
evasion with the aim of not eroding the tax base and fiscal revenue. In fact, the biggest problem with
income and the deformation of equality before the law is more related to the shortcomings in the fight
against tax evasion and informality.
This gray economic space creates the premise that businesses can hide their real business status by
performing undeclared transactions with this category. In these conditions and fiscal environment, it is
hasty policy to make modifications to systematize and address the problem that should be made by the
administration and not the policy.
Another factor is how friendly the tax and customs administration, central and local, is with the business.
From the surveys and numerous reports of organizations in the protection of business rights is seen as a
common conclusion, that in those countries of the region where investors find security, predictability,
sustainability and timeliness in the implementation of tax rules, as well as an effective rate tax, then that
environment is considered business friendly.
Balkan governments should try to improve business volunteerism by paying their budget obligations,
improving transparency and security for a correct tax treatment. Looking ahead, the limits of tax
competition can be further tested, by further reducing the burden of corporate taxes on foreign
investment, but also by not falling prey to the fashion of tax cuts, when viewed by policy makers such as
unnecessary to attract investment, due to unfulfilled qualities for attracting investment from the host
country and a lack of understanding of the local context for successful foreign investment.
36
1.8. Double taxation agreements in the Western Balkans and the effect on the fiscal
burden
The fiscal hospitable environment must also be affected by the need that arises for the policy to take
action against the misuse of the fiscal system by the aggressive international tax scheme, which exploits
the differences between the systems.
Balkan countries should also consider tax treatment of FDI abroad. Some countries today offer a tax
treatment that allows tax relief in the country of origin that goes far beyond the old argument in the face
of competition, which requires a tax exemption from the country of origin or a deferral of retained
earnings. foreigners, favoring the increase of the tax on income generated abroad of the fiscal residence.
Most of the bilateral agreements on the elimination of double taxation on income and capital taxes
(DTICT) are based for the most part on (a) the Model Income and Capital Tax Convention Model
(OECD Model) and (b) Model of the Double Taxation Convention between developed and developing
countries (UN Model). Meanwhile, each state in the Western Balkans, for each of the investments of
strategic importance, signs a Tax Agreement with the strategic investor, returning this model. The
difference between the two models of Agreements is both related to the taxes that are included or
excluded from them, but also to the extent of its effect based on the principle of fiscal residence.
Various studies show that after the signing of a DTICT between the two economies with reciprocal
positions of mutual foreign investment, the redistribution of tax rights to the country of residence is not a
problem. However, when such an Agreement is signed between the two countries with asymmetric
investment positions, then the importing capital country risks losing its income tax. Resource countries
can benefit from the impact of FDI. But the positive effects on FDI are more likely for middle-income
countries and less likely for low-income countries.
Whether a capital-importing country benefits from the signing of an DTICT also depends on the
dimensions of its tax base. The primary benefit that developing countries require from signing a DTICT
is to increase the supply of foreign direct investment. But one of the problems that has become known
from the practices of implementing Agreements is that Tax Agreements can precede investments, not
because they encourage them, but because they can only be concluded when there is an expectation of an
investment.
In all of the above, but without being limited to the reasoning and logic of benefits from the signing of
DTICT, the moment of their signing and the non-imposition of the fiscal system and budget in
unfavorable conditions of competition with neighboring countries is of particular importance.
With the signing of an DTICT, the impetus for international business is to make a profit by taxing little or
nothing with the source tax on the profits it will transfer to its place of residence. On the other hand, by
learning only with ease, investors put pressure on governments at the time of signing agreements with
them for other additional difficulties, in addition to those guaranteed to you in advance by the MTD and
the specific law for the investor.
The main problem with the signing of a DTICT between a developed country and a Western Balkan
country is the attempt to shift the fiscal facilities of investment that will take place towards the host
country of investment.
The benefit of developed countries in this case is revenue tax revenues, which are the main basis of
budget revenues in their countries. Meanwhile, the countries of the Western Balkans, which are based on
consumer taxes, are not given the opportunity to increase the budget revenue base by increasing revenue
tax receipts to change the trend of budgets that most of the collection of e. have from consumption taxes.
37
As with profit tax rates, income tax rates have been the subject of ongoing competition in the Balkan
region to encourage investor attraction. DTICT further instrumentalizes and encourages this policy
pursued by the Western Balkan states.
An experience comes from Albania. Although large investors have been using Albanian natural resources for over a
decade, given the benefits from DTICT, but also from specific agreements that have been lobbied by the
governments of the time the agreements were signed, they have almost never contributed to the tax budget. on the
dividend, or even with other taxes, which are the subject of ongoing debate between them and the Albanian fiscal
administration.
But, in fact, each state of the Western Balkans has drafted packages for free economic zones, increasing
the incentive dose with fiscal facilities for certain segments of the economy, or geographical areas within
each country. Meanwhile, with the approval of these facilities, together with the Agreement that in some
cases are copied from previously signed bad models lead to the creation of distortions of fiscal principles,
but also impact on budget performance in certain cases.
TAX DOUBLE TREATIES IN FORCE, 2020 Currently, by the beginning of 2020, each country in
TAX AGREEMENTS NUMBER the Western Balkans implements, according to the
MONTENEGRO 36 laws approved by the Parliaments of their respective
countries, a number of agreements with over 35-40
SERBIA 60
different countries according to the level of trade
NORTH MACEDONIA 48
relations, but also according to geographical position,
BOSNIA-HERZEGOVINA 40 where in this sense all countries between them have
ALBANIA 40 DTICT in force. Montenegro still has a large number
KOSOVO 15 of DTICTs in place, bearing what it has had since it
Source: Deloitte, MoF was part of the Serbia-Montenegro Union.
1.9. The need for effective fiscal reform in Western Balkans
Implementing tax reform implies something specific: lowering tax rates and broadening the tax base.
Lowering the tax rates loses revenue, but a prudent reform finds them closing the gaps in tax evasion,
exemptions and favorable fiscal treatment of one type of income over another, with all these measures
aimed at broadening the revenue base which taxed.
However, this reform policy does not describe the real tax reform.
Given that reform has a positive connotation, what is so exciting about promulgating a lower rate tax
policy and a broader base?
Theory and facts suggest that individuals and businesses, which the current system imposes with
significant tax liabilities, lobby continuously how to benefit from favorable changes in tax legislation. The
facts of all these years in the last two decades have shown that these changes rarely happen to serve a
major economic purpose. They are proposed because some industries or individuals have chosen a strong
lobbyist with deep pockets. It even helps members of Parliament "understand" how important the gap
they seek for greater public goods. So, tax rate cuts and tax breaks are often economically inefficient as
well as uneven.
If we start from the initial effect of the reform, where lower tax rates will generate more economic growth
and thus this expansion of the economy will begin to pay off itself by increasing the tax contribution to
the budget, then this impact would be calculated correct.
But when the government has little taxpayer support for this policy, then the effect of lower tax rate
reform can cost both the budget and the tax base, which can be narrowed because of the backlash from
38
unfair competition, which is created by lowering certain tax rates for some industries and taxpayer
categories.
In this way, the equality of taxation that existed before the reform was also broken.
As soon as governments come in power, they wrongly and unequivocally conceive the theory of tax
abatement with economic developments. They start with a very general perception that if taxes are cut,
people will work and businesses will invest more.
In fact, the impacts of such approaches are unclear: Some taxpayers will work slightly less after a tax cut,
as they can keep their income constant with less work. Whereas, some of them that carry more share in
the state budget will work more to take advantage of the space created by fiscal relief policies than to seek
to invest to generate greater profits. Meanwhile, the vast majority of them will not change their own way
of working (or the amount they invest).
All this panorama that can be seen after implementing a low-tax policy is due to the fact that the
economic environment in which it operates is very problematic, the competition in regional markets is
strong, and the informality and corruption do not allow such developments to take place, reflecting on
policy changes.
Moving the argument to Albanian reality in 2014 and on, where tax cuts for low-wage individuals
occurred, as well as removing the small business tax and significantly lowering tax rates for other small
business categories, the initiators of these ideas predicted that these reform measures would provide an
"immediate and sustainable boost" to the Albanian economy.
They were obviously wrong.
The same thing happened in this period, just as tax cuts have always happened: loss of budget revenue
and disruption of equity in the economy. Many taxpayers changed their tax status by "switching" to other
tax statuses so they could get the most out of their new tax benefits. The impact assessment on the
economy was reduced and the government burned down the opportunity through attempts to shift the
fiscal burden from poor to rich people. Compared to neighboring countries, the economy could not be
more competitive than before. Moreover, economic growth and jobs actually did not achieve the
numbers, where they were projected. So, another thing is talking about tax cuts and another thing is
talking about tax reform.
The real tax reform is not tax cuts.
In fact, the tax cuts and reliefs, together with these reform measures, could deplete the budget at a cost of
ALL 10-15 billion over a 10-year period. Meanwhile, in the event that tax evasion has not been reduced to
levels felt by the formal economy, the missing revenue will be an increased cost for taxpayers who are
formal and why the tax base may increase for this category over the years.
Real tax reform means tax changes that respond to the needs of most taxpayers, now and for the future.
Real tax reform would begin with a clear-eyed assessment of the resources the government will need to
meet these needs, all of which are considered public goods, including social security and risks that will not
be met by actors of market.
Reform must compensate, not exacerbate market and system inequalities. Reform must raise the revenue
needed to meet the many challenges we will face as a country in the coming decade.
Between 2020 and 2030, the share of the population over 65 is expected to grow more (from 15 percent
to 20 percent), putting pressure on both the spending and budget revenue side. Health costs are rising
slowly, thanks in part to the design of the health system to reduce costs.
39
But given the demographic and health cost pressures, it is notable that holding Social Security and public
health programs will require another 1.2 percent of GDP over the next decade.
Why it is so needed, and how it should support its strong role, for a government that is easily funded and
uses constitutional rights to meet the great challenges we face.
First, it is necessary to establish a fully meritocratic model as soon as possible, which should no longer be
the fate of previous models. The main effect will be a significant increase in income as it minimizes
corruption and lack of motivation at work. The timing of doing so directly affects their outcome and
affects future voting.
Secondly, the fiscal burden should be shifted from indirect taxes to individual taxation and then real estate
taxation should be applied. The reforms to be undertaken should not target large categories of taxpayers,
but rather target categories that should become part of a system of equality before the law. Direct tax
reform is significantly less effective than other reforms to the economy, but indirect tax reform is more
sensitive to citizens.
Third, the maintain of a social and economic environment, to increase the capacities and treatments of
employees to strengthen competition and market expansion beyond current boundaries, aiming at a
comprehensive policy to keep the few paying workers out of the country.
Satisfactory revenue growth, in a way that balances efficiency and capital considerations, i.e., minimizes
the distortions created by favoring one type of income over another while maintaining tax neutrality is the
true tax reform.
1.10. The measurement of the informal economy and digitalization serve the fight
against evasion
Measuring informality is not a new problem. The news is about using innovation and technology to help
with this major challenge.
How can Albania and other economies of the Balkans can profit by using new technologies?
Thinking about this new approach, the advised action could be very close to the strategy how to create
incentives for formalization. This requires reforms in various areas, for example taxation, labor law,
product markets, and improving the business climate.
In fact, more accurate estimates of the informal economy can help make policies more effective and
better targeted. In Western Balkans, for example, since a large part of the economy is untaxed, different
changes to tax policies, did not significantly have affected income distribution.
When we focus on the redistribution of incomes by fiscal burden tool it can be said that the tax burden
shows little impact in the redistribution of income by geographic areas and segments of employees by
economic sectors, as the development of economic sectors and areas geographical, historical, economic,
cultural, educational and environmental differences. But demographic movements along with the change
of average age are factors that change the equity of income. Meanwhile, government transfers in the last 5
years, eg. in Albania have maintained the same level of 11.8% of GDP.19.
If economic growth is not accompanied by equitable income distribution or an equal rise in employment
levels, we see an increase in the growth of the informal economy, given its low barriers to entry.
19 ALTAX - Tax Burden in Albania, Kosovo and Western Balkans 2019
40
Statistics on the activities in the informal economy, in employment, productivity and even the regions
where the activities are prevalent are critical for designing dedicated policies to support them in a specific
manner.
Formalization of informal activities is not only and just for tax collection or law enforcement purposes.
The dimensions of informal economy are so much more changing, and are growing with the rise of the
shared economy. In some neighbor countries, for example, the informal sector is estimated to be the
same size as the formal one, just for the sake of informality in the virtual market that represents many
services that are not part of the market dimensions we know.
As seen by the latest report from World Bank, poverty levels among people in informal employment are,
on average, twice as high as that of people in formal employment.
Why?
Because of low productivity, low incomes, poverty, and limited access to government budget and benefits
and slower economic growth. On the other side, it provides employment and income to people who
would otherwise not find employment, or it supplements their insufficient income from employment in
the formal/regulated sector.
If we cannot measure informality, we cannot evaluate how inclusive economic growth really is. So, we
may not be able to determine whether policies are working as they are intended.
If the government will not measure the informality, there has not sense the fight against evasion, because
is a battle without knowledge and proper information to know in real time the potential of the “enemy”.
Bringing the informal sector into the formal economy is probably one of the most significant policy-
making challenges for Albania and the whole region of Balkan.
In this regard, new models for deploying technology, along with new payment flows are key to expansion
of territory of formalization. Mobile and digital technologies can be used to better bring Informal’s
together and to connect service providers to them in new and innovative ways. This reduces the cost of
delivering solutions and improves the effectiveness of providing essential services to Informal’s and
microentrepreneurs trapped in a cash economy.
Government and NGOs have the capability to reach and deliver services to the last mile, while
policymakers are critical in creating supportive regulations that can incentivize consumers and small
businesses to adopt electronic payments. However, the private sector (including non-traditional
stakeholders across key sectors such as telecommunications and consumer goods) must be part of these
broader digitization efforts, as these actors are critical to drive innovation, scale and usage of services.
While the informal economy will never be completely eliminated, we can certainly reduce the cash it
generates by harnessing the power of technology and partnerships. This will not only help unlock the
informal economy’s massive economic potential, but will subsequently move hundreds of millions of
people across the country, but even in the Balkans towards long-term prosperity.
Turning cash into digital transactions is all about designing relevant solutions that fully address the needs
and desires of people and businesses, which can vary by geography, individual preference and community.
Time and resources are needed to gain a full understanding of their world, and how technologies fit – or
don’t fit – into it.
41
2. Tax Burden in WB6 in 2019
Budget revenues in GDP in 2019 have been in function of programs and reforms undertaken with a
comprehensive goal to promote economic growth, growth and employment growth, improve the quality
of the macroeconomic environment and increase the penetration of innovation in the function of
improving services for citizens, as well as filling gaps of various natures on the path to integration into the
European Union. The budget revenues of the Western Balkans in 2019 are as much as 35.4% of GDP.
2.1. Tax burden according to taxes
The economies of the Western Balkans region are working below their potential, and in these
circumstances the demand for capital is not at its peak. This situation is evidenced by the fact that
economies do not use the offers of the financial system, but the latter is not developed in a variety of
instruments as in developed economies.
However, the policy of shifting the burden of different taxes from one segment to another should be
maintained within the framework of medium-term budget planning. Tax revenues, meanwhile, account
for 30.4% of GDP in the Western Balkans. There is still a clear gap in the tendency to approximate every
possible fiscal aspect with a positive approach to improving budgetary health. WB6 has a fiscal burden of
at least 11 percentage points lower than the EU (41.5%).
TAX BURDEN IN WB6 IN 2018 - 2019

2018 2019
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
KOSOVO ALBANIA N. MACEDONIA BOSNIA SERBIA MONTENEGRO
Montenegro holds the highest fiscal burden with 36.4%, followed by Serbia with 36%. Bosnia-
Herzegovina holds the third tax burden rank with 34.5%. All three countries have a significantly higher
fiscal burden than other WB6 countries with at least 8% to 10%.
Kosovo holds the lowest fiscal burden with 24.1%. While Albania has a fiscal burden of only 1.1% more
than Kosovo and 0.7% less than North Macedonia, keeping the fifth place in the ranking of WB6
countries according to the level of tax burden. North Macedonia has a fiscal burden of 25.9%.
The comparison of fiscal burdens also explains the elasticity of the distribution of the main part of the
budget expenditures of the countries based on their own sources of income.
The VAT burden, which holds about 13.3% of tax revenues, still in 2019 indicates an addressing problem
regarding the need to diversify the budget sources and overhaul the tax revenue pyramid. Kosovo carries
the largest share of VAT in budget, followed by Bosnia and Herzegovina, which shows the high
dependence of budgets on these countries on consumption and imports. While other countries have high
42
levels of VAT in the structure of budget revenues, they still have a better diversification of revenue
sources from direct taxes and other taxes.
The latter one also has a high burden on labor taxes, causing the fiscal burden to be high. Kosovo is still
far from managing the potential of labor taxes and shifting the VAT burden to the income taxes on labor
and capital. Meanwhile, it is recommandable that efforts to shift the burden should be made gradually and
without affecting the tax base.
For example, in Albania, where the reductions-increases of VAT rates in 2018 have brought as a secondary effect the
claims of other sectors not included in the benefits of the reduction, to seek those benefits from the fluctuating and
contradictory policy towards the principles of VAT , where the policy of exemptions or escalations is not tolerated.
Another case from 2018 is the farmers' taxation policy by changing the VAT refund scheme for the raw material, or
changing the policy for packaging taxes, which bring effects on breaking the credibility of the scheme and reducing
the level of voluntary compliance. in law enforcement by taxpayers.
In 2019, Bosnia and Herzegovina, Serbia and Montenegro are the three countries that tax more income
from work than other sources of individuals and businesses incomes. The high workload at the levels
seen in these countries has little impact on the productivity of the economy, as long as the economy
works below its potential. When this economic cycle situation changes, then politics must reflect the
changed conditions. The low-burden policy on insurance contributions in Albania, Kosovo and North
Macedonia is uncompetitive compared to their neighbors. But it also does not allow the budget to spend
more on social funds.
The burden of capital taxes is at close levels between the countries of the Western Balkans.
2.2. Distribution of fiscal burden in Western Balkans by destination
The distribution of income means equality before the law and for this reason it is natural to expand the
tax base for each of the taxes in order to justify the expenses according to their destination. All WB6
countries have a budget deficit in 2019. This situation is due to the costs that reforms can have in
countries that have to face budgetary as well as political costs. Given the fact that spending is the signal
on where revenue should be planned more accurately, budget policy modifications need to be made,
including fiscal ones, with the aim of increasing the efficiency of tax use and other budget revenues.
Montenegro maintains the highest level of budget expenditures among WB6 countries. In 2018, as much as
50.7% of GDP was spent on public funds in this country, and in 2019, was spent 45.6% of GDP of
public funds. Serbia and Bosnia and Herzegovina have also spent budgets at over 40% of GDP, both in
2018 and 2019.
Tab.15 Budget expenditures to GDP in WB6 in 2018-2019 % GDP

COUNTRIES 2018 2019 DIFFERENCE 2018 2019 DIFFERENCE

6.00 50.7 45.6 -5.10
50.0 4.00
SERBIA 40.0 SERBIA 2.00 42.7 41.2 -1.50
KOSOVO 30.0 KOSOVO 0.00 30.8 35.2 4.40
20.0
BOSNIA - HERZEGOVINA
10.0
BOSNIA --2.00
HERZEGOVINA
-4.00
42.6 40.6 -2.00
NORTH MACEDONIA 0.0 NORTH MACEDONIA
-6.00 32.9 32.2 -0.70
38.2 37.4 -0.82
Source: WB, IMF, MoF
This level of spending in these countries is above the average budget expenditure on GDP in WB6.
Below this level are North Macedonia, Kosovo and Albania, respectively with 32.2% of GDP, 35.2% of
GDP and 29.7% of GDP.
43
An analysis between the reduction of the level of budget expenditures and the decline of GDP between
2018-2019 shows a relationship that is one of the determining factors in economic slowdown, according
to the table with four Balkan countries.
Tab.16 COUNTRIES WITH DECREASE OF GDP IN 2018-2019 in %

COUNTRIES 2018 2019 DIFFERENCE
BOSNIA-HERZEGOVINA 3.6 3.0 0.6
MONTENEGRO 4.9 3.0 1.9
SERBIA 4.2 3.5 0.7
ALBANIA 4.1 2.9 1.2
Source: IMF, WB
In countries with small economies, public investment has a significant impact on their economic
development. A large public investment program can achieve a major boost to economic sectors, or it can
stimulate multiple private investments, which together constitute a major boost in both the private and
public sectors. For this reason, in the periods of growing budgets, their impact on the economy must be
taken into account.
But if it can be seen in the long run, estimating that WB6 economies are operating below their potential,
reducing public spending (and consequently the budget deficit) would lead to falling interest rates, as the
public sector cannot compete with the private sector for funds. Low interest rates will allow the private
sector to make more investments. This level of investment would lead to an increase in capital with a
direct effect on increasing productivity. In fact, all this equation has not yet happened in this trend.
Budget expenditures in GDP in 2019 compared to 2018 marked a decrease of 0.82 percentage points,
where Montenegro has a significant decrease in the level of expenditures compared to other countries by
5.1 percentage points. Serbia, Bosnia and Herzegovina, North Macedonia and Albania also have lower
levels of spending on GDP, but at a lower trend than in Montenegro. Kosovo alone has a 4.4 percentage
point increase in spending, mainly due to the electoral process, which in any WB6 country has a growing
impact on public spending.
Budget expenditures made in GDP in 2018 were at the level of 38.2% of GDP. In 2019, budget
expenditures were at 37.4% of GDP. In the following, the destination destinations will be presented in
function of the budget programs for each country.
Comparing the years 2018 to 2019 between expenditures and budget revenues, it is noted that
Montenegro and North Macedonia have the same characteristics in terms of effective productivity of
budget management. Other WB6 countries, even though they have had positive primary balances, appear
to have less effective fiscal and budget management productivity.
Tab.17 DIFFERENCE BETWEEN EXPENDITURES (2019/2018), AND BETWEEN REVENUES (2019/2018) % GDP
BUDGET
COUNTRIES EXPENDITURES
REVENUES
MONTENEGRO -5.1 0.6

