TAXES AND TARIFFS

1. GENERAL REVIEW

The tax and tariff system in the Republic of Albania consists of a package of laws, guidelines, regulations, tax agreements with other countries, which reflect all kinds of taxes applied in Albania, their levels and the procedures to set, change and remove taxes , tax estimation and collection procedures, as well as the forms and methods of tax control.

1.1 Tax legislation

Tax legislation is composed of national and local tax laws.

The law No. 8560, dated 22.12.1999 “On tax procedures in the Republic of Albania ” , amended and changed with the Fiscal Package 2005, defines the general rules for:

•  Taxpayers' registration;

•  Estimation of tax obligations;

•  Tax collection through ordinary and extraordinary procedures;

•  General offences and fines;

•  Taxpayers' control;

•  Taxpayers' or third parties' obligation to provide information.

The other tax laws are specific ones describing special types of national or local taxes and tariffs.

•  Amended Law No. 8438, of 28.12.1998 “On income tax” , which covers incomes taxes of individuals, companies and traders;

•  Amended Law No. 7928, of 27.4.1995 “On value added tax ”

•  Amended Law No. 8976, of 12.12.2002 “ On excises” .

•  Law No. 8977, of 12.12.2002 “On the tax system in the Republic of Albania ”

•  Law No. 8978, of 12.12.2002 “On local tax on small business”

•  Law No.8982, dated 12.12.2002 “On local and taxes tariffs”

•  Law No. 8701, of 01.12.2000 “On games of fortune, casinos and hippodromes”.

1.2. Definitions

According to the Albanian legislation:

Tariff is a payment to the state budget of an obligatory and irrevocable nature, which also includes the administrative fines as well as interests for overdue payments as defined by law.

In other words tariffs are obligatory payments that are made by different taxpayers, and are used to cover public expenses, in order for state to accomplish its functions. Taxes do not derive directly from the state ownership or its ownership rights, but from the wealth and economic power of private individuals.

Two basic characteristics of the tariffs are:

•  Tariffs lack of the return condition and directly compensation. This means that in the case of tariffs one to one principle is absent which does not happen with other payments for example taxes

•  Tariffs are considered as incomes without definition. In the most general cases, destinations of usage of tariffs it is not specified.

Tariffs as the main and most relevant instrument of public incomes collection are divided in several categories. According to the Albanian legislation, taking into consideration the moment of generation and spending of incomes, tariffs are divided in two categories – direct tariffs and indirect tariffs. So far, based on such criteria, tariffs which are paid at the moment of the generation of incomes are considered as direct ones, while those which are paid at the moment of spending these incomes are called indirect tariffs.

Tax is a mandatory contribution to be paid by every person who directly benefits from a public service.

So, taxes represent a compensation for special public services provided to different individuals. These services are directly related to the needs of one or more citizens.

Some special characteristics of taxes are as follows:

•  Taxes are usually the source of monetary incomes of the local governments, communes, etc.

•  Public services for which taxes are paid, take into consideration also the voluntarily element, which is never present in the tariffs applications.

•  From the financial point of view, the role of taxes is less sensitive that the one of the tariffs. So taxes play an important on increasing local government's budget.

1.3. Summary

The following table provides a detailed description of taxes and tariffs in the Republic of Albania .

Law No.8982, of 12.12.2002 “On local tax system” changed also with the 2005 Fiscal Package provides the right of the local governments to impose, besides local taxes, also tariffs on various services, which are paid by the community of the local entity to the benefit of the municipality, commune or region.

As we will see in the coming chapters, some national taxes have been removed with the approval of the New Fiscal Package 2005: a) annual tax for vehicles tonnage per axis b) Tax on planes' take off, landing and stay at the airport are excluded from the list of national taxes.

According to the 2005 Fiscal Package, the tax for transferring immovable property rights will be active from January 1 st , 2006 .