SERBIA -1.5 -0.3
KOSOVO 4.4 1.2
BOSNIA - HERZEGOVINA -2.0 -1.0
NORTH MACEDONIA -0.7 1.6
ALBANIA -0.03 -0.3
WESTERN BALKANS -0.8 0.3
EXPENDIT. REVENUES
Source: WB, IMF, MoF
44
According to the chart above, countries with budget cuts have the largest difference between extreme
values, a fact that shows that fiscal consolidation policy has been accompanied by a policy of limiting
budget expenditures. On the other hand, Montenegro and North Macedonia also have a decrease in the
fiscal burden in 2019 compared to 2018.
While, Albania, although it has the lowest fiscal burden in 2019, has not reduced budget expenditures,
remaining connected a good part of them related to reforms and payments for concessions in the sectors
of health, infrastructure, fiscal administration and in economy. Based on this policy, which effectively fills
the gap between expenditures and receipts related to weighty items in the budget, one can understand the
logic of the policy that must be implemented to achieve high budget productivity.
For the same period of 2018-2019, the increase in expenditures in Kosovo corresponds to an increase in
budget revenues by 1.2% of GDP.
Tab.18 ADMINISTRATION, SOCIAL AND CAPITAL EXPENDITURES IN WB6 IN 2018-2019 % GDP

ADMINISTRATION SOCIAL CAPITAL
COUNTRIES EXPENDITURES EXPENDITURES EXPENDITURES
2018 2019 2018 2019 2018 2019
MONTENEGRO 11.3 11.3 11.8 11.6 8.6 8.5
SERBIA 9.2 9.4 14.7 14.6 3.6 4.2
KOSOVO 8.8 8.7 6.2 6.4 7.9 7.8
BOSNIA - HERZEGOVINA 10.3 10.2 15.3 17 2.8 2.5
NORTH MACEDONIA 6.3 6.5 15.4 15.2 2.5 3.5
ALBANIA 4.5 4.5 10.2 10.4 4.8 4.7
WESTERN BALKANS 8.4 8.4 12.3 12.5 5.0 5.2
Source: WB - Fall report 2019
If we compare the destination of budget expenditures during 2018 - 2019 in WB6 countries, it is
noteworthy that the highest level of capital expenditures in relation to GDP is held by Montenegro and
Kosovo, respectively with 8.5% and 7.8% of GDP in 2019, or 0.1% less than 2018. Meanwhile, since
Montenegro has spent less on budgets in 2019 than in 2018, Kosovo has spent more. But in the
meantime, Kosovo has increased social spending, unlike Montenegro, which has not seen any increase in
social spending or public sector wages.
Other countries, such as Albania, have a decrease in the level of capital expenditures from year to year for
the comparative period, while budget expenditures have not decreased, but also in this country social
expenditures have increased by 0.2%. Countries that have increased capital investment have not
necessarily increased tax collection on capital, as they have exploited other tax revenues for these
investments without aiming to burden investors with high taxes on their investments. In 2019, capital
expenditures account for 14% of budget expenditures, while in 2018 this expenditure group accounts for
13% of budget expenditures.
Social expenditures account for 1/3 of all budget expenditures in 2019 in WB6 countries, or by 1% increase
compared to 2018. Social expenditures are financed by fiscal burden on wages and social and health
contributions. This group of expenditures is at higher levels in Bosnia-Herzegovina, North Macedonia
and Serbia and stands above the WB6 average. In comparing the level of social spending from 2018 to
2019 Bosnia-Herzegovina, Albania and Kosovo, respectively with 1.7%, and 0.2% of GDP more for the
other two countries. Kosovo holds the last place because the social spending scheme is not included in
the budget, but is subject to a scheme based on pension funds, which is modeled differently from other
Balkan countries. Montenegro, Serbia and North Macedonia have declining social spending levels, with
declining ranging from 0.1% to 0.2% of GDP.
45
While these countries have reduced the level of social spending, there is an increase in the level of
spending on public sector wages, which shows of an increase in the level of wages in this sector in the
face of challenges arising from EU membership negotiation processes. This indicator is presented with
these levels as it is related to the level of salary that for all three countries with high level of administrative
expenses keep the first three countries for the level of high salaries in relation to other countries.
In the confrontation between the taxes on labor and social spending, the fact that Bosnia-Herzegovina,
Serbia and Montenegro manage to cover social spending with labor taxes paid in the budget stands out.
Even in these countries, it is possible to provide guarantee funds for other items of the budget. This
situation is due to the high burden on labor taxes.
In order to have a more complete perception of the effective use of budget expenditures, we also
consider the trend of expenditures for personnel (administration), which is paid from the budget revenues.
Public sector wage expenditures account for 22% of budget expenditures in 2019 and have remained
almost unchanged as compared to 2018. The highest level of wage expenditures is held by Montenegro
and Bosnia-Herzegovina and Serbia, which are significant. above the average level of wage spending in
WB6. Kosovo also has a spending rate higher than the WB average. Meanwhile, Albania and North
Macedonia hold the last places, maintaining a level of spending no higher than 15% of budget
expenditures. Kosovo is reducing inefficient bureaucracy and corruption in services that are thought to
bring illegal benefits, and is working to revive capital investment to strengthen the growth trend. Albania
and North Macedonia are twice as expensive as other countries. But this level of spending does not often
indicate a valid consolidation policy to strengthen administrative capacity.
If the cost of administration is cheap, in addition to the budget benefit, the risk of incomplete and quality
public services is likely to appear. But the equally great damage is due to the circumstances when a
government has delegated some functions in the private sector by easing the budget, but increasing for
citizens the cost of services, after delegating and postponing them in time from public-private
partnership.
In recent years, public finances in Albania have entered a secure and optimal fiscal consolidation
trajectory, materialized in the most key parameters of sustainability.
First, it materialized in reducing the overall budget deficit by 5% of GDP in 2013 to less than 2% for
2019.
Second, since 2016 public finances have recorded a positive primary balance (primary surplus), which has
become a very important operational parameter of the sustainability of public finances and the perception
of economic and market actors regarding the health of public finances.
Third, fiscal consolidation has materialized into a declining public debt trend. In recent years the net
public debt has decreased from the level of 71.9% of GDP in 2015 to 64% for 2019.
However, Albania needs to strengthen its administrative capacity to more strongly influence the design
and coordination of economic and fiscal policies, as well as to implement structural and regulatory
reforms by seeking cooperation from all major political and technical factors in the country.
Social contributions are not labeled as tax in fiscal legislation. Given the fact that they are mandatory to be paid in the
same way as taxes on personal income, on the same salary, the only element that separates them from taxes is the
benefit system. When benefits are mentioned, if we make a distinction between the many elements of benefits from
the schemes implemented in the country, the only ones related to exceptions to the tax progression rule are
pensions that will be paid in the future by this current contribution payments. In all of this we can understand that
progressive taxation cannot be applied in the right way for which it is designed, as high contributions payments
cannot be part of progressiveness, as they directly affect the income redistribution chain for the future of the
individual. On the other hand, the income of contributions is not redistributed for public consumption or used for
other purposes, beyond those guaranteed by law.
In trying to argue the effectiveness in the investment economy with public funds, it is estimated that a
significant increase in public investment can boost employment in the short term and based on the rapid
growth of productivity in the coming decades the budget benefits its income from payment of dividends
in significant amounts.
46
While foreign and private investment has a clearer focus on the benefits and rapid recovery of
investment, concerns have been expressed about the fact of intelligent public investment by the public
sector. Even if the increase in public investment in traditional economic sectors can increase the
performance of the economy, the necessary financing for investments in sectors that do not have a high
rate of return on investment may present economic distortions that will reduce growth in the long run. If
so, this issue is worth discussing not only how much public investment should be undertaken (quantity),
but also how / where funding (quality) is performed. A large public investment program can achieve a
major boost to the economic sector, or it can stimulate numerous private investments, which together
constitute a major impetus in both the private and public sectors.
A new orientation of the budget policy of the Western Balkans should become the instrument of open monetary
financing (similar with helycopter money), especially at a time when natural disasters and previously unpredictable
disasters directly affect consumption and the economy, ie as a result of tax revenues. Various current and previous
experiences have shown us that supplies of significant amounts of money are addressing the monetary and fiscal
crisis (which may have a place for reasons unrelated to budgetary management), ie printing money and supplying
directly in front of the vulnerable layers with the aim of going to consumption serves as a "cure" of liquidity for the
economy as well. This action applies to WB6 countries, which depend on the realization of their budgetary
objectives by consumption and above all beyond the filling of the budget box helps production and encourages
optimization of supply chain supply of both sides: demand and supply. With the implementation of this monetary
stimulus modeled on the principles of fiscal consolidation, new money can be thrown into the economy, given that
there is enough liquidity for the continuation of economic activity. Monetary direct funding will involve creating
additional deposits instead of paper money in circulation. This stage will initially be characterized in a financial
environment dominated by the deposit of money in government accounts, which will then be transferred to private
deposit accounts either as a reduction of one or more taxes, or through additional public spending.
2.3. The well-being of individuals and distribution in the Western Balkans in 2014-2019
The latest edition of Credit Suisse's Global Welfare Report for 2019, which is being published annually
and with a history of over 20 years, shows that the Western Balkan countries, except Serbia, have a slight
increase in the number of adults.
Montenegro has seen a significant increase of 17.9% for the period 2014 to 2019. While Albania marks an
increase of 3.7% in the same period. Northern Macedonia, Bosnia and Kosovo have minimal growth,
indicating a slight change in the adult group.
Looking at the same line with the total population change over the same period, the report shows that
Albania is with the most significant increase in population by 0.4% although a slight increase if we look at
the numbers of population. Kosovo, Northern Macedonia and Montenegro have a slight population
growth of 0.2%. Serbia and Bosnia, meanwhile, have a declining population. This decline is due to low
fertility rate (Bosnia has a fertility rate of 1.26 and Serbia 1.48 per thousand) and a lack of inflow of
migrants from other countries in the region and beyond.
As long as Serbia, Bosnia and other closest countries are not attractive places for potential immigrants,
their population will continue to age and decline, a prospect that also means it will make catching even
harder in terms of wealth and living standards with western countries. Meanwhile, recent movements of
population from Western Balkan countries to Western European countries, although growing, are not
considered an influential factor in these statistics, as long as they are not permanent residents in these
countries.
47
Tab.19 Adults and population in 2015 and 2019 in WB6 000 persons
NORTH BOSNIA-
Indicators* Year ALBANIA SERBIA MONTENEGRO Kosovo**
MACEDONIA HERZEGOVINA
2015 2,146 6,837 1,598 9,647 2,791 1,381

Adults
2019 2,225 6,798 1,617 11,371 2,815 1,384
Difference (in %) 3.7% -0.6% 1.2% 17.9% 0.9% 0.2%
2015 2,923 8,851 2,079 628 3,536 1,800
Population
2019 2,936 8,748 2,084 629 3,505 1,804
Difference (in %) 0.4% -1.2% 0.2% 0.2% -0.9% 0.2%
* data from Reports of year 2014 and 2019, Credit Suisse Global Wealth Databook
The Western Balkan countries are on a steady course of increasing their well-being and this is evident
from the level of net national wealth growth 20. As these countries increase in net wealth value, they
appear not to offset the decline in natural resources with the risk that in the long run, growth will decline
as the wealth on which this growth is based is eroding year after year.
But, seeing as the pace of population growth and adulthood in the Western Balkans has increased, GDP
growth and welfare levels have a marked increase in incomes for adults (adult) in the last 5 years.
Albania with 20%, Montenegro with 18% and Bosnia with 18% have an increase in income per adult,
followed by Northern Macedonia with 14%. All this comparative overview between 2014 and 2019 is an
indication of how production capacities and resources have been utilized in each Western Balkan country.
Starting from the comparative base year 2014, it appears that in Kosovo, Albania and Serbia there has
been a marked increase in well-being greater than the regional average, which refers to the overall value of
net wealth owned by the country's citizens, including capital of natural and human resources.
Tab.20 GDP and Wealth per capita in WB6 in 2014 dhe 2019 US.D
NORTH BOSNIA-
Indicators* Year ALBANIA SERBIA MONTENEGRO KOSOVO**
MACEDONIA HERZEGOVINA
2014 5,827 8,304 6,902 9,647 6,009 s'ka të dhëna
GDP/ Adult
2019 7,001 7,580 7,900 11,371 7,110 5,817
Difference (in %) 20% -9% 14% 18% 18%
2014** 10,309 7,784 11,871 21,567 12,336 1,921
Wealth / Adult
2019 31,366 25,046 25,723 53,484 27,873 25,723
Difference (in %) 3.0 3.2 2.2 2.5 2.3 13.4
** data for Kosovo belong to Report 2016, Credit Suisse Global Wealth Databook
Most of the change in wealth value year after year in the period 2014 to 2019 is due to the change in asset
prices and exchange rates. Foreign exchange market volatility in the Western Balkan countries, or the
foreign exchange market in countries that do not have capital stock exchange, are usually the largest
source of profit and loss. But in these years the 5-year balance sheet seems to have been positive thanks
to the stability of the national currencies of the Western Balkan countries.
In an in-depth reading of the indicators that represent the wealth value of different countries of the
world, what is noteworthy for the countries of the Western Balkans region is the increase in the wealth
value of each of the countries.
20 National net wealth, also known as net worth, is the sum of the total value of a country's assets minus its liabilities. This value
is an important indicator of a country's ability to borrow and keep costs controlled and is influenced not only by real estate
prices, equity market prices, exchange rates, liabilities and incidence in a country. instead of the adult population, but also from
human resources, natural resources and capital, as well as technological developments, which can create new assets.
48
According to two reports obtained for comparative analysis, it is apparent that in 2019, the total value of
the national net wealth:
- in Albania was US $ 70 billion, while in 2014 it was US $ 23 billion. The increase is 3 times.
- in North Macedonia US $ 42 billion, while in 2014 it was US $ 19 billion. The increase is 2.2
times.
- in Serbia was US $ 170 billion, while in 2014 it was US $ 59 billion. The increase is 2.9 times.
- in Bosnia and Herzegovina was US $ 78 billion, while in 2014 it was US $ 37 billion. The
increase is 2.1 times.
- in Montenegro was US $ 26 billion, while in 2014 it was US $ 10 billion. The increase is by 2.6
times.
Serbia has the highest national net wealth, due to its inheritance, with US $ 170 billion net and the second
highest growth of net wealth after Albania, which for 5 years has increased net wealth 3 times based on
the values which have created mostly its citizens. But Bosnia holds the second most valuable national net
wealth position in the Western Balkans at US $ 78 billion.
Based on the map of the distribution of national net wealth, it is seen that the Slavic countries still
maintain high rates of increase in their property value, which is augmented not only by the contributions
of the citizens themselves, but also by the investments that have increased in the two countries mentioned
above.
Tab.21 Financial and non financial wealth per adult in WB6 in 2014 and 2019 US.D
BOSNIA-
Indicators* Year ALBANIA SERBIA MONTENEGRO
HERZEGOVINA
2014 3,244 5,008 18,442 3,413
Financial wealth/ Adult
2019 4,612 6,281 24,397 3,961
Difference (in %) 42.2% 25.4% 32.3% 16.1%
2014 21,088 16,686 27,006 23,038
Non financial wealth / Adult
2019 28,396 20,541 33,306 25,830
Difference (in %) 34.7% 23.1% 23.3% 12.1%
2014 1,322 1,459 3,665 1,813
Debts / Adult
2019 1,642 1,777 4,219 1,918
Difference (in %) 24.2% 21.8% 15.1% 5.8%
2014 10,678 9,113 19,216 11,398
Median wealth / Adult
2019 14,731 10,737 24,242 13,037
Difference (in %) 38.0% 17.8% 26.2% 14.4%
Note: For Kosovo and North Macedonia there's no data
The table 21 above shows the absolute value and the percentage change for the comparative period 2014
to 2019 of financial wealth, non-financial wealth and adult debt value.
A more detailed breakdown of the structure of the wealth of adults by looking at the change that has
occurred for (a) financial wealth, (b) non-financial wealth, as well as deducting the average debt due to
each adult is seen that in Albania there is an increase e.g. financial wealth per adult significantly higher
than in other Western Balkan countries with a difference of 66% higher than adult persons in Serbia and
2.7 times higher than adult in Bosnia
Likewise, non-financial wealth per adult in Albania increased at a rate 1.5 times higher than non-financial
wealth per adult in Montenegro and Serbia, and a 2.7-fold higher increase that nonfinancial wealth
increased in Bosnia.
But as there is a higher growth rate of financial and non-financial wealth per adult in Albania, there is also
an increase in the value of debt per adult relative to these countries. Thus, the debt per adult in Albania
49
for last five years has increased by 11% more than this indicator in Serbia, and up to 4.5 times higher than
in Bosnia.
Today, equity in wealth is closely linked to income equity. But in the past 5 years it has been shown that
everything has to do with the shock of property value by groups of adults, a concentration and saving of
wealth in fewer people.
Part of this wealth inequality is in fact dictated by age, not just population groups. Thus, e.g. young people
tend to have a lot of debt and no more savings, which means they have a negative balance of their net
wealth.
But the table below shows the landscape and the volatility of wealth by value categorization, highlighting
the reality of rising inequality on average in the Western Balkans in just a few years, i.e. 2014 to 2019.
The index above shows the distribution of net welfare of domestic value to individuals and in some
Western Balkan countries, defined as marketable value for financial wealth as well as non-financial wealth
(mainly buildings and land) after deducting the debt, which result to be as an average net wealth for each
adult.
Tab.22 Distribution of wealth through adults,and the difference between 2014 vs. 2019 in %
Adult wealth:
10,000 - 100,000 100,000 - 1 million
Country Year < 10,000 US.D > 1 million US.D GINI
US.D US.D
2014 69.1 30.1 0.9 0.01 66.8
ALBANIA
2019 38.0 57.9 3.9 0.1 63.7
Difference (in %) -31.1 27.8 3.0 0.1 -3.1
2014 61.8 37.1 1.1 0.01 66.3
BOSNIA-HERZEGOVINA
2019 42.0 54.5 3.4 0.1 64.2
Difference (in %) -19.8 17.4 2.3 0.1 -2.1
2014 48.7 48.4 2.8 0.01 65.7
MONTENEGRO
2019 25.0 65.0 9.7 0.3 64.8
Difference (in %) -23.7 16.6 6.9 0.3 -0.9
2014 65 33.9 1.1 0.01 69
NORTH MACEDONIA
2018** 68 30.8 1.2 0.02 65.5
Difference (in %) 3.0 -3.1 0.1 0.0 -3.5
2014 77.8 21.7 0.5 0.01 65.4
SERBIA
2019 47.9 48.7 3.3 0.1 67.6
Difference (in %) -29.9 27.0 2.8 0.1 2.2
* data fro North Macedonia belong to the Reports 2014 and 2018, Credit Suisse Global Wealth Databook
In clarification of the data above presented in the table 22, from the comparison between 2019 and 2014:
- In Albania there is a decrease by 31% of the group of adults with a wealth below 10.000 USD, while
there is an increase by 27.8% of the group of adults with wealth value from 10 thousand to 100 thousand
US.D, and an increase with 3% of the number of adults with a wealth value over 1 million US.D. This
change in the percentages of groups by wealth value is also seen in the GINI Index, which shows a
decrease of 3.1 points, indicating that wealth is oriented towards the group that can be considered as the
middle class of the population, but with an increase in the wealth in high value to fewer adults.
- In Serbia, Bosnia-Herzegovina and Montenegro the same way of transferring wealth values has happened as in
the case of Albania, but with some levels of shifting more towards adults with wealth values from US $
100,000 to $ 1 million and those adults with wealth over $ 1 million U.S. But what is striking is that in
Serbia inequality has increased more in 2019 than in 2014.
50
- In North Macedonia there is an increase of 3% of the group of adults with a wealth value below 10.000
USD, while there is a decrease with 3.1% of the group of adults with a wealth value from 10.000 to
100.000 USD, as well as a slight increase of 0.1% in the number of adults with a wealth value from 100
thousand to 1 million US.D. This Western Balkan country is in a trend in opposite to other countries in
terms of a better distribution than other countries in terms of wealth values, reflecting this tendency also
when we see the sharp decline of the GINI Index by -3.5 points.
When most of the wealth value is more capital-based, there is naturally less room for other human and
movable capital, including financial assets. The strongest negative impact is between equity and other
financial assets, as other financial assets are larger in Western Balkan countries where social expenditure
distribution systems, mainly from the state budget, but also from private funds.
Meanwhile, what is characteristic of wealth values in the Western Balkan countries is that non-financial
wealth is prevalent over ¾ of the entire total wealth value of adults. This feature of the Balkan countries
is the main difference with the developed countries of the EU or even those that are members of the
OECD.
For example, when we look at the situation of income distribution in Albania and inequality, through the positioning
according to the GINI Index we see a relative level of inequality, but better positioned than other countries in the
Western Balkans. However, this data cannot argue the whole indicator of inequality, as the GINI index is also
influenced by other elements, such as: informality, tax burden, average age of the population. However, if we look at
the case of Albania, after the application of the progressive payroll tax, it is noticed that since 2014 the
progressiveness of the payroll tax seems to have reduced the inequality observed in the gross and net income
reported. This is explained by the fact that countries that exercise fair fiscal pressure have an impact on reducing
inequality. We find this fact in the reports of the IMF, the OECD, the World Bank.
51
3. Tax Burden in Albania in 2019
The budgetary burden is based on the income determined according to the fiscal indicators that are
realized in the previous year for the following year. Fiscal policy, which is oriented towards fiscal
consolidation to influence the reduction of public debt, is mainly based on indicators of economic
growth, inflation and indicators of good governance. Economic growth and employment are supported
by the realization of a high level of public investment. The budget burden includes all tax and customs
payments, insurance contributions, but also budget fees and outflows from public institutions and public
companies’ payments that have an obligation for various goods and services.
3.1. Budget revenues and tax burden performance