1.4. General procedures on the tax administration

1.4.1. Procedures for imposing, changing and removing taxes

•  Imposing, changing or removing national and local tariffs or taxes are done by law.

•  Imposing, changing or removing local taxes is done upon decision of local government for as long as tax legislation allows.

1.4.2 Taxpayer's representative

•  Taxpayer's Representative is person chosen by the taxpayer to represent him in tax matters. The choice is made in accordance with Civil Code provisions.

•  Duly chosen taxpayer's representatives bear all the rights and obligations of the taxpayer, with the exception of cases otherwise provided by law. Taxpayers living outside the Republic of Albania must appoint a tax representative in Albania .

•  The fact that a representative makes a mistake in tax declaration and payment does not relieve the taxpayer from the responsibility for the error committed.

1.4.3. Tax agents

•  A tax agent is a person, not hired by tax offices, who, by this or any other tax system laws, is responsible for calculating, withholding taxes at the source and transferring the payment of taxes and tariffs onto the budget.

•  In compliance with his rights and obligations, the tax agent enjoys the same status as the taxpayer, unless otherwise provided by law.

•  The tax agent is obliged:

•  To calculate, withhold at the source and transfer onto the budget the sum of taxes and tariffs in due time and in the proper manner;

•  To keep records of incomes paid to taxpayers, taxes withheld and transferred onto the budget, including separate records for each and every taxpayer;

•  To provide tax offices with the necessary documentation to check the correctness of calculations made, withholding at the source and payment of taxes and tariffs;

•  To fulfill all other obligations defined by tax laws;

•  For failing to fulfill or unsatisfactorily fulfilling their obligations foreseen in tax laws, tax agents are held responsible in compliance with the procedures established by this law and other legal acts.

1.4.4. Tax responsibility (obligation to pay taxes)

•  A person's tax responsibility begins when the person is involved in an activity, or gains wealth, which contains taxable elements according to tax legislation provisions.

•  Tax responsibility ceases when a person is no longer involved with an activity or no longer owns wealth, which contains taxable elements and when he has paid all, taxes, tariffs, fines and interests owed.

1.4.5. Tax estimation

•  Tax estimation is the calculation that is done by the tax administration to find out the amount of tax obligation and the administrative fines and interests for overdue payments that a taxpayer is obliged to pay. The tax estimation is an obligation towards the state, payable to the budget, which is directly announced to the taxpayer in writing or via postal service.

•  Tax estimation for every obligation of the taxpayer is made according to tax laws in effect and on the basis of the following information:

•  Information contained in the taxpayers' tax statements; and,

•  Control materials and any other information recognized by tax administration.

1.4.6 Pre-writing of the right to determine tax obligation

•  The right of tax organs to check and correct the estimation of a tax obligation is pre-written 5 years after the obligation is created (tax payment or declaration deadline, regardless of the latest moment in time).

1.4.7. Alternative methods to determine tax obligation

•  The tax organs may redefine transactions to better reflect the real economic situation and they may not take into account the form of transaction in order to correctly define its content. The redefinition of transactions is done:

•  When the taxpayer, for a certain tax period, has not declared his own tax obligations, as required by special tax laws;

•  When, in the course of the control conducted by the tax organs, the documentation required to determine tax obligation is either missing or presents serious incompleteness, which does not allow for a real, transparent picture of taxpayers' situation and the calculation of their tax obligations.

•  When taxpayers distort the sales prices.

•  When the taxpayer performs cash sale-purchase transactions, which exceed the sum of 500,000 lek for the year 2004 and 300,000 lek for the years to come.

1.4.8 Receipts and payments

•  For every buy-sell transaction that amounts over 1 million Lek (ALL), taxpayers are obliged to make it through banks . These transactions cannot be made in cash (hand to hand).

1.4.9. Interests for overdue payments, the return of overpaid tariffs and reimbursement of VAT.

•  If a taxpayer does not pay his tax obligation within the timeframe specified by the tax legislation, he is obliged to pay an interest fee for overdue payment amount. The interest fee application is calculated from the day of the deadline until the day when the payment is made. All the subjects, which are subject to the Simplified Income Tax, are excluded from the payment of interest fees on overdue payments.