In the last three years, approved budgets have aimed at gradual and targeted reduction of the tax burden
by reducing the tax rates and exemptions studied. The increase in revenue is mainly aimed at expanding
the tax base, combating informality and improving tax administration. The budget in 2019 is based on
improving fiscal consolidation and minimizing informality in the economy based on the principle and
scheme of fair taxation, for a part of direct tax revenues.
Revenues from Taxes and Customs for 2019 have been influenced by factors such as: economic growth
and price index, new fiscal policies and the effects of the fight against informality, accompanied by anti-
avoidance measures aimed at increasing the level of voluntary compliance of taxpayers with the law.
Budget revenues in 2019 are lower than in 2018 compared to GDP. In 2019, budget revenues are as much as
26.6% of GDP, while in 2018 they were as much as 27.6% of GDP, with 1% of GDP more. Revenues
from taxes and customs, along with insurance contributions and local tax revenues (tax revenues)
accounted for 25.2% of GDP in 2019.
Tab.23 BUDGET REVENUES TO GDP IN ALBANIA IN 2018 -2019 % GDP
BUDGET REVENUES 2018 2019 DIFFERENCE
GRANTS (including from CE) 0.50% ato nga0.52%

Grante (përfshirë KE) 4.2%
TAX REVENUES FROM CENTRAL
TAX ADMINISTRATION
18.7%
Të ardhurat 18.0%
tatimore qendrore -3.3%
TAX REVENUES FROM LOCAL TAX
Të ardhurat1.3% 1.4%
tatimore vendore 2.0%
ADMINISTRATION
SOCIAL CONTRIBUTIONS 4.9%
Sigurimet shoqërore 5.0% 2.5%
HEALTH CONTRIBUTIONS 0.8%
Sigurimet shëndetësore 0.8% 2.0%
NON TAX REVENUES Të ardhurat1.4%
jo tatimore 1.5% 8.9%
REVENUES FOR OWNERS'
COMPENSATION
0.08%pronarësh0.06%
Për kompensim -24.8%
TOTAL 27.6% 26.6% -3.4%
Source: MoFE
Grants account for as much as 2% of 2019 budget revenues.
The main share in the budget revenues is held by the revenues collected by the tax and customs
administration with 66% against them. In 2019, the two administrations (Tax and Customs) together have
collected tax revenues of as much as 18% of GDP, with a difference of 0.7% of GDP from 2018, or less
by (-) 3.3% year on year.
In 2019, the tax administration collected 97% of the revenues of social and health funds, while in 2018 it
collected 95% of the revenues from social and health funds. In 2019, social and health funds account for
22% of budget revenues, while in 2018 they accounted for 20% of budget revenues.
52
Fiscal revenues from local government in 2019 have reached 1.4% of GDP and account for 5% of budget
revenues. Receipts are 0.1% more GDP with a year-on-year increase of 2%.
Non-tax revenues 21 collected in 2019 were as much as 1.5% of GDP and account for 5% of budget
revenues. Receipts account for 0.1% of GDP more than in 2018 and with an annual increase of 8.9%. In
2018, these budget revenues were 1.4% of GDP.
The structure of budget revenues in more detail and for a care view is presented above in Table 23.
DIFFERENCE BETWEEN BUDGET AND TAX REVENUES (% GDP), 2018 -2019

27.6%
26.6%
25.7%
25.2%
2018 2019
BUDGET REVENUES TAX REVENUES
As can be seen in the graph, the fiscal burden is the main part of the budget revenue burden. For 2019,
fiscal revenues account for 95% of budget revenues. In 2018, fiscal revenues accounted for 93% of
budget revenues, or 2% less than in 2019.
Budget revenues and fiscal revenues have declined relative to GDP. The decline in budget revenues has
been affected by the decline in revenues from taxes and customs, which in relation to the respective
GDPs 2018 and 2019 have a decrease of 0.7% of GDP. The fall of GDP by 1.2 percentage points has
directly affected tax revenues and, consequently, budget revenues, although the decline in revenues is
smaller compared to the horizontal comparison between them. But as inflation has changed by at least
0.1% from 2018 to 2019, it is clear that the effect of good governance has had an impact on tax
payments.
Tax revenues that are de facto fiscal burdens mark a decrease of 0.7% of GDP in 2019 compared to 2018.
Tax revenues have increased in absolute value by 6.9 billion Lekë, but in relation to GDP they are less
year by year.
Tab.24 TAX REVENUES TO GDP IN ALBANIA IN 2018 -2019 % GDP

TAX REVENUES 2018 2019 DIFFERENCE
CENTRAL TAX REVENUES 18.7%

Të ardhurat 18.0%
tatimore qendrore -3.3%
LOCAL TAX REVENUES Të ardhurat1.3% 1.4%
SOCIAL CONTRIBUTIONS 4.9%
Sigurimet shoqërore 5.0% 2.5%
HEALTH CONTRIBUTIONS Sigurimet 0.76%
shëndetësore 0.78% 2.0%
CENTRAL TAX LOCAL TAX SOCIAL HEALTH
TOTAL REVENUES REVENUES CONTRIBUTIONS CONTRIBUTIONS 25.7% 25.2% -2.0%
Source: MoFE 2018 2019 DIFFERENCE
Fiscal burden during the years 2018 - 2019 is declining. The largest increase has been influenced by the
fiscal policy of progressive taxation, the reform of fiscal decentralization, as well as the expansion of the
VAT contribution base, which has increased its contribution accompanied by an increase of over 50% of
the value of VAT refund.
21 consist of service fees, penalties for administrative offenses, revenues from public institutions
53
The details of the share change of all components of the fiscal burden as seen in Table 24 distinguish the
large change in the weight of local taxes (2% increase), the contribution of health insurance (2.5%
increase) and social insurance (2% increase), where both together mark an increase of 4.5%. Meanwhile,
tax and customs revenues have declined, coinciding with the economic downturn and the downward
trend in inflation.
The local budget has increased the share of its local revenues in relation to total revenues. Local taxes
generate most of the local revenue with about 76% of their total value. After this tax, most of the income
comes from property taxes. This increase in local revenues is indicative of the growing fiscal performance
of local government. On the other hand, the start of the fiscal cadastre and the reform of the property tax
is an as yet unexpected expectation, due to the fact that from this source of income will be expected to
increase progressively from year to year. The increase in local budget revenues has turned them into local
budget as the source with the largest share of local revenues, a fact that clearly shows the qualitative
increase of fiscal decentralization of local government.
Local tax revenues from property tax make up a significant portion of local government revenues, or about
22% of local revenues. The performance of the property tax in 2019 is not positive and it is concluded
that compared to a year ago the property tax has remained almost at the same level, not reflecting
changes. This tax is still far from the expectations given by the change in the way of taxation of property
for Albania from the surface tax to the tax on the market value.
Increasing performance in the collection of social contributions is a consequence of the effects of the
fight against informality and evasion in the labor market, which has also increased the number of
contributors and the number of employees.
In Table 25 below, the structure of tax revenues (without local taxes and insurance contributions) is
dominated by 43% of VAT, which in over 78% of it is collected from imports to customs.
Tab.25 CENTRAL TAX REVENUES TO GDP IN ALBANIA IN 2018 -2019 % GDP

FROM TAX AND CUSTOMS* 2018 2019 DIFFERENCE
VALUE ADDED TAX 9.7% 9.5% -1.9%

TAX ADMINISTRATION 3.1% 3.2% 1.3%
CUSTOMS 6.6% 6.3% -3.4%
minus VAT REIMBURSEMENT 0.9% 1.4% 57.7%
NET VALUE ADDED TAX 8.8% 7.8% -10.9%
CORPORATE PROFIT TAX 2.1% 2.2% 2.5%
EXCISES 2.8% 2.8% 0.3%
PERSONAL INCOME TAXES 2.2% 2.7% 22.0%
NATIONAL TAXES etc. 2.4% 2.2% -9.1%
CUSTOMS FEES 0.4% 0.4% 0.7%
TOTAL 18.7% 18.0% -3.3%
Source: MoFE
* not included LOCAL TAX REVENUES
VAT marks a decrease year by year (2018 to 2019) as much as 0.2% of GDP, or a lower performance by
1.9%. In absolute value, the effect from the negative performance is 11 billion Lekë. If we analyze
performance by tax revenue agencies it is:
- tax administration that has a positive performance with a change of year by year as much as 0.1% of
GDP, which means a higher performance by 1.3% year by year. In absolute value, this performance is
ALL 2.1 billion, given that this collected VAT is net, as we deduct the VAT refund in 2019;
- negative performance customs administration with a change of 0.3% of GDP year after year, which
means a negative performance difference of 3.4%.
54
According to MoFE authorities, the reason for the decrease in VAT is related to several important
factors, such as:
- Reducing electricity production and increasing its imports, which has reduced domestic VAT and
increased VAT lent on imports,
- Changing the scheme of the TAP Project from VAT supplies to excluded supplies,
- Declining exchange rate of EURO against the Lek. This factor has created negative effects on VAT
revenues for imported goods.
- Decline in metal and oil prices in international markets,
- VAT waiver for agricultural inputs and machines.
VAT refund has increased in 2019 compared to 2018 by 0.5% of GDP. The difference between the two
years in the performance of reimbursements is 57.7%, which in absolute value means 9.1 billion Lekë
more VAT refund. An increase in the reimbursed amount of VAT occurred in 2017 compared to 2016,
where the difference is 56.3% with an absolute value of more than 5 billion Lekë.
Excise taxes has an unchanged performance in 2019 compared to 2018, where the change in positive
performance is only 0.3%. Also, the customs tariffs mark an almost unchanged performance in 2019
compared to 2018, where the change in positive performance is 0.7%
Corporate Profit tax has increased by 0.1% of GDP, with a positive performance of 2.5% year on year. The
positive financial result of the companies in 2018 has generated the effect of increasing taxable profit and
consequently the tax paid in 2019. Also, the positive situation of the energy sector during 2018, has
allowed the companies of this sector to pay in the Budget of State during 2019, not only the profit tax of
2018, but also a portion of outstanding liabilities from previous years.
Personal income tax performs with the highest performance in 2019 compared to 2018 with an increase of
0.5% of GDP, with a change in performance year by year by 22%.
National taxes show a decrease in performance in 2019 compared to 2018 with a weight reduction of 0.2%
of GDP. Negative performance has given a negative effect with 9.1% less revenue.
According to MoFE, revenues from mining royalties for crude oil have decreased as a result of the decrease
in the exported quantity, as well as as a result of the decrease in the price of crude oil in international
markets compared to the projections for 2019, leading to a decrease in unit rent. from 3.62 lek / ton to
3.42 lek / ton. Meanwhile, revenues from exported minerals have declined due to the decline in the price of
minerals in international markets, which has not been offset by the increase in the amount exported by
146 thousand tons. The closure of most gambling has an impact on lowering national tax revenues. In
absolute value, the loss in national tax revenues is 2.2 billion Lekë.
What needs to be emphasized in the implementation of fiscal policy is the personal income tax. It has already been 5
years since the implementation of the progressive taxation scheme (2014) it is noticed that the net base (registrations
- deregistrations) of personal income tax and profit tax has a normal increase, which is a normal rate of change. Yet
this great challenge to current fiscal policy has not been overcome. Fiscal policy has not advanced further in
implementing the principle of fair taxation through progressive taxation, the administration has not yet made the
impact to show politics its shortcomings in this regard and the need for updates year after year.
A positive effect on tax revenues is the policy of reducing the dividend tax rate from 15% to 8%, which has
generated in the state budget over 11 billion Lekë income, from 3.5 billion Lekë that were collected as tax
on dividend in 2018.
Tax exemptions 22 (VAT, Excise, Profit Tax, Personal Income Tax) for 2019 have a minus effect on
revenues 5.34% of GDP or as much as 21.7% of tax revenues.
22are considered losses from fiscal revenues provided for in the fiscal legislation in force, as a result of fiscal facilities or
preferential rates set for certain categories of taxpayers or activities. "Tax expenditures" are assessed using a new methodology
based on several models for estimating tax expenditures by tax type.
55
3.2. Distribution of fiscal burden by budget destination
Budget funds with their destination for economic development, but also increased competitiveness and
faster improvement of innovation, start-ups and research - development. Meanwhile, all development and
assistance policy destinations for the social and needy are another approach to budget spending through
dedicated funding and care agencies.
For the development of the economy in more focused way, several budget funds are already in operation,
such as: Regional Development Fund, Owners' Compensation Fund, Competitiveness Fund, Innovation
Fund, Start-Up Fund, Creative Business Support Fund, etc.
Meanwhile, budget funds for 2019 with support from the budget for concession / PPP23 contracts are a
total of ALL 12.4 billion. Of these, approximately ALL 6.4 billion are investments and ALL 6 billion are
current expenditures. Compared to the actual funds of 2018 in the amount of 8.7 billion Lekë, in 2019 the
funds reach up to 42.5% more. The total amount of annual net payments made by the general
government units, which result from the concession contract or public-private partnership (PPP), as a
rule, should not exceed the limit of 5 percent of the actual tax revenue of the year. budgetary ancestor. In
case of exceeding this limit, the Council of Ministers takes corrective measures on the side of budget
revenues, necessary and sufficient, to be returned within the allowed limit, during the next two budget
years.
The total expenditures of the 2019 budget are 491.9 billion Lekë 24 . According to Table 26, total
expenditures are as much as 29.1% of GDP with a difference of 0.1% of GDP compared to 2018. The
main destination of expenditures, according to the share of GDP, is distributed in:
Social funds, (including payments for social and health insurance, pensions, the unemployed, economic assistance, former
persecuted individuals, families in need, as well as payments to owners), which together account for 40.6% of budget
(0.6% more than in 2018). Compared to GDP, these funds in 2019 are as much as 11.8% of it with a
difference of 0.2% of GDP compared to 2018.
Tab.26 BUDGET EXPENDITURES TO GDP IN ALBANIA IN 2018 -2019 % GDP

12.0% 20.00%
BUDGET EXPENDITURES 10.00%
10.0%
ADMIN.WAGES AND CONTRIBUTIONS 8.0% 0.00%
Pagat dhe kontributet 4.5% 4.5% 0.01%
-10.00%
6.0%
OPEX Operative dhe-20.00%
mirëmbajtje 2.8% 2.8% 0.6%
4.0% -30.00%
SOCIAL AND HEALTH CONTRIBUTIONS 2.0%
Sigurimet, pronarët
-40.00%
10.3% 10.4% 0.8%
UNEMPLOYEMENT, DISABLED PEOPLE, ETC. 0.0% Papunësi, ndihmë,
-50.00%ish-përndjekurit
1.3% 1.4% 6.5%
CAPITAL INVESTMENT Investime kapitale 4.8% 4.4% -7.6%
LOCAL GOVERNMENT Buxheti vendor 3.0% 3.3% 9.5%
DEBTS AND INTERESTS Borxhi dhe interesat 2.2% 2.1% -7.1%
LOANS, EXPROPRIATIONS ETC. Subvencione, Huadhënie, Shpronësime,
0.1% etj.*
0.1% -39.0%
TOTAL
29.2% 29.1% -0.2%
Source: MoFE
* this group of expenses also includes the payment of arrears in non-performing years 2007 -2013
In second place are expenditures on salaries and insurance contributions of the administration of public institutions
(15.6% of total budget expenditures). In contrast to 2018, which have maintained almost the same share
these expenditures have taken this position due to the share reduction that investment expenditures have
in 2019.
Capital expenditures (for investments) in 2019 are in the third place in the destination of budget use with a
share of 15.2% in total budget expenditures, while in 2018 they were as much as 16% of total budget
expenditures.
The allocation of funds for local government accounts for 11.4% of total budget expenditures, while in 2018
they were as much as 10% of total budget expenditures.
23 at the end of 2019, 13 concession contracts or public-private partnerships are active

24 in 2018 budget expenditures are 3.8 billion. In 2019 they are 4 billion Euros
56
Funds for good administration and maintenance of public property (or operating and maintenance costs-
OPEX) account for 9.5% of total budget expenditures, with a small margin of 0.5% by 2018, when these
expenditures accounted for 10% of total budget expenditures.
The distribution of budget funds for government debt and interests’ payments in 2019 amounted to 7.1% of
total budget expenditures, while in 2018 these expenditures were at the level of 8% of budget
expenditures.
Expenditures on public project expropriations, subsidies and loans in 2019 based on government decisions and
those carried over the years account for 0.6% of total budget expenditures.
From the destinations for the distribution of budget funds, it can be seen that the expenditures for investments
and operating expenses, as well as those for interest payments on debts received have decreased in 2019 compared to
2018.
In 2019, the budget has paid:
- 40.6% of income for social destinations;

- 25.1% of budget revenues for itself (personnel and operating expenses);
- 15.2% for capital investments that include related contracts that last several budget years, but also new
investments according to PPP contracts;
- 11.4% of budget revenues for local government;
- 7.7% of revenues for expenditures for new debts that go for the payment of debt and its interests, as
well as for expropriation compensations.
Tab.26/1 EXPENDITURES FOR ADMINISTRATION TO GDP IN ALBANIA IN 2018 -2019

% GDP
ADMIN.WAGES AND CONTRIBUTIONS 2018 2019 DIFFERENCE

ADMINISTRATION WAGES 3.8% 4% 1.94%
SOCIAL AND HEALTH CONTRIBUTIONS 0.6% 1% -0.86%
TOTAL 4.4% 4.5% 1.55%
Source: MoFE
Expenditures for the public administration (15.6% of the budget) are distributed in over 4/5 of them for
salaries and close to 1/5 for the payment of social and health insurance contributions.
Social expenditures, which are destined for 6 categories according to Tab.27, reach 11.7% of GDP.
Revenues collected from the budget, through labor taxes, amount to 8.5% of GDP.
Tab.27 SOCIAL CONTRIBUTIONS TO GDP IN ALBANIA IN 2018 -2019 % GDP
EXPENDITURES FOR SOCIAL FUNDS 2018 2019 DIFFERENCE

SOCIAL CONTRIBUTIONS 7.7% 7.8% 1.1%
HEALTH CONTRIBUTIONS 2.5% 2.5% 1.3%
OWNER'S COMPENSATION 0.2% 0.1% -19.7%
COMPENSATION FOR EX-POLITICAL SENTENCED 0.1% 0.1% 16.1%
ECONOMIC ASSISTANCE 1.3% 1.2% -5.7%
UNEMPLOYMENT PAYMENTS 0.02% 0.03% 45.1%
TOTAL 11.7% 11.7% 0.3%
Source: MoFE
* not included LOCAL GOVERNMENT
Only 55% of revenues cover socially targeted spending. In this case, MoFE allocates additional resources from
the beginning of budget planning, in order not to affect the implementation of social policies. These
57
additional funds are taken from the tax that should be used for another budget expenditure and allocated
to close the entire fund planned by the budget for social policies.
In the table showing the distribution of social funds (11.7% of GDP), according to 6 different
destinations, the main weight belongs to the social security fund (7.8%) for the payment of benefits for
pensions, maternity leave, work accidents, illness. Another item where these costs are allocated is for the
health care fund (2.5%). While economic aid receives 1.2% of GDP. The rest goes to unemployment,
compensation for former political persecuted, and compensation for owners (all three together 0.23% of
GDP).
In the table showing the distribution of social funds (11.7% of GDP), according to 6 different
destinations25, the main weight belongs to the social security fund (7.8%) for the payment of benefits for
pensions, maternity leave, work accidents, illness. Another item where these costs are allocated is for the
health care fund (2.5%). While economic aid receives 1.2% of GDP. The rest goes to unemployment,
compensation for former political persecuted, and compensation for owners (all three together 0.23% of
GDP).
Tab.28 CAPITAL INVESTMENTS TO GDP IN ALBANIA IN 2018 -2019 % GDP
CAPITAL INVESTMENT EXPENDITURES 2018 2019 DIFFERENCE
DOMESTIC FINANCING 3.2% 3.0% -5.1%

FOREIGN FINANCING 1.6% 1.4% -13.6%
TOTAL 4.8% 4.4% -8.0%
Source: MoFE
Table.28 shows that capital investments for 2019 have taken into account all contractual obligations for
investment projects with foreign and domestic financing. As well as in 2018 and in 2019, financing of
ongoing projects has been a priority. The following guidelines have been followed for financing
investments:
- Priorities of the Government Program for the period 2017 - 2021;

- European integration priorities;
- Ongoing projects.
- Support at local cost and VAT for projects with foreign funding;
These expenses are financed in 2/3 of them from the budget financing with their own funds and 1/3
with the foreign funds. The year 2019 compared to 2014, as the year before the administrative reform, it
is found that there is a change in the structure of expenditures in favor of increasing capital expenditures.
Tab.29 BUDGET TRANSFERS AND THEIR OWN EXPENDITURES - LOCAL GOVERNMENT, 2018 -2019 % GDP
BUDGET TRANSFERS 2018 2019 DIFFERENCE
LOCAL BUDGET (its own tax revenues) 1.5% 1.7% 15.2%
TRANSFERS FROM GOVERNMENT BUDGET 1.5% 1.6% 3.6%
TOTAL 3.0% 3.3% 9.3%
Source: MoFE
Capital expenditures are a very important item not only for the fact that they make up the bulk of the local
budget but also because these expenditures are the ones that directly affect economic growth and
improve the quality of life of citizens.
1. Social Insurance; 2. Health insurance; 3. Economic assistance; 4. Compensation for former political persecuted; 5.
25
Compensation for owners; 6. Unemployment benefit
58
Compared to 2018, investment expenditures in 2019 are increasing, which shows up to the value of about
ALL 2.4 billion. Local spending has been rising over the last 5 years, with better local performance and an
impact on the growth of public works being applied by local self-government units.
In 2019, there is an increase in the level of operating expenses. They are related to the increased need for
maintenance for the functions transferred in 2016, to improve the quality of local public service delivery,
as well as to increase the various assets from investments that require maintenance and maintenance
costs.
Salary expenditures in the local budget have increased for 2019. This fact is related to the consolidation of
the organizational structures of the new local self-government units, and in the absence of a new policy in
increasing salaries there is a slight increase compared to one years ago. Also, the increase of local
investments requires an increase of personnel expenses in order to provide the service that responds to
the additions.
The increase in the share of local government expenditures in relation to the expenditures of the central
budget expenditures on gross domestic product is an important indicator of the effort to deepen local
fiscal decentralization.
Meanwhile, the part of the transfer from the budget is taken from the taxes paid without a specific
destination (eg VAT revenues). In this form of communication of the budget with the destination of
expenditures, it is seen that transparency should aim precisely beyond these values. So, the goal for a
possible transparency should be to deal with confrontations at the local level, to further achieve the
confrontation of expenditures that are carried out at the central level and how much is covered by the
income needed to be collected to carry out expenditures.
In dealing with income with the destination of spending that belongs to that income, as well as its
coverage with additional funds, due to non-full coverage, it can be seen that the main expenses incurred
by the budget cannot be self-financed by tax sources that have the appropriate name. The first
signalization is the decrease in the level of expenditure in relation to the income for the expenditure. The
most obvious is for social spending as well as debt spending. Both of these cost groups indicate better
performance in income dedicated to them, or not, as well as lower costs for public services, as in the case
of lowering the cost of debt service, by entering the international markets with Eurobond.
Given the coverage of expenses and the effectiveness of their use, there should be another spirit and will and debate
on the fiscal burden. It must begin to be built as a new culture of public opinion. In fact, it should be organized
organizations and civil society, which in the framework of the global initiative for open government should aim to
receive as their right from the government the budget transfer. This culture should keep the channel of social
dialogue with the government open, which on the one hand should be accountable for its decisions and on the other
hand the taxpayers should not feel connected to the will of the government for every step of life. Because tax
revenues are relatively predictable, governments can plan ahead with greater certainty.
But beyond the analysis of budget indicators, an in-depth verification is needed
(a) quality of expenditure,

(b) non-creation of new debts for future budgets, which means an increase in future burden
(c) and verifying whether expenditures are well-oriented for economic development or represent
clientelistic interests and leave room for abuse of budget funds, and other arguments.
59
3.3. Fiscal burden of DTM and Tirana in the years 2012 - 201926
Typically, the tax administration has maintained the large taxpayer unit in any change to the model of its
structure, with the aim of securing and protecting revenue from this critical segment of taxpayers, which
in many countries contributes more than 50 percentage of tax revenue.
But has all this unchanged status quo been worth the budget revenue and increased transparency?
The table 30 shows the ratio of income share held by the two largest organizational units of the tax
administration: Tirana and Large Taxpayers.
Tab.30 SHARE OF TAX BURDEN TO CENTRAL TAX REVENUES FROM LARGE TAXPAYERS AND TIRANA COUNTY, 2012 - 2019 in %
REGIONAL TAX 80
FISCAL YEARS
DIRECTORATES 60
2012 2013 2014 2015 2016 2017 2018 2019
40
LARGE TAXPAYERS 47 41 40 39 36 39 38 37
20
TIRANA COUNTY 0 23 27 28 37 39 36 36 37
2012 2013 2014 2015 2016 2017 2018 2019
TOTAL 70 68 68 76 75 75 74 74
LARGE TAXPAYERS TIRANA COUNTY
Source: MoFE
At these levels of total share of income, as shown in the table, the contribution of the Directorate of
Large Taxpayers (DTM) has fallen to a level that does not coincide with the main purpose of its existence.
At first glance, it can be seen that what is lost from DTM is found in Tirana. In fact, what should have
been the trend would be an increase in the weight of each of them from the available resources. But,
excluding tax payments that come from extraordinary activities or coincidences, both directorates work
below capacity and reserves to maximize revenue.
This low level of contribution to the budget shows an indisputable fact that the big businesses of Albania
do not carry for years the main share from which they are also beneficiaries through the works they carry
out with budget funds. While the value of turnover declared by large taxpayers is more than 2/3 of the
GDP, their contribution to the budget through taxes is as of 1/3 of all budget revenues.
Naturally, the MoFE and the GDT have often introduced the need to strengthen DTM operations and
capacities. But so far, this multi-year concern is still without the necessary response to make the
difference.
Reaction to the administration model
In an analysis that we do not have regarding the answers as to who and how has affected this poor result,
the questions that can be quite instinctive by expertise point of view are:
Has the selection of really large taxpayers affected the reduction of the tax burden?
Are they dealing with wealthy individuals, who are such even though they do not receive a dividend?
Has it been worthwhile to implement all foreign assistance recommendations without objections?
Has the corruption tax affected, which is found to have a strong impact?
Has the change of managers affected the seasons of the year and the lack of an institutional memory in
fiscal management?
Numerous and more forceful questions can be asked at other times by other experts. But the discussion
today is only an analysis, which can be followed by others, without leaving this situation only in the lap of
apathy that has occupied all those who do not have professional sensitivity and lack of responsibility for
the role they should have.
26 Tatimpaguesit e mëdhenj dhe kontributi në barrën fiskale, Studime Fiskale Shqiptare, Shkurt 2020, ALTAX
60
Approaches and proposals for a different model
First, the criteria for identifying large taxpayers were newly defined in 2005, and they have seen limited
improvements over the years. Actually, they need to be reviewed with a sharper approach to include all individuals
and businesses that make up the main share of the economy, as the current approach turns out that some of the
really large taxpayers are not involved in the same structure, but are administered by the regional directorate. Really
large taxpayers have their own dynamics in trying to shift the burden and costs of their business to those areas and
cities where taxes and costs are cheaper. Their monitoring by the state is a legal obligation.
For this purpose, the IMF missions, as well as the experts who have closely assisted the tax administration have
provided advice that needs to be filtered and adjusted according to the current level of administration. The main
goal in absorbing technical assistance and mission recommendations that guide fiscal administration approach
should be a dialogue where the implementation of those recommendations that have access to be implemented
should prevail, as not everything that has been accepted by the assistance has been productive and has affected the
improvement of administration. A simple fact is precisely the VAT refund structure, which cannot be considered to
have performed as recommended after several years of experience in its operation.
Second, the DTM should have a sharper focus on risks and should also greatly improve the skills levels of its auditors.
The existence of a large informal economy makes VAT inefficient, as VAT as a tax for the formal sector hinders
development through a host of distortions of the overall balance. The imposition of VAT in this way encourages
production to remain in the informal sector, which often produces domestically consumed goods. In order for the
word to take on the proper meaning to play a role in decision making it is necessary that the DTM should create a
risk model within its structures in order to be able to manage the various risks that affect and affect it from the
outside. structure, but also within it.
Large taxpayers present different and significant risks to compliance, such that they have been observed to have had
major consequences on tax revenues, always remaining in the middle of the road and unaddressed for solutions.
Third, tax policy in recent years has focused on lowering tax rates and has applied specific incentives to sectors that
are intended to be encouraged to develop in Albania (eg low VAT rate on accommodation and hotels with 4/5 stars
and pharmaceutical manufacturers). This trend has continued in at least each of the years in these last 5 years. In this
trend, e.g. even the profit tax rate has been reduced from 15 to 5 percent for 11,000 businesses. On the other hand,
a reduction in the VAT threshold has resulted in the entry of about 13,000 micro-businesses into the VAT system,
but with little impact on tax revenues. Meanwhile, the headline of the 2019 and 2020 fiscal package included a
halving of the dividend tax (from 15 to 8 percent), an expansion of the tax base for dual employment, the
preparation of the legal basis for adapting the transactions of all businesses (in steps) without using paper for
transaction registration.
Recent tax policy reforms have narrowed the taxpayer base and complicated taxation for several other segments.
Some of these changes actually complicate the simple tax regime, which is enforced by micro-businesses and in turn
creates the possibility of tax evasion, for example, by shifting higher dividend tax revenues, or manipulating profit
tax threshold. This obviously has a direct impact on large taxpayers as well. Monitoring and analyzing the impacts
and interactions along with the appropriate response are a legal obligation for the state.
Fourth, a very important orientation is in terms of the lack to develop management and implementation capacities
with the skills required by the task they undertake to conduct tax analyzes to better understand the instability in tax
revenues. There are currently no employees with these revenue analysis skills to view revenue collection, trends and
expectations, and to determine the reasons for significant changes from budget forecasts during the year.
Meanwhile, the leadership that has come and gone in recent years is at the average level of management that occurs
in countries with developed administration. All these appointments have given their impact on the failure to achieve
the main objective of the administration: maximizing budget revenues. It is the task of the political leadership that
makes the reforms and launches them to show the maturity and the sincere will to determine at the top of the
reforms the category of manager to be at the same height of the objectives of the announced reforms.
Fifth, to be considered is the deep understanding to increase the readiness and strength of the implementation of
international laws and various agreements regarding the exposure to the risks of border businesses with Albania, but
also international ones.
Limited experience with price transfer should change towards an approach that should be based on the prior work
of risk analysis in the preliminary identification of deviations that come to the budget from the phenomenon of
price transfer. All this effort is worthwhile to ensure more complete and accurate decision making by responding to
identified risks.
While we are talking about new and different approaches from the current routine, in fact the biggest challenge is
the quality and productivity that comes from the audit staff, who have a low impact on budget revenues.
61
3.4. Local per capita tax by municipalities in Albania in 2019
The method of calculating the fiscal burden expressed as local taxes per capita
Calculation
The fiscal burden for the country's municipalities is based on municipal-based data on the population and local
revenues collected by the Municipality. Revenues considered as tax liabilities include liabilities paid by the business
registered in the municipality, as well as for those payments of local taxes and fees that are part of the tax revenues
paid by individuals and families, according to the inclusion made in fiscal bulletins.
Statistical data at the national level were obtained from the Instat information bulletin, from other data published by
the tax and customs administrations and the annual decisions and reports approved by the local government,
crossed with the publication data of the Monetary Fund, World Bank, as well as studies conducted for Albania by
local projects, which have served as a reference for calculating the fiscal burden and other comparative indicators.
For the calculation of the domestic production of the region for 2019, our experts have evaluated the publication of
the Institute of Statistics, as well as the regional trend of the structure of domestic production in the previous three
years against the average. The calculation of local revenues for municipalities is based mainly on calculations of the
capacity of taxes and fees, information obtained from the budget program of local taxes and fees, in their
implementation, as well as on the policies set for the following period, according to legal acts for them.
In this calculation the error reaches up to ± 3%
If we refer to the revenue items27 in relation to a year ago, we find that in relation to the same period of
the previous year we have a greater increase in all revenue items, both in local taxes and in that one. of
small business.
The sustainability of the increase of local taxes in 2019 is noticed, providing an income for the budget of
17.5 billion Lekë.
The small business tax does not have a high share in local revenues and in 2019 it reached the value of 355
million ALL. Compared to 2018, the property tax has remained almost at the same level, not reflecting
changes in 2019 and has generated 5.2 billion Lekë for the local budget.
In an analysis of the structure of budget revenues of 61 municipalities in Albania, 41% of revenues come
from taxes, fees and charges and 59% come from other local revenues and transfers from budget. The
remaining part that is completed by the transfers from the state budget is carried out according to the
formula defined in the budget law, as well as through the allocation of the so-called competitive grants,
for specific projects in special municipalities.
In the analysis of local taxes paid by residents on behalf of the local government, fiscal policy has oriented
the fiscal burden mainly on individuals who are residents in cities and less on individuals who are
residents in the village. Given the fact that 51% of the population has a fiscal residence in the municipal
units of the villages, then this social group of the population is even more relieved by the fiscal burden of
local government.
The burden of local taxes, fees and charges consists mainly of two main items: (a) the local tax group,
which is entitled to Municipal Councils to make reductions up to 30% above official rates, (b) tax on
wealth, which from 2019 changed the way of calculation and taxation passing as a tax that is applied on
the value of wealth. After the '90s, this tax was oriented to tax the area with fees that were different from
one municipality to another, according to the category they hold.
The share of revenues collected by the local government through the tax administration that each
municipality has occupies 5% of all budget revenues and spends as much as 10% of budget revenues.
27 Revenues from taxes, fees, as well as fees and services related to public property or public businesses are part of the revenues that are administered
directly by the local government.
62
The rest of the revenue available to municipalities, which is 5% of the state budget, is allocated to them,
according to the budget law, from revenues collected from taxes and fees collected from central fiscal
administrations. If we start from the logic of the fiscal residence, about 30% of businesses in the country
have the location of their activity in areas outside the cities. This part mostly belongs to the taxes and fees
that these businesses pay to the central budget, on behalf of the GDT.
Local taxes and fees
The fiscal burden on local taxes, tariffs & fees, which are paying Small Businesses, Individuals and Families,
consists of:
1. Property tax28
2. Simplified tax on profit for small business29
3. Accommodation tax at the hotel
4. Influence of infrastructure impact on new buildings
5. Tax on the transfer of immovable property rights
6. Table Fee
7. Temporary market tax
8. Green fee
9. Cleaning and Disposal Fee
10. Private beach fees (for coastal areas)
11. Fee for permits for structure use
12. Parking fee for vehicles
13. Lighting fee
14. Fee for occupying public space
15. Administrative service fees of the Municipality
16. Tariff for public transport
17. Authorization fee for fuel trade
18. Authorization fee for traffic in the city
19. Fee for issuing work activity permits
20. Veterinary service fee
21. Urban Planning Fee
22. Tariff of the institutions of the Municipality
23. Taxes administered by tax agents
When analyzing how much is the fiscal burden that individuals and businesses pay directly on behalf of
the local government, it should be borne in mind that they also bear the burden of taxes and state budget
taxes (consumption taxes and income taxes, as well as contributions of insurance and national taxes).
Local per capita tax according to municipalities in Albania, which is considered a fiscal burden for residents,
based on the average value of local taxes paid for 2019 in relation to the number of inhabitants, which has
registered each of the 61 municipalities results in an average value for spirit that serves to rank them
depending on the result.
28 0.05% of the value of residential buildings and 0.3% of commercial apartments; on the surface of agricultural land; on the surface of construction land
29 5% for businesses with an annual turnover of 5-14 million ALL and 0% for businesses with an annual turnover of 0-5 million ALL
63
ALBANIA - LOCAL TAXES, TOTAL EXPENDITURES / CITIZEN / CAPITA , 2019 000 ALL
SHARE
LOCAL LOCAL (TAX - (TAX - OF
EXP./ EXP./
RANKINGS MUNICIPALITY TAXES/ TAXES/
CITIZEN CAPITA
EXP.)/ EXP.)/ MUNICIP.
CITIZEN CAPITA CITIZEN CAPITA TAX/
REGION
1 Roskovec 52.5 14.5 120.7 33.4 -68.2 -18.9 16%

2 Lezhë 37.1 10.3 86.1 24.0 -49.0 -13.7 81%
3 Himarë 32.6 16.3 47.3 23.6 -14.7 -7.3 17%
4 Tiranë 22.1 18.2 30.8 25.4 -8.7 -7.2 89%
5 Vorë 22.0 11.7 41.1 22.0 -19.1 -10.2 3%
6 Selenicë 21.3 4.1 152.9 29.2 -131.6 -25.1 5%
7 Kamez 19.2 6.4 51.4 17.2 -32.2 -10.8 5%
8 Mallakastër 19.8 5.8 130.2 38.2 -110.4 -32.4 8%
9 Maliq 19.1 2.3 166.2 20.1 -147.1 -17.8 9%
10 Ura Vajgurore 18.7 5.5 79.3 23.5 -60.6 -17.9 20%
11 Skrapar 18.6 6.2 102.1 34.2 -83.6 -28.0 10%
12 Devoll 17.3 4.0 101.7 23.8 -84.4 -19.7 10%
13 Konispol 16.4 3.7 141.3 32.0 -124.9 -28.3 2%
14 Sarandë 12.5 10.4 34.5 28.8 -22.0 -18.4 22%
15 Fier 12.3 5.5 61.0 40.9 -48.7 -35.3 38%
16 Librazhd 12.1 3.3 125.3 33.8 -113.2 -30.5 8%
17 Patos 11.8 8.6 30.2 21.8 -18.3 -13.3 13%
18 Divjakë 11.2 2.9 61.8 16.2 -50.6 -13.2 5%
19 Gjirokastër 11.4 7.4 48.0 31.1 -36.6 -23.6 53%
20 Korçë 11.0 7.1 33.1 21.3 -22.1 -14.2 56%
21 Lushnjë 10.7 4.5 42.5 17.9 -31.8 -13.4 20%
22 Kavajë 10.1 5.1 26.3 13.2 -16.2 -8.1 3%
23 Vau i Dejës 10.6 3.2 83.0 25.3 -72.4 -22.1 12%
24 Malësi e Madhe 10.2 1.8 130.1 22.4 -119.9 -20.6 7%
25 Cërrik 10.1 3.2 58.5 18.3 -48.4 -15.2 9%
26 Tepelenë 9.9 4.8 126.6 61.3 -116.7 -56.5 10%
27 Pogradec 9.4 4.0 59.3 25.3 -49.9 -21.3 22%
28 Durrës 8.9 6.1 23.3 16.0 -14.4 -9.9 79%
29 Shkodër 8.9 5.0 32.7 18.2 -23.8 -13.2 76%
30 Bulqizë 8.9 2.7 100.5 30.7 -91.6 -28.0 30%
31 Elbasan 8.6 5.3 35.8 22.0 -27.3 -16.7 64%
32 Peqin 8.4 2.4 71.0 20.4 -62.6 -18.0 6%
33 Tropojë 8.3 2.4 86.2 25.2 -77.8 -22.8 26%
34 Vlorë 8.1 6.3 10.0 7.7 -1.9 -1.5 48%
35 Përmet 8.5 4.3 76.0 38.0 -67.5 -33.7 11%
36 Prrenjas 8.1 2.2 105.2 28.6 -97.2 -26.4 4%
37 Berat 8.0 5.1 31.9 20.2 -23.8 -15.1 46%
38 Rrogozhinë 7.2 2.4 41.3 13.8 -34.1 -11.4 1%
39 Kukës 7.4 2.9 60.8 24.3 -53.4 -21.3 64%
40 Kuçovë 6.9 3.7 32.8 17.5 -25.9 -13.8 19%
41 Libohovë 6.7 3.1 69.6 32.1 -62.9 -29.0 3%
42 Poliçan 6.5 3.0 74.9 34.1 -68.4 -31.2 5%
43 Dibër 6.4 1.6 90.8 22.4 -84.4 -20.8 33%
44 Gramsh 5.8 2.7 70.6 32.4 -64.8 -29.8 5%
45 Kolonjë 5.7 3.2 52.0 28.8 -46.3 -25.6 3%
46 Kurbin 5.6 2.2 45.4 18.1 -39.9 -15.9 12%
47 Mat 5.3 2.4 50.9 22.6 -45.6 -20.3 24%
48 Memaliaj 5.2 1.6 101.7 32.1 -96.5 -30.5 5%
49 Shijak 4.8 4.8 54.4 15.9 -49.6 -11.1 9%
50 Dropull 4.8 4.8 16.5 16.5 -11.7 -11.7 15%
51 Klos 4.4 2.2 61.3 30.2 -56.9 -28.0 12%
52 Këlcyrë 4.4 1.8 126.4 52.7 -122.0 -50.9 3%
53 Krujë 3.9 3.9 33.8 17.8 -29.9 -13.9 13%
54 Mirditë 3.9 2.6 50.3 33.3 -46.4 -30.7 7%
55 Delvinë 3.7 3.0 25.8 20.4 -22.1 -17.5 2%
56 Fushë-Arrëz 3.8 2.5 18.4 18.4 -14.7 -15.9 2%
57 Pukë 3.3 1.9 46.1 25.9 -42.7 -24.0 2%
58 Belsh 3.3 1.7 36.5 19.2 -33.2 -17.5 3%
59 Has 3.2 1.4 68.4 29.3 -65.2 -28.0 11%
60 Finiq 2.4 2.4 38.0 17.2 -35.6 -14.8 3%
61 Pustec 1.2 1.2 17.5 17.5 -16.3 -16.3 0.4%
AVERAGE 11.0 4.7 66.0 25.3 -55.0 -20.6 20%
Source: MoFE, Local Budget, Porta Vendore
64
The Municipality of Roskovec30 holds the 1st place, with the highest per capita payment of local taxes, with an
annual load of 52.5 thousand ALL for citizens (based only on the population registered in the city) and
14.5 thousand Lekë per capita for all inhabitants who are part of of the municipality of Rroskovec.
Meanwhile, the total expenditures for the citizens are 120.7 Lekë, as well as for the total inhabitants of the
Municipality where the village is included are 33.4 thousand Lekë per inhabitant.
In the following column, if we look at the difference in value between taxes and local fees with
expenditures at the civic level, they are 65.2 thousand Lekë, while if in the following column this
difference is between taxes and fees at the municipal level with total expenditures per capita, then the
value is 18.9 thousand Lekë. The last column is the ratio between the contribution of taxes and local
tariffs in total of the municipality of Roskovec to the contribution of local taxes and fees in the whole
region of Fier.
The same logic is used for all other municipalities listed in the table above.
Large municipalities, such as Tirana, which is in 4th place, Fier in 15th place, Durrës in 28th place,
Shkodra in 29th place, Elbasan in 31st place, Vlora in 34th place are the indicator of the load of citizens
and residents. with local taxes per capita at levels representing the local policies of these Unions and
counties for the fiscal burdens of citizens and their residents within the limit of a load approved by the
Municipal Council with ± 30% deviation from the levels approved in the law on local taxes.
When we consider the influential factors, the measurement of the fiscal burden is not a measure of the
extent of the budgetary effect of the government or public administration (its composition). On the other
hand, it is not even the measurement of all the obligations that a taxpayer carries in function of the
income that he realizes within a year (payment for non-fiscal institutions).
The fiscal burden in value, which is presented as local tax per capita, results from the tax / tax ratio and
the local fee collected in the state budget with the number of resident residents (a) for the city, as well as
for (b) the city and village.
To create a general perception of how much the average fiscal burden belongs to each individual, who is a fiscal
resident in Albania, regardless of whether he is an active taxpayer or not, the table above shows that the fiscal
burden varies depending on the municipality. average per capita.
Thus, the average fiscal burden per capita in the district of Tirana is 22.1 thousand ALL / year for citizens and 18.2
thousand ALL for all residents if the city and the village are included together, although the village contributes
relatively less taxes than the city. In the simplest sense, a citizen of Tirana as an individual pays an average of 22,100
ALL per year in taxes and fees per year, while if we include the village this summer decreases by reaching a payment
level of 18,200 ALL per year, due to the fact that a load of certain local taxes and fees are also paid by taxpayers who
are resident residents of the village.
This confrontation clearly shows the fact that the state budget has received more than it has given for them. But, if
we include in this analysis the capital investments of the budget, for infrastructure, educational, health projects, as
well as other expenses, then the situation of expenditures that are distributed from the budget for all regions shows
an increase of their weight to GDP, starting from the projects. developmental, but without being affected by budget
payments through fiscal burden. This discrepancy is explained by the concentration of consumer and wholesale
trade industry in these large counties. But on the other hand, the various zonal differences over many decades are
the object of transfer or distribution of costs according to development initiatives.
An interesting indicator of the distribution of the fiscal burden is the value added tax burden for each individual. In
2019, each individual Albanian fiscal resident contributed to the budget for this tax, but also non-residents
(foreigners), with 55 thousand ALL per year for the consumption of services and goods during their stay in Albania.
This calculation is closer to the correct perception, because this tax is paid by each individual when buying goods or
services.
30Domestic migration and emigration of the population increase the burden on suburban and small counties. The population is according to the latest
update from INSTAT
65
3.5. Fiscal burden on regional GDP in Albania
Fiscal burdens, as a result of the activity of the central and customs tax administration, revenues from local
government, as well as a part of receipts from the public institutions for social and health contributions
constitute the comprehensive part that is calculated in relation to regional GDP.
Tab.31 RANKINGS OF REGIONS ACCORDING TO TAX BURDEN IN ALBANIA 2018- 2019

MUNICIPALITY FISCAL YEARS DIFFERENCE
RANKINGS
REGION 2018 2019 19/18
1 TIRANË 28.4% 28.0% 0.4%
2 DURRËS 25.9% 25.5% 0.3%
3 VLORË 24.4% 24.4% 0.0%
4 SHKODËR 24.6% 24.0% 0.6%
5 KORÇË 24.2% 24.1% 0.1%
6 GJIROKASTËR 24.6% 23.9% 0.7%
7 LEZHË 23.9% 23.7% 0.2%
8 BERAT 23.1% 23.0% 0.1%
9 ELBASAN 22.6% 22.9% -0.4%
10 KUKËS 21.5% 22.9% -1.4%
11 DIBËR 20.1% 20.7% -0.6%
12 FIER 19.8% 20.2% -0.4%
* calculation by ALTAX
Fiscal burden from taxes and customs has increased its share by 0.1% in 2019. In 2019, strengthening
local tax administration, as well as the impact of dividend taxes led to better performance levels. The
burden of social and health insurance contributions holds a growing share on the fiscal burden of 5.6 percent in
2019 compared to 2018. In the last 6 years its share has increased by 40.6%.
The fiscal burden of 2019 compared to 2018 is presented according to the regions in Table 31. According
to the ranking of the burden as% of GDP, the 1st place is held by the Municipality of Tirana at the
regional level, which being the capital of the country and with the highest density high population (29%
of the country's population) maintains this place every year, since the first edition published by ALTAX.
The last place in the ranking in 2019 is held by the Municipality of Fier, which is also the center of the
region with 20.2%.
In Tab.31, is presented the calculation of the fiscal burden for 12 Municipalities / Regions of Albania, for
2018 and 2019. The Municipality / Region of Tirana, Durrës, Vlora, Shklodra, Korça, Gjirokastra, Lezha
and Beat are presented with a slight decrease of fiscal burden in 2019 compared to 2018, respectively with
-1.2, -0.2 and -1.2% of GDP.
The Municipality / Region of Elbasan, Kukës, Dibra and Fier have a growing change in the fiscal burden
from 2018 a year later.
The share of the regional fiscal burden (taxes and central and local taxes) on domestic production includes the
calculation of taxes paid to the state budget by each region to the country's GDP. This category of income includes
fiscal burdens borne by taxpayers on behalf of the central tax administration (General Directorate of Taxes), as well
as local tax administrations (Municipalities and units).
The fiscal burden for all counties in 2019 has a share as much as 25.2% of GDP. The main share is held
by the Tirana region with a fiscal burden of 11.3% of the country's GDP, followed by Durrës with 3.4%
of GDP (respectively both with less than 0.1% of GDP compared to 2018). The Municipality / Region of
Fier will continue to exist in 2019 with a respective share of as much as 2% of GDP.
66
Municipality / Region of Vlora with 1.5% of GDP, Elbasan with 1.4% of GDP and Shkodra with 1.3%
of GDP. The other Municipalities / Regions have a lower fiscal burden (all as much as 3.2% of GDP),
where each of them has collected 0.6% - 0.8% of GDP for the budget. More than half of the fiscal
burden that has been paid as taxes and budget fees by the tax and customs administration belongs to the
area of Tirana and Durrës (14.7% of GDP).
These indicators apply to transparency regarding the share held by consumers and investors, realizing that
the declining trend in indirect tax burden (pressure on consumer prices) and the growing trend of direct
taxes (impact on corporate profit and personal income) reflect the positive effects of government fiscal
policy, which aims at a redistribution of income by benefiting more capital gains taxes on capital.
The ratio of paid taxes or the territorial unit within the state in relation to GDP is an indicator that is
worth seeing how much is the real contribution of taxpayers. On the other hand, it is worthwhile to
understand how much should be claimed in order to benefit back in the form of expenditures made from
the budget for services that are of great public interest.
On the other hand, a better local fiscal administration should justify narrowing the gap between
consumption and distribution of the population and businesses in the region.
The legal changes of the end of 2019 in the fiscal system (Fiscal Package 2019), on the one hand, aim to
facilitate small business, the self-employed, but also distribute the tax burden more harmoniously between
those who are taxed from work and those who are taxed by capital. On the other hand, changes in fiscal
policy tend to normalize the situation in many sectors of the local economy. These changes, at the same
time, increase revenues in some municipalities where the benefit is greater for the main ones, e.g.
Municipality of Tirana, enabling the provision of more services with a higher quality.
In the fiscal easing policies in the last two years in terms of local tax burden is "Simplified profit tax" for
small business, which has been repealed for the segmentation of businesses with a turnover of 0 to 5
million ALL per year. But, the increase of the annual turnover threshold up to 14 million ALL per year
for the other segmentation of businesses that tax the profit by 5% per year is another shift of the burden
of this tax towards businesses that earn more, thus facilitating small business and especially the self-
employed. The annual turnover business from 8 million to 14 million ALL, which is the change of the
fiscal package 2018, constitutes 20% of the number of businesses in the country.
In all 12 counties, more than half of the fiscal revenue consists of the fiscal burden collected by the
citizens of the main district municipality.
The specific shares of the country's counties include the number of taxpayers who bear the fiscal burden,
industrial characteristics, gender, population structure, education, underground and aboveground natural
resources, inherited individual assets and the ones created over two decades, as well as elements of the
environment and investments with public and private funds, including zonal development plans.
These reports also guide the distribution of taxpayer segmentation, according to the size they have (micro,
small, medium, or large). From the data of the reports, it can be seen that the fiscal burden in the regions
is maintained at the quantitative level by the base of resident taxpayers included in the categories of micro
(self-employment) and small businesses, rather than by the base of resident taxpayers included in the
categories of businesses medium and large.
An influential factor is related to the distribution of consumer goods and services, which have a tendency
to be consumed outside the area where they are created or produced towards export or in areas with
population density.
67
4. Tax Burden in Kosovo in 2019
The budget burden and the fiscal burden in Kosovo are measured in the same way as it has been clarified
for Albania.
The fiscal burden of total revenues in Kosovo is due to the contribution of 85% from indirect taxes, 15%
from direct taxes. This revenue structure is a result of the structural composition of the Kosovar
economy, which has a dependence on imports and as a result results in high trade deficits.
4.1. Kosovo budget performance
In absolute terms, budget revenues in 2019 are 1.89 billion euros. According to the graph, tax revenues
are 1.66 billion Euros and non-tax revenues are 0.215 billion Euros.
Tab.32 BUDGET REVENUES TO GDP IN KOSOVO IN 2018 -2019 % GDP
BUDGET REVENUES 2018 2019 DIFFEREENCE
GRANTS Grante dhe 0.1%

mirëadministrim
0.3% 153.5%
TAX REVENUES FROM CENTRAL
TAX ADMINISTRATION
Të ardhurat22.5%
tatimore qendrore
22.7% 0.9%
TAX REVENUES FROM LOCAL TAX
ADMINISTRATION
Të ardhurat1.0%
tatimore vendore
1.1% 11.0%
SOCIAL CONTRIBUTIONS Kontribute 0.5%

dhe taksa të0.3%
tjera -40.0%
NON TAX REVENUES Të ardhurat2.0%

jo tatimore2.9% 45.0%
TOTAL 26.1% 27.3% 4.6%
Source: MoFT 2018 2019
The structure of budget revenues, according to Tab.32 in 2019 consists of the main part of tax revenues
(98%), non-tax revenues, the part that does not constitute taxes and encumbrances (0.7%) and Grants
(1.3%). Central tax revenues account for 22.7% of GDP, while local government revenues account for as
much as 1.1% of budget revenues.
Kosovo's budget revenues in 2019 are as much as 24.1% of GDP and account for 88% of total revenues
of the 2019. Budget revenues, including tax revenues and some taxes and charges from the central and
local level of obsolescence that are constituent items in non-tax revenues.
Tab.33 TAX REVENUES TO GDP IN KOSOVO IN 2018 -2019 % GDP

tax revenues CENTRA 2018 2019 DIFFERENCE
L TAX
REVENU
CENTRAL TAX REVENUES ES
Të ardhurat22.5% 22.7%
tatimore qendrore 0.9%
LOCAL
LOCAL TAX REVENUES TAX Të ardhurat1.0% 1.1%
REVENU
ES
CONTRIBUTIONS AND OTHER TAXES Kontribute 0.5%
dhe taksa të0.3%
tjera -40.0%
CONTRIB
UTIONS
TOTALI ETC.
24.0% 24.1% 0.5%
Source: MoFT 2018 2019
According to Tab.33, central tax revenues increased by 0.2% of GDP in 2019 compared to 2018. Local
tax revenues increased by 0.1% of GDP. Meanwhile, revenues from contributions and other taxes are
down 0.2% of GDP.
Revenues collected domestically have historically followed the trend of economic activity in the country,
with a gradual improvement. Although the basis of these revenues continues to low life, thanks to the
68
design and implementation of structural reforms, has positive signals for a more accelerated growth trend
beyond that driven by increased economic activity (as a result of increased voluntary compliance and narrowing of
the tax gap).
In tax revenues in 2019, the main share is held by customs duties with 70.7%. This structure is expected
to change gradually by shifting the high participation of indirect taxes to direct ones, after the adoption of
the measures of release in production and the full effect of the Stabilization and Association Agreement,
through the replacement of customs duty and border VAT with more revenues from corporate tax and
personal income tax. Earlier changes in the Law on VAT, which have enabled the postponed payment of
VAT on production inputs, have already begun to have an effect in this regard31.
Tab.34 CENTRAL TAX REVENUES TO GDP IN KOSOVO IN 2018 -2019 % GDP
FROM TAX AND CUSTOMS* 2018 2019 DIFFERENCE

VALUE ADDED TAX 12.0% 13.0% 8.3%
TAX ADMINISTRATION 3.0% 4.0% 33.3%
CUSTOMS 9.0% 9.0%
minus VAT REIMBURSEMENT -1.0% -1.0%
NET VALUE ADDED TAX 11.0% 12.0% 9.1%
CORPORATE PROFIT TAX 1.0% 1.0%
EXCISES 7.0% 6.0% -14.3%
PERSONAL INCOME TAXES 2.0% 2.0%
NATIONAL TAXES etc. 1.0% 1.1% 10.0%
CUSTOMS FEES 2.0% 2.0%
TOTAL 24.0% 24.1% 0.4%
Source: MoFT
* not included LOCAL TAX REVENUES
Domestic and customs VAT in 2019 increased by an average of 1% of GDP with a year-on-year change of
8.3%, where 6.1% comes as an increase in the tax base (private consumption + donors + goods and
services e government) and the rest comes from the collection of tax debt.
VAT in total consists in its turnover with 28.2% of local VAT and 71.2% of border VAT.
Domestic VAT increased by 10.6% year on year, with a change of 0.2% of GDP. In absolute value, the
domestic VAT is 239 million Euros.
VAT at the border increased by 3.4% year on year, but with a decrease of 0.16% of GDP. In absolute
terms, the VAT limit is 606 million Euros.
VAT refunds are declining year by year by - 4.2%, with a change in absolute value minus 2 million Euros.
VAT refunds in absolute terms in 2019 are 46 million Euros.
Revenues from Corporate Income Tax increased by an average of 0.04% of GDP, with a change of 9% year
on year. In absolute terms, revenues are 95 million Euros.
Revenues from Personal Income Tax have increased by an average of 0.07% of GDP, with a change of 8.5%
year on year. In absolute terms, revenues are 166 million euros. This increase is based on economic
developments and developments in the country and their effects on the labor market, the salary bill for
the public sector and measures to increase administrative effectiveness in this tax category.
These increases are mainly due to the impact of economic developments reflected in the increase of the
tax base (GDP-Indirect Taxes + Subsidies and Transfers) for each tax and the rest from the reduction of
the tax debt stock.
31 Budget Laws 2019 -2020
69
Another impact that has led to a higher direct tax increase in 2019 includes the declaration of a higher profit
as a result of exemptions from the Government of customs duties and excise duties on production inputs
and information technology equipment.
Revenues collected from Kosovo Customs in 2019 amount to 1.17 billion Euros. In cases of non-change of
tax rates, border revenues have historically conveyed value and the amount of import.
Excise taxes have increased by an average of 3.8% year on year, reflecting the growth of real GDP which is
the tax base of excise revenues. Meanwhile, the customs duty has increased by an average of 4.8% based on
the increase in imports of goods which are the tax base of these revenues, as well as the negative effect on
revenues from the SAA and the Free Trade Agreement with Turkey.
Non-tax revenues have an average increase of 11.4% in 2019 compared to 2018. These revenues reflect the
Government's policy stance to avoid reliance on non-tax revenues and create incentives to reorganize
administrative fees accordingly. on the principle of cost-based service and in accordance with the
legislation on permits and licenses.
By simplifying the tax and customs system, increasing the quality of services to taxpayers, continuing the
full digitalization of services for the taxpayer, we expect increased efficiency of tax administration and
increased voluntary compliance with tax obligations, which will therefore be positively reflected in it. tax
revenues collected in the country.
The increase in tax revenues for the short term is expected to be supported mainly by indirect taxes,
especially VAT and excise duties, while a stabilization of revenues from customs duties is foreseen as
participation in tax revenues, as a result of the implementation of trade agreements. free with EU
countries (SAA).
Additional impact is expected to be the abolition of customs duties on all goods entering the production
process as a raw material, as well as the abolition of customs duties on information technology
equipment. The positive effects that lead to greater production than payment in the country after the sale
of the final products will reduce the losses from these exemptions. Direct tax revenues are also expected
to increase gradually, albeit on a relatively low basis.
4.2. Distribution of fiscal burden according to the budget destination
Impact of new measures to improve the business environment, facilitation of imports for the
manufacturing sector, exemption from customs duties in the case of imports of technological equipment,
plans to narrow the tax gap and informal economy, measures for advancing the efficiency of revenue
collection by collection agencies, with a particular focus on reducing debt stock, etc. are considered to
have the potential to increase the level of revenue.
Notwithstanding this, for reasons of cost planning on the basis of stable income, a conservative approach
has been applied in assessing the impact of these measures. Consequently, expenditures can be
maintained at a manageable level, and with the aim that expenditure commitments are based on
sustainable funding.
To build trust in a fiscal system that works to increase the well-being of its citizens, an analysis needs to
be made of the return of taxes paid as a fiscal burden on public spending on taxpayers.
In the analysis of budget expenditures for the last 2 years, according to table 35 it is seen that total
expenditures in 2019 have an average annual increase of 7.3% year on year, with an increase in absolute
value by 142 million Euros. Meanwhile, revenues increased on average year by year by 6.3% with a change
in absolute value of 98 million Euros.
70
Tab.35 BUDGET EXPENDITURES TO GDP IN KOSOVO IN 2018 -2019 % GDP
BUDGET EXPENDITURES 12.0% 25.0% 2018 2019 DIFFERENCE

10.0% 20.0%
ADMIN.WAGES AND CONTRIBUTIONS
8.0% Shpenzimet për15.0%
pagat dhe 8.7%
kontributet 8.7% -0.3%
10.0%
6.0%
5.0%
OPEX 4.0% Shpenzime operative
0.0% dhe mirëmbajtje
3.9% 4.7% 20.7%
2.0% -5.0%
CAPITAL INVESTMENT 0.0% -10.0% kapitale
Shpenzime investime 10.3% 9.7% -5.1%
LOCAL GOVERNMENT Shpenzime për buxhetin vendor
7.8% dhe transferta
8.4% 8.3%
TOTAL 30.8% 33.0% 7%
Source: MoFT 2018 2019 DIFFERENCE
The largest increase in total costs is borne by operating and maintenance costs (goods and services) with a
change of year by year by 17.6%, or as much as of 0.8% of GDP. In absolute terms, this change is worth
€ 44 million. One of the factors influencing the growth of this category is the reclassification of
expenditures from the category of capital expenditures to the category of goods and services.
Capital expenditures are unchanged, but in respect of GDP they show a decrease of 0.6%, or a change from
year to year with less than 5.1%. However, capital expenditures have had the highest rates at 69% in 5
years. An important part of the capital investments is the continuation of the M2 project for Mitrovica,
and other investments for the improvement of local, sports and educational infrastructure, and projects
which, compared to last year, have marked a significant increase.
Wage and social contribution expenses (administration) have increased in absolute value by 24 million Euros
with a change of 4% year by year. Wage and bonus costs continue to account for a significant share of
total spending.
Expenditures for the local budget and transfers have a positive change of 12.4% year by year, with an increase
in absolute value of 69 million Euros. This increase in transfer subsidies includes the implementation of
the Teachers' Law and the natural increase in the number of pension beneficiaries.
Expenditures for capital investments in 2019 account for 25.3% of total expenditures and in 2018 they are as
much as 27.2% of total expenditures.
Administration costs account for 29.4% of total expenditures. In 2018, their share is 30.3% of total
expenditures.
Expenditures on transfers for local government account for 29.9% of total expenditures, while in 2018 they
accounted for 28.6% of total expenditures in 2014 and 2018.
Comparing the tax revenues with the budget expenditures, which coincide with them, it can be seen that
the revenues from the personal income tax justify only 25% of the budget expenditures for the salaries of
the state administration. Meanwhile, only 19% of corporate income tax revenues and property taxes
together are justified for capital investment expenditures.
Other destination budget expenditures (for local government and operating expenditures), together with
the completion of parts not covered by capital expenditures and wages, are covered by indirect taxes,
which meanwhile go to other local expenditures.
71
4.3. Local taxes per capita by municipalities in Kosovo
The own municipal revenues are financial assets that are collected from taxes, fees, fines, payments for public
services provided by the municipality, rents from real estate owned by the municipality, revenues from the
sale of municipal assets, revenues from municipal enterprises, and from income from co-payments from
services in education and health, etc.
Municipalities collect their own revenues in two forms: as revenues collected directly by the municipality
as an activity of the municipality and as revenues collected from the central level (hereinafter, indirect
revenues) which are transferred to municipalities as an integral part of own revenue.
Property tax is considered a very important source of income and one of the most stable categories of
municipal revenues. The Municipal Assembly sets property tax rates on an annual basis at the tax rate of
0.05% to 1% of the market value of the property. It is important that the revenues collected by the
municipalities are returned to the citizens in the best possible way of providing the best and highest
quality services.
In Kosovo, the fiscal burden has been increasing year by year.

If we analyze the collections from the local government according to the municipalities that are an
integral part of 7 regions, it is noticed that the highest burden is borne by the citizens of Prishtina region
with a local tax burden of 148 Euros per year, as well as those of Gracanica with 135 Euros per year.
These two municipalities have their own per capita income more than double that of other municipalities
in Kosovo.
Although the tax burden decreases when the tax base increases, this has not happened in Kosovo. The
regions of Prishtina, Prizren and Mitrovica have the highest population. But, apart from Pristina, the
other two regions do not bear a justified burden based on the argument of a broad tax base. From this
point of view, the analysis states that the levels of local tax administration should increase their capacity to
take advantage of opportunities to increase local revenues.
A look at the distribution of the local tax burden shows that the first problem is the low capacity of local
tax administration.
Meanwhile, the unequal distribution of the local tax burden is explained to a certain extent by the
concentration of consumption and the non-harmonized trade industry in all regions. An influential factor
is also related to the distribution of consumer goods and services, which tend to be consumed outside the
area where they are created or produced for export or in densely populated areas.
But the problem that is still not being narrowed is evasion, which comes from an unchanged informal
economy even though revenues grow from year to year. But this increase in revenue is not due to the
battles won against evasion, but mostly as part of the taxation that corresponds to the expansion of the
economy, as well as the reflection of inflation.
The highest percentage of non-taxed services is one of the most acute and massive problems for the
Kosovo market.
The fight against tax evasion should be the main focus of fiscal policy, as the missing part should not only
be a way to increase government revenues, but also be a way to increase the equality of the tax system for
taxpayers. This war will dictate even more complete transparency and a need to improve the reliability of
the tax system for citizens and businesses.
All revenues collected in a municipality belong to it and become part of the municipal budget.
The table below lists all municipalities in Kosovo according to per capita revenues for 2019.
72
Kosovo - Its own tax revenues and expenditures / capita in 2019 Euro
Its own tax
Expenditures RATIO
RANKINGS MUNICIPALITY revenues/
/ Capita TAX/EXP.
Capita
1 Prishtinë 148 409 36%
2 Gracanica 135 617 22%
3 Fushë Kosovë 62 257 24%
4 Gjilan 55 316 17%
5 Obiliq 53 498 11%
6 Shtërpcë 51 291 18%
7 Kllokot 49 461 11%
7 Ferizaj 49 297 16%
8 Pejë 46 265 17%
9 Prizren 45 246 18%
10 Kamenicë 40 303 13%
11 Vushtrri 39 293 13%
12 Novobërd 38 386 10%
13 Suharekë 37 266 14%
14 Gjakovë 36 258 14%
15 Mitrovicë 35 281 12%
16 Lipjan 34 241 14%
17 Partesh 33 714 5%
18 Ranillugë 32 479 7%
19 Istog 31 262 12%
20 Hani i Elezit 29 291 10%
21 Klinë 23 249 9%
21 Kaçanik 23 242 9%
22 Viti 22 237 9%
23 Gllogovc 21 203 10%
23 Shtime 21 263 8%
24 Rahovec 20 230 8%
25 Skënderaj 19 253 8%
25 Podujevë 19 261 7%
26 Junik 18 279 6%
27 Malishevë 16 243 6%
27 Deçan 16 212 7%
28 Dragash 14 243 6%
29 Mamushë 12 345 3%
30 Mitrovica Veriore 11 495 2%
31 Zubin Potok 4 386 1%
31 Zveçan 4 338 1%
32 Leposaviq 2 341 1%
AVERAGE 48 288 17%
Sources: Municipalities,Parliament, MoFT
73
4.4. Regions with the highest and lowest fiscal burden in Kosovo
Tax and non-tax revenues in the budget in 2019 in relation to the domestic production of the Region for
2019 for each of the 7 regions in Kosovo are presented in Table 36.
Tab.36 RANKING OF REGIONS ACCORDING TO TAX BURDEN IN KOSOVO*

MUNICIPALITY FISCAL YEARS DIFFERENCE
RANKINGS
REGIONFISCAL YEAR 2018 2019 19/18
1 PRISHTINË 28.2% 28.5% 0.3%
2 FERIZAJ 24.3% 24.6% 0.3%
3 PRIZREN 24.1% 24.3% 0.2%
4 GJILAN 23.1% 23.0% -0.1%
5 GJAKOVË 22.5% 22.0% -0.5%
6 PEJË 20.7% 21.1% 0.4%
7 MITROVICË 17.3% 17.0% -0.3%

*calculation by ALTAX
The highest fiscal burden for 2019 is borne by taxpayers of the municipality / region of Prishtina (28.5%)
with an increase in the level of burden by 0.3% compared to 2018.
In 2nd place for the high fiscal burden are the taxpayers of the municipality / region of Ferizaj as 24.6%
of the regional GDP, who in 2018 have maintained the same position in the ranking. In 2019, the fiscal
burden increased by 0.3% of regional GDP.
Prizren is in 2019 with an increase in the fiscal burden by 0.2% of regional GDP with a level of 24.3%.
Last year, these taxpayers ranked third in the country.
Gjilan is the region with the lowest burden (23% of GDP), which comes as a result of low budget
revenues in relation to regional GDP, ranking 4th in the ranking. It held the same place in 2018.
Gjakova holds the 5th place for the low fiscal burden (22%) keeping the same position in the ranking
compared to the previous year.
In the group of regions with low fiscal burden, it holds the region of Mitrovica (17%) with a decrease of
0.3% of regional GDP. In 6th place for low fiscal burden is the region of Peja (21.1%), with a fiscal
burden below the level of the average fiscal burden of Kosovo.
The reasons for a low fiscal burden are mostly found in business constraints in these areas, but also in a
performance related to problems in field administration. On the other hand, informality and corruption
have had an impact on maintaining an unexposed and non-transparent fiscal burden on the budget.
74
4.5. Fiscal burden on the regions of Albania and the regions of Kosovo
Although the comparison cannot be ethically called correct, it is still worthwhile to see how this burden
has affected regional economic development in both countries. It is also worth noting its impact on
foreign investment, given that the burden is higher in Kosovo than in Albania.
A comparison of foreign investment inflows shows that Albania has a higher value of investment. Even in
terms of capital expenditures from the budget, it can be seen that Albania spends 4.4% of GDP. While
Kosovo spends 9.7% of GDP.
Social spending in Albania is 10.4% of GDP, with a difference with Kosovo for the same spending group
+4 percentage points.
Administration expenditures in 2019 are highest in Kosovo with +4.2 percentage points higher year by year.
Based on the conclusions that come from the experience of countries that have moved forward with
capital expenditure reforms, it is necessary not to neglect short-term costs, but to shift and monitor with a
certain care the very importance they receive regarding the fragility of reform progress. in their early years.
The seven regions and municipalities included in Kosovo are considered to have a lower fiscal burden
than the fiscal burden of Albania's regions, where 4 of the regions have a fiscal burden below its national
level. There are 10 regions / municipalities in Albania with a lower burden than the fiscal burden of
Albania.
If we compare the political similarity of the region of Prishtina with that of Tirana, the comparison
between them brings out a fiscal burden for the taxpayers of Tirana 0.5 percentage points lower.
Meanwhile, the region of Fier, as the region that records the lowest fiscal burden in Albania is +3.2
percentage points higher than the fiscal burden of the Mitrovica region.
So, the comparison for some of the elements that are most directly affected by the fiscal burden show
facts that are not necessarily related to the fiscal burden, but also to the needs that each country has to
develop its policies, based on government programs that have the direction 4 -years of the country.
In fact, as discussed above, the fiscal burden is not the only element considered by investors. But still a
low burden shows that capacity development and technology in use are still on their way to greater
empowerment and penetration into the economy.
In order to alleviate this burden for Kosovar importers, legal initiatives have been taken aimed at
adopting measures of release in production. One of the goals of structuring the fiscal burden is to
improve its base by replacing the customs duty and VAT collected at the border with higher corporate tax
revenues and personal revenues.
Revenues collected within the country have followed the trend of economic activity, with a trend of
gradual improvement. Although the base of these revenues continues to be low, due to the
implementation of structural reforms there are positive signals for a more accelerated growth trend
beyond that driven by increased economic activity.
75
5. Tax Freedom Day in 2020
Tax Freedom Index 2020
Methodology
The Fiscal Freedom Day is calculated on the basis of the tax revenue ratio for the fiscal year with the
gross domestic product.
Tax revenues include all types of taxes and duties, customs duties, as well as social and health insurance.
Total tax revenue is calculated as a percentage of GDP. The resulting ratio is multiplied by the number of
days of the year. The resulting number is counted as the days of the months starting January 1. The
number of divided days, according to the days of each subsequent month, stops until the day that is
completed by the month that it corresponds (for the year 2020 will be a leap year, and the calculated is
pushed one more day).
The day that calculation is stopped is considered the Fiscal Freedom Day.
The meaning of this day is related to the fact that the country's taxpayers on this day closed the accounts
of payment of tax liabilities and from this day of the year and the following they work for themselves
without having any tax liability to the state.
Calculate the Tax Freedom Day for yourself
The Day of Fiscal Freedom represents the taxpayer’s fiscal freedom in general.
But what is your tax Freedom Day?
Here's a simple way to calculate it for each year.

If you will have all the information you need when paying your taxes, the calculation is a simplified
conclusion of the action. First, add your total liabilities to the central tax office (for cases when you are
registered as an activity) as well as local taxes and fees.
In the case of an individual who is not registered with the tax office, but has income from different
sources, you must include in this calculation all the taxes and fees you pay for the services you are
required, as well as the ones you are withheld (p. eg tax on wages, interest rates, municipal taxes etc.).
At the other end, record the gross income you received during the past year. The ratio between total total
taxes and fees paid and all your gross income results in a number. This number is the last day of the year
related to the fiscal burden.
After this date that coincides with the one-day calendar of the month is considered your Fiscal Freedom Day.
The year 2020 is a special one for the days of the year corresponding to the fragile year, with 366 days.
76
5.1. Tax (Fiscal) Freedom Day 2020 in the Western Balkans
The calculation of fiscal freedom is composed of three factors:
Individual income tax burden,

Tax burden on business income as well
Total tax burden as a percentage of GDP.
In 2020, Fiscal Freedom Day for the Western Balkans is the 111th day of the year. This year, fiscal
freedom comes on the same day as it came in 2019. In 2020, in Kosovo, Albania and Northern
Macedonia this day falls earlier, while in Bosnia-Herzegovina, Montenegro and Serbia it falls. Later. Even
in 2019, this day has come respectively for the countries of the Western Balkans. The only change that
has occurred between the two years is in Albania. In 2020 the day of fiscal freedom is two days earlier
than in 2019, due to the reduction of fiscal burden in 2019.
Fiscal Freedom Day represents the taxpayers of a country in the face of their burden from the fiscal
administration to collect fiscal liabilities for the budget. This day is the indicative date to be recognized,
on what day of the year the burden on the state budget is met or to show taxpayers how many days they
need to work in order to pay their share of tax liabilities on behalf of the budget. After this day, the
remaining income remains as logic in the pocket of the business or individual, to pay individual, family or
business expenses. From the calculation of the days consumed in each country to pay the fees that
constitute the fiscal burden, according to the data declared by each of the fiscal revenue administration
and confirmed by the Ministry of Finance for each of the Western Balkan countries, it results that
depending on of the level of fiscal burden to GDP, the Day of Fiscal Freedom in 2020 in the Western
Balkans comes on April 20, 2020.
Fiscal Freedom begins its journey through the region by knocking first on Kosovo on March 28. He then
went to Albania on April 3 and a day later to Northern Macedonia on April 4. There is no date for this
month to be celebrated as Fiscal Freedom Day. In May, Fiscal Freedom Day arrives in Bosnia and
Herzegovina and five days later arrives in Serbia on May 9. Fiscal freedom has recently been celebrated in
Montenegro on May 11.
This year, Kosovo is considered to have an advantage in easing the burden with Albania, reaching this day
5 days before and 22 days before WB6. After this date, the entire WB6 region begins to feel completely
relieved of the fiscal burden owed to the budget. Based on the date when the Fiscal Freedom is
celebrated, everyone understands how much the burden of the budget burdens the citizens of the
country. On the other hand, Fiscal Freedom is the index that shows how many free days businesses and
individuals have throughout the year to work for themselves and their families.
CALENDAR OF TAX FREEDOM IN WESTERN BALKANS IN 2020

WORKING WORKING DATE OF DATE OF
DAYS FOR DAYS FOR TAX TAX
COUNTRIES
BUDGET BUDGET FREEDOM FREEDOM
IN 2019* IN 2020 IN 2019 IN 2020
KOSOVO 88 88 March 28th March 27th

ALBANIA 94 92 April 3d April 1st
NORTH MACEDONIA 95 95 April 4th April 3d
BOSNIA-HERZEGOVINA 126 126 May 4th May 3d
SERBIA 131 131 May 9th May 8th
MONTENEGRO 133 133 May 11th May 10th
WESTERN BALKANS 111 111 April 21st April 20th
77
Why does Tax Freedom Day change every year?
To bring this day to the attention of all taxpayers as soon as possible, ALTAX presents the Fiscal Freedom
Calendar every year for the last decade. The reason why the day changes is closely related to the revenues collected
by the fiscal administration and the agencies that collect social contributions to the state budget. The more revenue
collected during a year, the later the Fiscal Freedom Day is celebrated for the following year. Albania had this day
later in 2019, as more revenues were collected than a year ago in relation to GDP. In other WB6 countries, this day
has not changed in 2020, due to revenue collection in the same ratio with GDP as in 2019. This income may not
necessarily be the same between years, but may be in the same proportion when they are viewed as the level
achieved by GDP.
5.2. Tax (Fiscal) Freedom Day in 2020 in Albania

This day shows all Albanians how much they have had to work for their state budget and tells them that
this period has lasted until the end of the first quarter of 2020. Fiscal Freedom Day falls on the first day
of April. Fiscal release for 2020 is on the 92nd day of the year, which falls on April 1st. After this period,
earnings from labor and capital belong to the individual and business, as it is already considered that the
budget has managed for only 3 months to introduce in the budget from taxpayers’ part of the profits
generated from labor or capital leaving space for another three quarters. of the year they work for
themselves. The day that celebrates the whole of Albania does not coincide with the day of fiscal freedom
of each region, as the fiscal burden for Albania is calculated as the average of the entire fiscal burden of
the country's regions.
CALENDAR OF TAX FREEDOM IN ALBANIA IN 2019 - 2020

REGIONS
IN 2019* IN 2020 IN 2019 IN 2020
FIER 72 74 13-Mar 14-Mar
DIBËR 73 74 14-Mar 14-Mar
ELBASAN 82 84 23-Mar 24-Mar
KUKËS 79 84 20-Mar 24-Mar
BERAT 84 84 25-Mar 24-Mar
LEZHË 87 87 28-Mar 27-Mar
GJIROKASTËR 90 87 31-Mar 27-Mar
SHKODËR 90 88 31-Mar 28-Mar
KORÇË 88 88 29-Mar 28-Mar
VLORE 89 89 30-Mar 29-Mar
DURRËS 94 93 4-Apr 2-Apr
TIRANË 103 102 13-Apr 12-Apr
ALBANIA 94 92 4-Apr 1-Apr
According to the fiscal burden of each region, as well as the calculation according to the calendar of the
year, it turns out that Fiscal Freedom will come to 12 Albanian regions in the first quarter of 2020. Durrës
and Tirana regions are the only ones that celebrate Fiscal Freedom at the beginning until close to mid-
April 2020.
The region of Berat, Lezha, Korça and Vlora result in the same number of days in 2019 and 2020, in
which taxpayers from these regions work to pay fiscal obligations and get rid of fiscal burden.
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The regions of Fier, Dibra, Elbasan, Kukes, Gjirokastra, Shkodra, Durres and Tirana turn out to have to
work with a number of fewer days in 2020 than in 2019.
Fiscal Freedom Day in 2020, as in 2019, comes first in the Fier region. In 2018, the taxpayers of Fier have
worked 72 days to get rid of the fiscal burden. In 2019, they worked 72 days to get rid of this burden.
2020 Fiscal Freedom Day falls on March 14th.
Taxpayers in the Dibra region in 2020, as well as in 2019, hold the second place in the country in terms of
the number of days they have spent to get rid of the fiscal burden. In 2018, the taxpayers of Dibra
worked 73 days to get rid of the fiscal burden. In 2019, they worked 74 days to get rid of the fiscal
burden. 2020 Fiscal Freedom Day falls on March 14th.
Taxpayers in the Elbasan region worked 82 days in 2018 and 84 days in 2019. In 2019, Elbasan taxpayers
held third place for the day of fiscal freedom that came earlier than other regions in 2020 on 24 March.
On this date, taxpayers from the Kukës and Berat regions are also relieved of their fiscal burden. Fiscal
Freedom Day in Kukës fell on March 20, 2019 and in Berat on March 25.
The day of fiscal freedom 2020 in the region of Lezha and Gjirokastra falls on March 27. Taxpayers of
these two regions had Fiscal Freedom Day in 2019 on March 28 and March 31, respectively. In 2018,
taxpayers in the Lezha region worked 87 days to pay off liabilities under the obligatory fiscal burden to
pay, while Gjirokastra taxpayers worked 90 days. In 2019, taxpayers in the region of Lezha and
Gjirokastra have worked for 87 working days on behalf of the budget.
Even in the region of Shkodra and Korça, taxpayers have had the Day of Fiscal Freedom 2020 2020 on
March 28, while the Day of Fiscal Freedom 2019 in Korça has fallen on March 29 and in Shkodra on
March 31. In 2018, taxpayers in the Shkodra region worked 90 days to pay off liabilities under the
compulsory fiscal burden to pay, while Korça taxpayers worked 88 days. In 2019, taxpayers in the
Shkodra and Korça region worked for 88 working days on behalf of the budget.
Taxpayers in the Vlora region have Fiscal Freedom Day 2020 on March 29. Fiscal Freedom Day in 2019
has fallen on March 30th. Taxpayers in the Vlora region, both in 2018 and in 2019, have worked 88
working days to pay tax liabilities to the budget.
In the region of Durrës, taxpayers have the day of fiscal freedom 2020 on April 2, while in 2019 the day of
fiscal freedom was on April 4. Taxpayers in the region of Durrës, in 2018 worked 94 working days, while
in 2019 worked 93 working days to pay tax liabilities to the budget.
In the region of Tirana, taxpayers have the day of fiscal freedom 2020 on April 12, while in 2019 the day
of fiscal freedom was on April 13. In this region, which has the largest number of taxpayers in the
country, they have paid 103 working days in 2018 and 102 working days in 2019 to pay tax liabilities to
the budget.
After this date, all taxpayers can calculate the remaining income to use for their own purposes and needs
for consumption, savings, or investment. This facility helps to encourage greater consumption for family
members, as well as increase savings and their use for investment by businesses. But in reality, beyond the
symbolism of the date, planning is done based on programs that are based on business or individual
performance.
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5.3. Tax (Fiscal) Freedom Day in 2020 in Kosovo
The Day of Fiscal Freedom arrives in Kosovo in the last days of March 2020. Fiscal Freedom in Kosovo
arrives on the 88th day of 2020. This day according to the calculations of the days according to the
months of the year falls on March 28, 2020.
In 2019, the Day of Fiscal freedom was on March 29 and arrived on the 88th day of 2019, the same as in
2020.
Taxpayers, who are residents of all 6 regions of Kosovo, have Fiscal Freedom Day 2020 during March
and only one region in April.
The Day of Fiscal Freedom in Kosovo 2020 arrives faster in the Mitrovica region on the 2nd day of March.
In 2019 this day was on March 13th.
This region reaches 15 days earlier than the region of Peja on Fiscal Freedom Day 2020, based on the
revenues collected during 2019. On the day of fiscal freedom 2019 this region has reached 3 days earlier
than the region of Peja. In 2019, taxpayers in the Mitrovica region worked 62 days to pay off their fiscal
obligations and get rid of their fiscal burden. In 2018, they worked 72 days and later brought 2019 Fiscal
Freedom Day.
Taxpayers in the Peja region have the day of 2020 fiscal freedom on March 17, which falls 3 days earlier
than in 2019. Peja taxpayers celebrate fiscal release in 2020 after working 77 days in 2019 to pay all
obligations their fiscal. In 2018 they worked 79 days before they were considered to have paid their fiscal
obligations and managed to work for themselves.
CALENDAR OF TAX FREEDOM IN KOSOVO IN 2019 - 2020

REGIONS
IN 2019* IN 2020 IN 2019 IN 2020
MITROVICË 72 62 13-Mar 2-Mar

PEJË 79 77 20-Mar 17-Mar
GJAKOVË 82 80 23-Mar 20-Mar
GJILAN 84 84 25-Mar 24-Mar
PRIZREN 73 89 14-Mar 29-Mar
FERIZAJ 87 90 28-Mar 30-Mar
PRISHTINË 88 104 29-Mar 13-Apr
KOSOVO 88 88 29-Mar 28-Apr
In the Gjakova region, taxpayers have the day of fiscal freedom 2020 on March 20, while in 2019 the day
of fiscal freedom was on March 23. Taxpayers in this region, in 2018 worked 82 working days, while in
2019 worked 80 working days to pay tax liabilities to the budget and get rid of fiscal burden.
In the Gjilan region, taxpayers have 2020 Fiscal Freedom Day on March 24, but even though they worked
the same number of working days (84 days), both in 2018 and in 2019 to pay the fiscal burden on
Freedom Day Fiscal in 2019 has reached on March 25th. This discrepancy comes because 2020 is a fragile
year and there is one more day, a fact that affects the calculation of days.
Prizren region has a difference in the days of fiscal freedom between 2020 and 2019, due to an increasing
burden for 2019. In 2020, Fiscal Freedom Day is on March 29. In 2019, Fiscal Freedom Day was on
March 14th. In 2018, the taxpayers of this region worked 73 days before it was called that they had
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fulfilled their obligations according to the fiscal burden that belonged to them. In 2019, they worked 89
days until they managed to repay all the fiscal obligations that belonged to them to pay the budget.
Taxpayers in the Ferizaj region have the day of fiscal release in 2020 only 1 day later than in Prizren. Fiscal
burden in 2019 has been rising. Taxpayers had the day of fiscal freedom in 2019 on March 28th. To reach
these dates, taxpayers in this region have worked 87 working days in 2018 and 90 working days in 2019.
In the region of Prishtina, taxpayers bear the biggest fiscal and growing burden for 2020 compared to
2019. Based on this, the Day of Fiscal Freedom 2020 is on April 13, while in 2019 this date was on March
29. In this region, which holds the largest number of taxpayers in Kosovo, resident taxpayers worked in
2018 88 days and in 2019 worked 104 days only to pay tax liabilities to the budget.
Fiscal Freedom Day in Kosovo has been postponed, due to the fact that the performance of budget
revenues in recent years in all regions of Kosovo has continued to improve.
However, the struggle that should start by force to push towards the minimum tax evasion limits, which
is trying to cross the borders that have been established until today and is beginning to affect the tax
equality of taxpayers, remains an undeniable challenge. This fact also appears in the distribution of
income according to the GINI Index, mentioned above. Kosovo has deteriorated its income distribution
situation only five years ago.
ALTAX calculates the Fiscal Freedom Index for Kosovo for the 5th time.
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SUMMARY
In 2019, the countries of the Western Balkans do not have significant developments in the fiscal policy of
the tax system in view of the fiscal burden. The policy pursued has aimed at stabilizing and consolidating
fiscal, as well as some small changes, aimed at harmonizing social policies, or facilitating certain segments
of the activities of the national economy.
Slavic countries, which are an integral part of the WB, make up more than 80% of the GDP of the
Western Balkans. Given this economic weight, the four together are influential in the economic relations
of the region and if they did not have national divergence, they would be a unique market with
competitive features for the neighboring countries with WB6. During 2019, there is a stagnation of the
fiscal burden compared to the previous period and it has given some impetus to the dimensions of the
budget and tax policy.
Economic insecurity has not yet left the Western Balkans and Northern Macedonia, Albania, Serbia, and
has led to situations of political instability. Only Montenegro showed a positive impact of the political
situation on FDI assistance, in reducing unemployment, although the unemployment rate remains high.
Given the low budget expenditures of capital investment in most countries, as well as the search for a
functional and competitive economic model in the long run, the sustainability of budget performance and
fiscal consolidation is needed in order to achieve economic development and guarantee social welfare.
Of all the valid recommendations for the WB6 region, the one that addresses the removal of all barriers
to trade applies, giving priority to the EU regulatory framework, and including legal certainty as one of
the preconditions for FDI to be considered. not as a competition between countries in the region, but as
an incentive for structural changes in the economy and its diversification, according to the demands of
market opening. Although at first glance these issues may seem like internal problems, they are quite
related to their level of cooperation and unresolved bilateral and multilateral issues. Although the need for
FDI is great, it has not yet managed to bring together key actors to address common issues, despite
having a very high potential benefit for all.
Fiscal incentives are essentially an instrument of the state's fiscal policy, not often targeting quality-
oriented, specific groups of businesses have begun to spend more of their own funds for this purpose.
The state should pay attention without thinking long and hard and focus clearly on the right policy
towards certain segments and groups of business and society.
The development of knowledge and innovation in large companies shows that even now they exceed
those of small firms in quantity. This finding, however, indicates the reserves and potential of small and
medium-sized businesses, as well as prominent individuals to benefit more from tax incentives.
Extensive use of R&D tax incentives at the time of the economic downturn raises the question of how
effective are these fiscal policy instruments? The vast majority of studies conclude that tax benefits for
R&D expenditures are effective in stimulating growing investment.
If we can talk further about how tax incentives work for R&D, it ultimately depends on how innovative
the products, services and production processes that emerge in the market are. Scientific research and
innovation must be oriented towards policies of interest to the country, and together in a mosaic to form
a complete social and economic development panorama, integrating with each other. Universities can
identify interesting developments in unpredictable environments and situations and produce practical
solutions to major problems with them, because universities have breadth and autonomy of action.
The process of re-dimensioning WB6 economies requires a structural transformation taking into account
the history, competitiveness and many elements highlighted in this report for regional economies.
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Transformation also requires the strengthening of institutions, technological evolution and the extension
of innovation in the first steps of citizens' lives, emphasizing the qualitative increase of skills, internal
market reforms, increasing the connectivity and exchange of goods and services, summarizing all these in
sectoral programs and development strategies, as a product of process and people analysis. In this way, it
will be possible to highlight the sectors or sub-sectors and the most potential products to contribute to
medium-term development and beyond.
Fiscal policy affects economic growth through four main directions: job supply, physical capital, human
capital, and technological innovation. Labor productivity in the economy is the clearest reflection of a
number of factors, including human capital, the physical capital with which they must work, and the
technology available to them.
Fiscal burden, as an income delegated by taxpayers to the government budget, when it is not evenly
distributed and addressed according to the needs of citizens and economic progress will be an economic
cost to the country leading to political and social distortions.
The fiscal burden is not yet the subject of full discussion and transparency by the governments of the
Western Balkans. The components of the WB should start thinking and setting objectives related to
increasing the fiscal burden by minimizing tax evasion, formalizing the economy year after year with
comprehensive and sustainable programs. A burden created not at the expense of increasing tax rates, but
in narrowing evasion helps directly in distributing the fiscal burden towards those segments of taxpayers
and citizens who have greater opportunities to cope with the bulk of the fiscal burden. The fiscal burden
should aim to extend to the territories of evasion, but also to the dynamics of the economy.
Tax policy has directly affected the level of labor market supply, as in the cases of Northern Macedonia
and Albania, when the latter recorded the lowest unemployment rate at 11.4%. The increase in the share
of innovation in the economy and the fiscal and financial incentives for easing the burden in the initial
moments of business have been seen in the light of the reduction of the capital tax burden with an
expectation for investment incentives. Given the reduction in the cost of direct taxes, where lower
corporate income tax rates can encourage businesses to invest in physical capital, it is expected to make
labor work more productive.
Revenues, consumption and employment taxes have boosted the supply of employment, given that the
economy in most WB6 countries is based on trade and services. According to the level of minimum and
average wages, labor taxes and consumption taxes have acted as a deterrent in some countries with a high
burden on them, directly affecting staff costs for employers. High wage costs (wages and taxes) can have
a deterrent effect on resident businesses thinking about how to replace investment capital with that of
employment, but by reducing their investment funds. On the other hand, if a non-competitive economy
in the global market does not increase the cost of labor force paid with minimum and average wages, it
can have negative effects on the departure of employees and capital where it is even better paid.
The fiscal burden distributed in different Albanian regions, if faced with the available resources and
capacities, as well as if it is more rationally intertwined with the intended economy, the impact of the role
of government programs in the distribution of investments and the preparation of conditions for
investors where the burden is not incentive would help each municipality to think more deeply about the
possibilities and ways to integrate within the model of doing economy and budget.
Meanwhile, fiscal policy must be strongly linked to the development of the structure of the economy,
continuously analyzing the changes and shifts in the performance of the economy from one sector to
another, anticipating the market and global competition. For example, the effects of the drought in 2019,
showed that the forecast for the redistribution of fiscal burden should not remain static and be done only
once.
Given the low levels of labor market participation, capital investment and productivity below economic
capacity, it is important that tax reform works to boost economic growth and not the other way around.
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The economy is the first.
The fiscal burden must be to factorize economic competitiveness, drawing the attention of taxpayers and
the media in the region to this tax ethic.
Meanwhile, fiscal competition, which has been going on for many years between the Western Balkan
countries, is dictating budgets to lose focus on consolidation using ready-made tax cuts at floor levels, but
in many cases these reductions have not yielded the expected results.
An example is workforce management. If the labor force is immobile (does not emigrate), education and
healthcare funded by the state budget increase labor productivity and are in this sense an added public
value to the economy. But if the labor force is mobile, then education and health can be consumed in the
country that welcomes human capital supplied by another country.
A strong finding from the analysis is the conclusion that not all changes in tax rates can have an effect on
economic growth, consumption or even foreign investment. Reforms that improve investment incentives,
reduce budget support for sectors of the public economy, avoid financial collapse, and deepen public debt
have a clear and visible effect on all citizens regarding long-term economic performance.
From our estimates of the impact of the increase in capital tax revenues from capital and consumption, ie
the real fiscal burden (which also controls the flow of labor income and the circulation of goods and
services), it results that high taxes encourage retirement. of investment towards countries that have a
similar economic environment but with lower tax rates. But, if the potential of fiscal administration
increases by increasing collections without changing tax rates, then this is not a tax increase, but the
beginning of the correct implementation of fiscal legislation through good administration.
Taxes and investments go in the same direction for the Balkan countries, as they show that the state and
the law are being strengthened. This evidence further adds support for the idea that when tax policy is
reformed, there is good reason for governments to consider the impact of tax policy on its country's
attractiveness to investment flows.
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ANNEX
FISCAL REGIMES - LEGAL CHANGES IN 2019-2020 IN THE WESTERN BALKANS
1. ALBANIA
The legal forms of businesses are (i) simple traders, (ii) collective companies; (iii) limited partnership; (iv) Limited
Liability Companies (Sh.pk); (v) joint stock companies (JSC); (vi) public companies, (vii) branches and representative
offices.
Accounting and financial reporting rules are applicable under IAS and IFRS.
A new law is implemented from January 2019 on accounting and financial statements.
Consolidation of financial statements is not functional for Albania.
The place of fiscal residence is determined based on the registration as a legal entity in Albania, or is controlled
and managed in Albania. Residence is also determined if the criteria for permanent residence are met. Repatriation
of post-tax profit is permitted.
The fiscal resident is taxed on income earned by him, both domestically and abroad.
Income from services rendered by non-resident persons shall be considered with source in Albania if they are carried out for
a resident person, regardless of where they are physically carried out and regardless of where they are paid. Earlier,
they were considered source in Albania, and thus taxable in Albania, only income generated by services rendered in
the territory of the Republic of Albania by non-resident persons.
The proceeds of ownership (and other rights deriving from ownership) on immovable property located in the territory
of the Republic of Albania shall be considered source income in Albania, and therefore taxable in Albania, and
income (i) the rights to use mineral resources, (ii) the rights to use hydrocarbon resources, (iii) other rights to use
natural and terrestrial natural resources including the sea in the Republic of Albania, and information that it belongs
to these rights. The above rights and related information will be treated for tax purposes in Albania as if they were
immovable property. As such, in addition to the proceeds from their use, the proceeds from their alienation
(transfer of ownership over them) will also be considered with source in Albania, thus taxable in Albania.
Revenue from shareholdings and shareholdings in Albania. The income realized by non-resident persons from the transfer
of ownership over shares or interest interests, wherever they are located, will be considered with source in Albania
and thus taxable in Albania, if (i) over a year before the transfer of ownership, more than 50% of the value of those
shares or interests is attributed directly or indirectly to the immovable property, rights or information mentioned
above.
Dividends earned from the distribution of profit are taxed at source at the rate of 15%. Dividends paid to a non-
resident are taxed at source at the rate of 15%. Dividends received by resident companies are exempt from profit
tax.
The tax rate on dividends distributed to shareholders and the profits distributed to partners decreased from 15% to 8%
since the January 2019. For the dividends / profits distributed by resident companies in Albania, this reduced rate
will apply to retained earnings realized in 2018 before, including reserves and capitalized gains, provided that (a) the
dividend tax, pertains to undistributed profits of 2017 and beforehand, be paid by 30 September 2019, and the
dividend tax for 2018 will be paid by 20.08.2019.
Bank interests, patents, copyrights paid to a resident or non-resident are taxed at source at the rate of 15%.
Capital gains from a resident are taxed at 15% tax rate, as well as non-residents are taxed at 15% tax rate.
In cases where capital gains realized by shareholders from the direct or indirect sale of the capital or voting rights of a
legal person in Albania are considered as source income in Albania and the legal entity subject to change of
ownership calculates and pays the profit tax considered by the sale of assets, according to the foregoing projections,
then the share capital gain will not be subject to profit tax in Albania.
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If, during a tax period, the direct or indirect ownership of the capital or the voting rights of a legal person varies by more
than 20%, that legal person will be treated as if (i) sold a proportionate proportion of its assets with the value of
their market, and have the same assets repurchased with the same market value. In this way, the legal entity subject
to change of ownership will recognize a "taxable profit from the deemed sale of assets" and will calculate the profit
tax on it. This rule applies if the legal entity subject to change of ownership has realized in the previous 3 years an
average turnover of at least 500 million Lekë.
The wage tax is applied at the flat rate of 10%, after deducting the sum of € 240, as the tax threshold of the unpaid
wage.
The upper payroll segment level is taxed at the rate of 13%, since 2019 increased from 130,000 Lekë / month to
150,000 Lekë / month.
Profit tax is applied at the standard rate of 15% and with the reduced rate for tourist and information activities.
From January 2019 businesses registered for profit tax with turnover ranging from € 64,000 to € 112,000 will pay the
5% tax rate on profit instead of the previous 15%. Businesses with annual turnover ranging from € 40,000 to €
64,000 will pay 5% tax rate.
Investment incentives are provided in various forms implemented under the laws that define them, such as: (i) low
tax rates (5%) without prerequisites; (ii) a special scheme for farmers; (iii) reduced VAT rates for tourist and
information services; (iv) the economic sector excluded from VAT (hydrocarbon search); (v) tax exemption for 10
years for 4-5-star tourist hotels; (vi) tax-benefit relief based on investment projects on a case-by-case basis such as
infrastructure construction, tourism, clothing industry, oil production and new ventures; (vii) duplication of
spending on research and development investments in the free economic zones.
The tax loss can be carried forward up to 3 consecutive tax years and is available as a deduction for any income for
those years.
Foreign tax credit is limited to the amount of taxation in Albania for the income earned.
Thin capitalization applies to the level of recognizing the deductible interest on loans not exceeding 4: 1 of the
debt / equity ratios and exceeding the net interest rates by 30% on the profit before EBITDA is unrecognized for
taxation as an expense.
Property tax on construction projects used for business purposes is applied (a) 4% -8% of the sale price per m² for
residential and commercial buildings, (b) 2% -4% over the investment value for the capital and 1% -3% for other
municipalities, for tourism, agroindustry, industry, for personal housing purposes and for public purposes (c) 0.1%
of the investment value for infrastructure projects for the construction of national roads, airports, ports etc.
The transfer of ownership of immovable property is applied at the rate of 2% of the sale price for immovable
property, except for buildings with a tax of 2.4 € / m² up to 16 € / m².
The inheritance and transfer tax are applied to the transaction value at the rate of 15%.
A new anti-avoidance rule is in effect since January 2019, where the tax administration is given the right not to
accept suspected transactions based on restrictive criteria for the parties involved in transactions.
VAT is applied at a standard rate of 20%, while the reduced rate is 6% (electric minibuses, tourist hotels, advertising
for audio-visual media, books, accommodation and restaurants for agro-tourism units). The VAT registration
threshold is € 16,000. Some activities like licensed professionals do not have a turnover threshold for VAT
registration. The activity of agricultural producers has a threshold of € 40,000 to be registered on VAT. VAT
exemptions include some goods and services. Exports are at 0% VAT rate.
The compulsory social and health security contributions are in total 27.9%. The employer pays directly from his
account the salary that gives the employee contributions to the pensions and inability to work (15%), the
contribution to health (1.7%). The employer retains the gross salary and pays the employer's pension contributions
and disability (9.5%), the health contribution (1.7%).
Payments are made at the Albanian LEK (ALL), the local currency.
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NEW! FISCAL PACKAGE, 2020 *
The Fiscal Package 2020 envisages some changes in the fiscal legislation. Among the main changes are:
Income taxes
- Incentivization of the vehicle industry sector by reducing the profit tax rate to 5%, for legal entities that exercise
economic activity in this industry.
- Promoting sports, by presenting its positive impact on society. For this project, fiscal incentives are proposed for
the possibility of taxation on the personal service of bonuses given to athletes, or sports teams part of sports
federations recognized by the relevant legislation. Also, for legal entities, for the realization of the gain of experience
older than 100 million ALL, the amount sponsored in the work of sports, of recognition as a discount purchase, for
easy effect of calculating the profit tax, you can find more three times the amount
sponsored.
- Carrying losses for a 5-year day for taxpayers, who invest in business projects with Changes over 1 billion ALL.
- Harmonization of Law no. 8438 no. 8438, dated 28.12.1998, "On the direct tax", amended by the law of "On the
invoice and operation of traffic monitoring"
National taxes
- specifying the value of the vehicle for the effect of the criteria that a vehicle must meet to be considered a luxury
vehicle, amortizing the value of the vehicle with 10% of the remaining value; - changes in the penalty in order to
unify the penalty for late payment for the annual tax on used vehicles; - increase of the commission that benefits
DPSHTRR, by 5 (five) percent for the initial registration tax and the annual tax for luxury vehicles ”; - increasing the
category of persons with disabilities to be exempt from the annual tax on used vehicles. - exemption from paying
the annual tax on used vehicles, “Early vehicles of historical interest and collection according to the legal and sub-
legal acts in force”.
Tax Procedures, Value Added Tax
The changes in the Laws: "On Tax Income" and "On Value Added Tax" are mainly related with the drafting and
approval of the law "On fiscalization". So, there are procedural changes related to it. At the same time, some
administrative violations and levels of penalties have been reviewed in order to facilitate of their practical
application.
The effects of fiscal policies on the 2020 budget
• Programmed increase of cigarette excise. Annual effect +750 million ALL.

• Adoption of a law on housing revaluation. The estimated value for 2020 is +4 billion ALL.
• Incentivization of the automotive industry sector by reducing the profit tax rate to 5%, for legal entities that
exercise economic activity in this industry. Currently we have no effects that can be calculated on budget revenues
• Exemption from personal income tax of bonuses given to athletes or sports teams part of sports federations
recognized by the relevant legislation. The effect will be minimal depending on the results achieved
• Legal entities, which realize annual taxable profit over ALL 100 million, sponsored amounts in the field of sports,
known as deductible expenses, for the purpose of calculating profit tax, are deductible as much as three times the
sponsored amount. The calculations are theoretical, as those companies that will finance the sport need to be
identified.
• Carrying losses for a period of 5 years for taxpayers, who invest in business projects worth over 1 billion ALL.
Effects cannot be calculated.
• Specifying the value of the vehicle for the effect of the criteria that a vehicle must meet in order to be considered a
luxury vehicle, amortizing the value of the vehicle with 10% of the remaining value; The change is procedural
• Increase of the commission that benefits DPSHTRR, of 5 (five) percent for the initial registration tax and the
annual tax for luxury vehicles”;
• Increasing the category of persons with disabilities to be exempt from the annual tax on used vehicles. Minimal
effects.
• Exemption from paying the annual tax on used vehicles, "Early vehicles of historical interest and collection
according to the legal and sub-legal acts in force". Minimal effects
* as explained by experts of Budget and fiscal issues in Ministry of Finance and Economy
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2. BOSNIA - HERZEGOVINA
Bosnia and Herzegovina comprise tax administration 4 structures that implement the tax legislation: Indirect Tax
Authority; the Tax Administration of Bosnia and Herzegovina; the District Administration of Brcko; the Tax Administration of
Republika Srpska. From all of tax jurisdictions, two of them are the main: Federal Tax Administration of Bosnia and
Herzegovina and Tax Administration of Republika Srpska. Legal changes and the legal framework are mostly a
reference for implementation of the Bosnia and Herzegovina tax administration. The regulatory framework between
administrations of different jurisdictions has harmonization, but with certain differences regarding direct taxes.
The accounting and financial reporting rules under the Law on Accounting and Auditing are applicable under
IAS and IFRS throughout the territory of Bosnia and Herzegovina.
The place of the fiscal residence is determined based on the registration of a business as a legal entity, or where it
has the principal place of business by applying the criteria of permanent residence, or whether they are subject to
withholding tax. Repatriation of post-tax profit is permitted.
Taxation of a fiscal resident is done by taking into consideration incomes generated within and outside the country.
Non-resident companies are only taxed for incomes deriving from the activity within the country's jurisdiction.
Dividends are taxed at a flat rate of 10%. For dividends paid to non-resident companies, 5% and 10% are taxed.
Dividends, which benefit from business branches within the same fiscal jurisdiction are exempt from profit tax.
Meanwhile, dividends obtained from foreign sources are included in taxable income. Fiscal residents are allowed to
credit the tax paid abroad.
Profit tax is applied at the rate of 10%.

A consolidated statement of financial statements is permitted, provided that one company owns over 50% of
the shares of the other.
Investment incentives, (a) a 50% reduction in profit tax if a company invests over 25.5 million Euros on
production assets, (b) 30% reduction in profit tax if it invests over 50% of the value passing through profit before
tax for production, (c) double-digit recognition of wage costs for new employment lasting beyond 12 months.
Tax losses can be carried forward for a period of 5 years. Losses can be reduced by the profit of the following year.
Capital gains are taxed at a 10% tax rate. A tax rate of 0% is applied to resident businesses and individual that are
nonresidents.
Deductibility on individual allowable expenses are about 1,840 Euros per year. Other permissible discounts are
included for other family members for mortgage interest and for some health services. In the Srpska Republic the
individual allowable expenses are 3,070 Euros per year and 460 Euros for each individual of the family. Other
permitted expenses are voluntary social security payments in the amount of 610 Euros per year.
The inheritance and gift tax are set at regional level and range from 2% to 10%, as in the case of determining the
market value.
The sale of immovable property is subject to the taxation of the transfer of ownership right located at the regional
level, varying from 0.05% to 0.5% of the transaction value, according to the open market reference. Responsible for
paying this tax may be both the seller and the buyer. This responsibility is defined by the rules established by the
regions.
VAT is applied throughout the country of Bosnia and Herzegovina with the same rules and exceptions. The
standard VAT rate is 17% for 2019.
The VAT registration threshold applies to businesses and individuals who transact on the value of € 25,560 per year.
However, VAT registration can be done voluntarily, even if an annual turnover is not above the threshold set.
VAT, public services, health services and financial services are excluded from VAT. Exports are taxed at a rate of
0%.
Payments are made at the Bosnian Mark (BAM), the local currency.
88
3. KOSOVO
The tax system in Kosovo consists of a set of tax laws and administrative instructions, including: (a) Corporate
Income Tax (CIT), (b) Personal Income Tax (PIT), (c) Value Added Tax (VAT), (d) Customs Obligations, (e)
Excise Taxes and Special Provisions, Pricing Transfer, and Double Taxation Avoidance Agreements.
Accounting and financial reporting rules are applicable under the Kosovo Accounting Standards, based on IAS
and IFRS. Taxpayers with gross annual income of € 50,000 or more and those with annual gross income of less than
€ 50,000 who opt to be taxed on the basis of real income keeps books and records compliant with the requirements
set out in the Law for Corporate Income Tax and the Law on Tax Administration and Procedures.
The fiscal residence is determined according to the principles of the OECD permanent residence.
Corporate Income Tax applies to corporate taxable income. The standard rate of Corporate Income Tax is 10% of
taxable income. Foreign tax credit is allowed. Taxpayers with annual gross income of € 50,000 or less are taxed at a
rate of 3% (for activities such as trade, transport, agriculture and similar commercial activities) or 9% (for service,
professional, crafts, entertainment and similar). Taxpayers with annual gross income over €50,000 are taxed at 10%
in taxable income.
Personal income tax is progressive. Income up to 960 Euro / month is not taxed. For income from 961 Euro /
month - 3,000 Euro / month are taxed at 4%, from 3,001 Euro - 5,400 Euro / month are taxed at 8% and over
5,400 Euro / month are taxed at 10%
Taxable income for a tax period is based on the difference between the gross income received and receivable
during a tax period and allowable deductions relating to such gross income.
The tax loss can be carried forward up to 4 (four) consecutive tax years and is available as a deduction for any
income for those years. Carrying out a loss is not permitted if the business has an ownership change of more than
50% or if a personal business enterprise is changed to another business form (legal entity, partnership or similar).
The tax system has not tax incentives.
The taxpayer that pays the lease keeps the tax at source 9% at the time of payment or lending.
Taxpayers who make payments to non-business physical persons, farmers, farmers, recycler materials, mountain
fruit, medicinal plants and the like, at the moment of payment, withholding tax at the rate of 3% in gross pay
Capital gains are taxed at a 10% tax rate.
Insurance companies (who make insurance or reinsurance of life, property, and other risks) pay 5% tax on gross tax
receipts (instead of Corporate Income Tax).
The employer, who is the principal employer of the employee, withholds a sum of tax for the respective period of
salary payments. An employer who is not the principal employer of the employee, withholds the amount of 10% of
the taxable wages for the tax period.
Pensions paid by, or in the interest of, the Kosovo Pension Savings Trust or an authorized supplementary pension
fund regulated by the legislation on pension contributions, as well as health insurance under the Health Insurance
Law, are subject to withholding tax from the payer of such pensions or of such health insurance on the rates
provided for in the relevant legislation on Personal Income Tax.
VAT is scaled up in two rates: the standard rate of 18% and the reduced rate of 8% of the value of imported
supplies and domestic taxable supplies for basic food and electricity, with the exception of exempt supplies and
supplies treated as exports.
The customs tax is 0% - 10%. Most of the raw materials are released. Also, most of the equipment for production
is exempt. Some of the raw agricultural materials (such as seeds, etc.) and equipment are exempt from Customs and
VAT.
Payments are made at the Euro (EUR), the European Union currency
89
4. MONTENEGRO
Legal business forms are (a) joint-stock companies, (b) limited liability companies, (c) partnerships, (d) branches
and representative offices.
Accounting and financial reporting rules are applicable under IAS.
The place of fiscal residence is determined based on registration as a legal entity in Montenegro, or if controlled
and managed in Montenegro. Residence is determined if the criteria for permanent residence are met.
Dividends paid between residents are subject to withholding tax at the rate of 9% but are not included in taxable
income. Dividends earned from the distribution of earnings from outside Montenegro are included in taxable
income, but the resident in this case may require the lending of the tax paid abroad.
Capital gains from a resident as well as nonresident are taxed at a 9% tax rate.
those years.
Profit tax applies at a flat rate of 9%. Companies and branches are obliged to pay the profit tax in Montenegro.
Tax incentives. Manufacturing companies in an undeveloped area (not for agriculture, transport, shipbuilding, steel and
fishery) benefit from the profit tax advantage for 8 years after the start of the business. Exemption is limited to Euro
200.000
Withholding tax applies at a flat rate of 9% for bank interest, rent, commercial services, consultancy, and auditing,
copyright, patent, technical services.
Property tax applies to the owner / user with the rates of 0.25% to 1%. For construction companies there are
limited exceptions to the payment of this tax.
The transfer of the right of ownership of immovable property and inheritance is taxed at the rate of 3% of the
transaction value. This tax does not apply if the transfer of property is realized as a gift or inheritance to children,
parents or spouses.
In Montenegro, no thin capitalization policy applies, unlike some neighboring Western Balkan countries.
Salary income is the subject of progressive taxation at rates of 9% and 11% (up to ende of 2019). The dividing line
for implementing progressive rates is the average salary (€ 750 per month). Below this threshold, the tax rate is
applied by 9% and over this threshold is applied by 11%.
VAT is applied at a standard rate of 21%, while the reduced rate is 7%. The VAT registration threshold applies to
businesses and individuals who transact on the value of €18,000 per year. However, VAT registration can be done
voluntarily, even if an annual turnover is not above the threshold set. VAT exemptions include healthcare, financial
services, including insurance, education.
Exports are taxed at a rate of 0%.
Compulsory social and health security contributions are paid for contributions to pensions and disability at work
(20.5%), contribution to health (12.8%) and unemployment benefits (1%), including employer and employee, where
the employer pay directly 8.3% and for the employee is withheld 24% of contributions and are paid directly from
employer on behalf of employee. The maximum annual contribution rate for contributions is no more than €
53,371.
Payments are made at the Euro (EUR), the European Union currency
90
5. NORTH MACEDONIA
Legal business forms are (a) public companies, (b) joint-stock companies, (c) limited liability companies, (d)
partnerships, (d) branches and representative offices.
The place of the fiscal residence is determined if it is registered under Macedonian law, or if it has a legal
headquarters as a legal entity, applying the criteria of permanent residence.
Dividends payable between resident companies are subject to tax exemption. The dividend is taxed at the rate of
10%.
Capital gains distributed by companies are treated as taxable income and taxed at 15%, which are applied on 70%
of profit.
From January 2019, income from property rights, industrial rights, interest, leasing and capital gains, gambling, insurance are taxed
at the rate of 15%, up 50% from earlier year.
those years.
Based on rules of thin capitalization no interest expense is recognized in cases where shareholders owning 25% or
more voting shares receive loans exceeding 3 times the value of their shares in the company.
The re invested profit is not taxed, as an incentive tax measure for easing the investments.
Northern Macedonia abolished the implementation of the 10% flat tax on personal income after 10 years of
practice. According to the Law on Progressive Personal Income Tax, from January 2019, Personal monthly income,
up to the amount of € 1,460 is taxed at the rate of 10%. Personal monthly income exceeding € 1,460 is taxed at 18%.
This level of taxation affects no more than 1% of taxpayers. Revenues below this monthly threshold are taxed as
before at the rate of 10%.
Employees' salaries are allowed to be deducted as deductible expenses for tax purposes 1,555 Euros per year, or 129
Euro / month.
The inheritance and transfer tax are applied to the transaction value at rates ranging from 2% to 5%, depending
on the proximity of the relationship between the seller and the buyer.
The sale of immovable property is subject to the transfer tax of local ownership right, varying from 0.1% to 0.2%
of the transaction value.
VAT is applied at a standard rate of 18%, while the reduced rate is 5% for pharmaceutical products, food,
information technology and public transport. The VAT registration threshold is € 16,200. However, VAT
registration can be done voluntarily, even if an annual turnover is not above the threshold set.
VAT exemptions include healthcare, financial services, including insurance, education. Exports are taxed at a rate of
0%.
Social and health security contributions are paid by the employer on behalf of the employer for a total amount
of 27%. This obligation includes 7.3% pay for health insurance, 0.5% for additional health insurance, 18% for
retirement and disability, and 1.2% for unemployment.
Payments are made at the Macedonian Denar (DEN), the local currency.
91
6. SERBIA
The legal forms of businesses are (a) public companies, (b) joint-stock companies, (c) limited liability companies,
(d) partnerships, (e) public companies, (f) branches and representative offices.
Consolidation of the financial statements is functional for Serbia, where the company seeking to report in
consolidated form can choose one of the group companies. The group is considered as such when at least one
company owns at least 75% of the shares of the other.
The place of fiscal residence is determined based on registration as a legal entity in Serbia, or if controlled and
managed in Serbia. Residence is also determined if the criteria for permanent residence are met.
The fiscal resident is taxed on income earned by him, both domestically and abroad.
Dividends received by Serbian resident companies are taxed at source at the rate of 0% and resident individuals at
15%. Dividends paid to a non-resident individual are taxed at source at the rate of 15%. Dividends received by non-
resident companies are taxed at the rate of 20%.
Bank interests, patents, copyrights paid to a non-resident are taxed at source at a rate of 20%.
Capital gains from a resident are taxed at 15% tax rate, while for non-residents taxed at 20% tax rate.
The wage tax is applied at the flat rate of 10%, after deducting the sum of € 127, as the wage tax threshold.
Purchase of shares by employees of the company with their salary is exempt from personal income tax, but is
subject to the criteria set out in the law.
Profit tax is applied at the standard rate of 15%.

Profit Tax exemption for 10 years for large investors who finance projects worth over € 8.47 million in real estate
and employ 100 employees during the investment period, (b) double recognition of the cost of research and (d)
companies that invest in capitalization of new companies may credit the tax up to 30% of the amount invested, but
not more than 800,000 Euro, (e) the transfer of property by an individual to an entity that implements a concession
right is exempt from taxation if the value of the concession exceeds 50 million Euros.
those years.
Foreign tax credit is limited to the amount of taxation in Serbia for the income earned.
Thin capitalization applies to the level of recognition of deductible interest on loans that do not exceed 4 times
the capital of the company and 10 times for the banks and leasing companies.
Personal income tax is levied on a progressive scale starting at 10% for income from salary, with 15% for income
from capital and 20% from rental income, wealth (royalty) and other income.
VAT is applied at a standard rate of 20%, while the reduced rate is 10%. The VAT registration threshold is € 67,700.
Taxpayers with taxable value under € 453,450 declare each month, while those who exceed this taxable annual value
declare once in 3 months.
VAT exemptions include some goods and services. Exports are exempt from VAT.
The compulsory social and health security contributions are in total 37.05%. The employer pays directly from
his account the salary that gives the employee contributions for pensions and inability to work (12%), contribution
to health (5.15%). The employer retains the gross salary and pays on behalf of the employee the contributions for
pensions and disability at work (14%), the health contribution (5.15%) and the unemployment allowance (0%)
The property tax for businesses that apply the IAS tax rate on real estate is 0.4%.
The transfer of ownership of immovable property is applied at the rate of 2.5%.
Payments are made at the Serbian Dinar (DIN), the local currency.
92
Tables for Contributions and Beneficiaries in Albania according to the 2020 Budget
REVENUES AND EXPENDITURES OF BUDGET FOR PENSIONS IN 2019 - 2020 BILION LEK
TITLE 2019 2020 DIFFERENCE

REVENUES* 84,342 88,609 4,267
From the contributions of legal and natural persons 81,332 85,569 4,237
From farmers' contributions and voluntary ones 3,010 3,040 30
EXPENDITURES 133,087 139,988 6,901
Costs for benefits and administration 130,637 137,468 6,831
Retirement policy contingency 2,450 2,520 70
Budget funding 48,745 51,379 2,634
Funding without pension policies 46,295 48,859 2,564
Source: MoFE
* The ratio of contributions received with the transfer from the Budget is 1.8
ISSH BUDGET IN TERMS OF BENEFITS IN 2019 - 2020

EMËRTIMI 2019 2020 DIFFERENCE
NUMBER OF BENEFICIARIS
OBLIGATORY SOCIAL INSURANCE FOR: 660,667 670,961 10,294
TEMPORARY DISABLED EMPLOYEE 2,076 2,286 210
MATERNITY 18,356 16,726 -1,630
PENSIONS 639,817 651,524 11,707
FROM THESE SENILITY PENSIONS 515,984 534,661 18,677
ACCIDENTS IN WORK OF PROFESSIONAL DISEASE 61 60 -1
COLLECTION OF CONTRIBUTIONS FROM FERMERS AND VOLUNTEERS 357 364 7
0
SUPPLEMENTARY CONTRIBUTIONS 56,742 59,722 2,980
SUPPLEMENTARY SOCIAL CONTRIBUTIONS 3,051 3,471 420
SUPPLEMENTARY CONTRIBUTIONS FROM MILITARY AND POLICE 27,776 29,842 2,066
PROFESSOR ACADEMIC TITLE 921 990 69
OILMAN STATUS 7,631 7,784 153
METALLURGIST STATUS 3,000 -3,000
SPECIAL TREATMENT OF UNDERGROUND EMPLOYEE 14,365 14,576 211
0
COMPENSATION PROGRAMS AND SPECIAL TREATMENTS 547,588 573,337 25,749
INFLATION COMPENSATION 520,345 549,256 28,911
STATE SPECIAL PENSIONS 274 276 2
PENSIONS BONUS FOR VETERANS 3,050 2,844 -206
BONUS FOR WORK INVALIDS 522 1,050 528
COMPENSATIONS FOR INCOMES OF PENSIONERS 337,907 343,098 5,191
SOCILA PENSIONS 2,884 2,982 98
STATUS OF MARTIR OF NATION 345 346 1
SPECIAL TREATMENT OF PILOTS IN RETIREMENT 233 231 -2
SPECIAL TREATMENT OF EMPLOYEES IN THE MILITARY INDUSTRY 455 362 -93
SPECIAL TREATMENT FOR SUBMARINE MILITARY 61 58 -3
BURIAL EXPENDITURES 19,419 15,932 -3,487
Source: MoFE
93
TAX BURDEN in EUROPE and EU in 2018
TAX ON PRODUCTION
TAX ON INCOMES AND WEALTH
AND IMPORTS
ON PERSONAL AND
ON
TOTAL VAT TOTAL CORPORATE
HOUSEHOLDS
INCOME
EUROPE 13.6 7.1 13.2 9.5 2.7
EU 13.3 6.9 13 9.5 2.5
DIFFERENCE -0.3 -0.2 -0.2 0 -0.2
Source: Eurostat, MoF
TAX RATES IN BALKANS IN 2020 in %

SOCIAL AND HEALTH
PERSONAL WITHHOLDING TAX ON:
PROFIT CONTRIBUTIONS INHERITANCE PROPERTY
COUNTRIES VAT
TAX
INCOME
TAX TAX
TAX CAPITAL,
DIVIDEND INTEREST TOTAL EMPLOYER EMPLOYEE
SERVICES
NORTH MACEDONIA 5; 18 10 10; 18 0; 10 0; 10 0; 10; 15 27 27 0 2-5 0.1 - 0.2

KOSOVO¹ 8; 18 3; 9; 10 0; 4; 8; 10 0 10 5; 10 10 5 5 0 0.05 - 1
MONTENEGRO² 7; 21 9 9 - 11 -15 9 0; 9 0; 9 32.3 8.3 24 3 0.25 - 1
ALBANIA³ 6; 20 0; 5; 15 0 - 13 - 23 8 15 15 27.9 16.7 11.2 15 1-8
BOSNIA-HERZEGOVINA* 0; 5 0; 10 0; 10 41.5 10.5 31
17 10 10 2; 10 0.05 - 0.5
REPUBLIKA SRPSKA 0; 10 0; 10 0; 10 33 0 33
SERBIA 10; 20 15 10 - 25 15; 20 15; 20; 25 15; 20; 25 37.05 17.15 19.9 1.5 - 2.5 0.3 - 2
OTHER BALKAN COUNTRIES (MEMBERS OF EU)
BULGARIA 9; 20 10 10 0; 5 8; 10 10 32.7 - 33.4 18.92 - 19.62 13.78 0.4 - 6.6 0.01 - 0.45
GREECE⁴ 6; 13; 24 28 22 - 45 10 15 15; 20 41.06 25.06 16 1 - 10 0.1 - 0.55
CROATIA 5; 13; 25 12; 18 24; 36 12; 20 12; 15; 20 12 - 36; 15 37.2 17.2 20 3-4 3
ROMANIA 5; 9; 19 16 16 5 16 16 37.25 2.25 35 1 0.08 - 1.3
Source: Deloitte, MOF
Notices and Changes of tax rates in 2019-2020
Incomes over Euro 50.000 in commerce, transport, agriculture could choose to pay 3% on gross income, meantime for services, entertainment, proffessions with 9%
² Local authorities apply a overtax of 15% on employee salary. It is decreased with 2% social contribution of employer
³ From 1 January 2019 the dividend tax is 8% (it was 15%)
⁴ From 1 January 2019 profit tax rate is decreased with 1% (it was 29%); dividend tax is decreased to 5% (it was 15%)
* Federation of Bosnia and Herzegovina
94
REFERENCE
ATK - Raport vjetor 2018
ATK - Plani Vjetor i Punës për vitin 2018, 2019
Bashkia Tiranë - Bilanci i përgjithshëm i të hyrave dhe të dalave, 2019
Bruegel - The Western Balkans on the road to the European Union - Dabrowski Marek and Myachenkova Yana - Policy
Contribution Issue n˚04 | February 2018
CE - A credible enlargement perspective for and enhanced EU engagement with the Western Balkans - 02.2018
Deloitte – Albania in a snapshot - October 2019
European Fund for the Balkans and Democracy for Development - Economic Issues in the Western Balkans, Policy
Brief 03/19, May 2019
European Commission - Data for the EU Member States, Iceland and Norway - Taxation Trends in the European Union
- 2019 Edition
Eastern European Economix - Progressive Tax Reforms in Flat Tax Countries - Salvador Barrios, Viginta Ivaškaite-
Tamošiune, Anamaria Maftei, Edlira Narazani & Janos Varga, 2019
Eurostat - Taxation in 2018 - Tax-to-GDP ratio up to 40.3% in EU - A one-to-two ratio across Member States - 166/2019 -
30 October 2019
http://vendime.al
http://researchgate.net
http://portavendore.al
http://orbitax.com
IMF - Country Reports for western balkan countries, Article IV - 2018, 2019
IMF- Regional Economic Issues Special Report - The Western Balkans: 15 Years of Economic Transition - Zuzana
Murgasova, Nadeem Ilahi, Jacques Miniane, Alasdair Scott, Ivanna Vladkova-Hollar, and an IMF Staff Team, 2015
IMF - Public Infrastructure in Western Balkans - Ruben Atoyan, Dora Benedek, Ezequiel Cabezon, Giuseppe Cipollone,
Jacques Miniane, Nhu Nguyen, Martin Petri, Jens Reinke, and James Roaf
Heritage - Index of Tax Freedom – 2018, 2019
Ministria e Financave, Buletini Fiskal (ne tremujore)
INSTAT, ASK - PBB sipas qarqeve/rajoneve viti 2018, 2019
Ministria e Finacave dhe Ekonomisë - Treguesit e Borxhit 2018, 2019
Ministria e Finacave dhe Ekonomisë - Statistika Fiskale Janar - Dhjetor 2018, 2019
Ministria e Finacave dhe Ekonomisë – Treguesit analitikë fiskalë 2019
Ministria e Financave te Republikës se Kosovës - Treguesit makro - Buxhetet 2018 - 2019
Ministria e Financave dhe Transferave - Korniza Afatmesme e Shpenzimeve 2019-2021
Ministria e Financave dhe Transferave – Buxheti i Kosovës 2020
Ministria e Financave e Republikës së Malit të Zi - Raporte fiskale 2020
National Bank of Serbia - Macroeconomic Developments in Serbia, February 2020
OECD - Tax Effects on Foreign Direct Investment, 2018
OECD - Tracking Special Economic Zones in the Western Balkans, 2018
OECD - Unleashing the Transformation Potential for Growth in the Western Balkans - Global SEE - 2019
95
PwC-Paying taxes - 2018, 2019, 2020
Raportet e buxheteve komunale - Kostot e buxheteve bashkive 2018
RCC (Regional Cooperation Council) - SEE 2020: Annual Report on Implementation for 2019
UNCTAD – World Investment Report 2019 – Key messages and overview
Wiener Institut für Internationale Wirtschaftsvergleiche - Looking Back, Looking Forward: Central and Eastern
Europe 30 Years After the Fall of the Berlin Wall - Richard Grieveson (coordinator), Vladimir Gligorov, Peter
Havlik, Gábor Hunya, Olga Pindyuk, Leon Podkaminer, Sándor Richter and Hermine Vidovic - Essays and
Occasional Papers 4, Novemeber 2019
Wiiw, Western Balkans Labor Market Trends 2019
World Bank, Statistical data 2018, 2019
World Bank - Rising Uncertainties, Western Balkan Economic Regular Report Nr.16, Fall 2019
96
TAX BURDEN
IN ALBANIA, KOSOVO AND WESTERN BALKANS,
2020
Fiscal burden according regions in ALBANIA and KOSOVO in 2019
Public investments, FDI in WESTERN BALKANS
Index GINI and inequality
Distribution of fiscal burden

Tax to GDP ratio 2019
Tax burden according to regions in Albania and Kosovo in 2019
Distribution of tax burden based on the destination of expenditures
Investments and tax rates in the Western Balkans
GINI Index and Inequality
Dita e Lirisë Fiskale në Shqipëri, Kosovë dhe Ballkanin Perëndimor në 2020

Tatimet ndaj Prodhimit të Brendshëm
Barra fiskale sipas rajoneve/regjioneve në Shqipëri dhe Kosovë në 2019
Shpërndarja e barrës fiskale sipas destinacionit të shpenzimeve
Investimet dhe Normat Tatimore në Ballkanin Perëndimor
Indeksi GINI dhe pabarazia
97

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ALTAX MARCH 2020 altax@altax.

Report of taxes, fees and social contributions to GDP

ALBANIAN FISCAL STUDIES

Tax Freedom Day in Albania, Kosovo and Western Balkans in 2020

WE GIVE YOU THE EXPERIENCE, NOT ONLY THE SERVICE!

ALBANIAN FISCAL STUDIES

Publication and distribution

JEL Classification: H20, H26

TERMS OF USE AND DISCLAIMER

WE HELP YOU TO PAY TAXES!

NE JU NDIHMOJMË TË PAGUANI TAKSAT!

ASK Agency of Statistics of Kosovo

NAS National Accounting Standards

The structure of this document consists of five parts.

1 Albania, Serbia, Kosovo, Montenegro, North Macedonia, Bosnia - Herzegovina

1.1. Western Balkans and Macroeconomic Overview in 2019

The GDP of the Western Balkans in 2019 is

GDP growth rate in 2018, according to estimates,

Participation rate of labour forces and structure of labour market, 2019

Structure of labour market Partecipation rate of labor forces

ALBANIA 2.9 -1.9 63.7 11.4 -15.2 1.8 7.8

1.1.1. Albania's macroeconomic and fiscal indicators

6 Kuadri makroekonomik dhe fiskal 2021-2023, VKM 53, datë 29.01.2020

1.1.2. Macroeconomic and fiscal indicators of Bosnia and Herzegovina

1.1.3. Kosovo's macroeconomic and fiscal indicators

7 IMF forecast and estimates an economic growth up to 4.2%

1.1.4. Montenegro's macroeconomic and fiscal indicators

The country's trade deficit (export-import) is as much as ¼ of GDP.

1.1.5. The macroeconomic and fiscal indicators of North Macedonia

1.1.6. The macroeconomic and fiscal indicators of Serbia

1.2. Budgetary and tax revenues in the Western Balkans, 2018-2019

Tab. 3 BUDGET REVENUES IN WESTERN BALKANS IN 2018-2019 % of GDP

Tab.5 TAX BURDEN IN WESTERN BALKANS IN 2018 - 2019 % of GDP

WESTERN BALKANS 30.4 30.3

Tab.8 TAX RATES of Direct Taxes in WESTERN BALKANS in 2020 in %

Tab.9 VAT RATES in WESTERN BALKANS in 2020 in %

EMPLOYER 27 5 10.3 10.5 0 17.15 16.7

Tax rates for withholding taxes are:

Below this average rate are listed 3 countries:

- Kosovo (10%), Northern Macedonia (27%), Albania (27.9%);

Above this average rate is listed 3 countries15:

TAX RATES STRUCTURE IN WB6, 2020

14 for employer and employee

TAX BURDEN IN FLAT TAX COUNTRIES AND PROGRESSIVE TAX

PROGRESSIVE TAX FLAT TAX

SOCIAL EXPENDITURES IN WB6 IN 2018-2019

SOCIAL EXPENDITURES 2018 SOCIAL EXPENDITURES 2019

Tab.12 DIFFERENCE of INCOME per CAPITA in WB6 in 2012 and 2019 in %

ALBANIA 7.8 MONTENEGRO

CORPORATE PROFIT TAX RATES in WB6 in 2019-2020

Tab.14 INDEX OF COMPETITIVENESS IN WESTERN BALKANS IN 2019 points

Macroeconomic Product Labor Financial Market Business Innovation

MONTENEGRO 53 83 57 104 65 53 42 26 44 134 50 69

1.9. The need for effective fiscal reform in Western Balkans

They were obviously wrong.

The real tax reform is not tax cuts.

19 ALTAX - Tax Burden in Albania, Kosovo and Western Balkans 2019

2.1. Tax burden according to taxes