•  The interest rate for the overdue payments is 2% for the first month, and 1% for the coming months.

•  Interest fees for every overdue payment are calculated and collected as any other tax or tariff.

•  Interest fees on overdue payments are automatically payable, and cannot be amnestied or diminished from any authority. .

The interest rates for overdue payments have been changed in the 2005 Fiscal Package. These changes are made according to the law No. 9333, Date 06.12.2004 “For some changes and amendments in the law Nr. 8560, Date 22.12.1999 “On Tax procedures in the Republic of Albania . The interest rates for these overdue payments were 2% for the first month and 1.3 % for the coming ones. On the other hand the 2005 Fiscal Package does not state any minimal interest rate. With the old law this minimal rate was 5%.

•  When the paid sum of a tariff is more than the sum specified by the law, the taxpayer may ask its reimbursement. Tax administration is obliged to notify the taxpayer on the reimbursement of the sum or not within 60 days from the day the taxpayer has made a written request. Within this timeline must also take place the reimbursement. Taxpayers may also ask reimbursement of the VAT if they fulfill the legal conditions specified by the law “On VAT”, according to the procedures and deadlines specified in the same law.

•  The return of overpaid VAT and the reimbursement is done through passing the overpaid amount in the account of:

•  Payments for other tax obligations of the taxpayers;

•  Payments of ulterior tax obligations only with the approval of the taxpayer.;

•  The taxpayer .

•  If the reimbursement sum it is not returned in the one of the forms listed above within 60 days for the day the taxpayer has made a written request, than the tax administration is obliged to pay an interest fee calculated as stated above. .

As it is explained above, with coming into act of the Fiscal Package 2005, this article of the law, on “Tax Procedures in the Republic of Albania ”, includes besides the overpaid tariffs also the reimbursement of VAT. For more the deadline for the overpaid tariffs and reimbursement of VAT has changed from 30 days to 60 days.

1.4.10. Ordinary procedures for forceful tax collection

•  If a taxpayer fails to pay whatever amount of his tax obligation, the tax administration, through a written order, requests each bank holding from this taxpayer's account an amount, which value is in between :

•  the amount required to be held;

•  total amount of taxpayer bank account.

1.4.11. Extraordinary procedures to collect obligations forcefully.

•  For all taxpayers, who fail to pay their tax obligations even after the adoption of ordinary measures to collect tax obligations, tax organs start taking extraordinary measures, as follows:

•  Closure of taxpayer's economic activity until the latter has liquidated the unpaid obligation, but no later than 30 calendar days from the time of the closure.

•  Sequestration of property in cases when the taxpayer continues not paying his tax obligation even after 30 days from the closure of his activity have elapsed. Sequestration of property follows this order:

•  Movable property;

•  Immovable property.

•  If the above provisions are not sufficient for the collection of tax obligations, the head of tax department takes the following steps:

•  Files a statement with the Attorney's Office, on the basis of article 181 of the Penal Code

•  Asks relevant organs to block any transfer of taxpayer's property;

•  In all the cases, as an interested creditor, the tax organ may require the initiation of bankruptcy procedures, on the basis of law no.8901, of 23.5.2002 "On bankruptcy".

1.4.12. Prediction of unpaid obligations

•  The prediction deadline for an unpaid obligation is 6 years from the date when the tax estimation was officially announced to the taxpayer.

1.4.13. Appealing procedures

•  Every taxpayer has the right to appeal against:

•  evaluation procedures on which taxes and tariffs, interest rates and fines to be paid by taxpayers are calculated;

•  every decision of tax authorities on any complains of the taxpayers with regard to reimbursement of taxes and tax exemption

•  every legal act of tax authorities on the way taxes and tariffs are calculated, legal bases of taxes calculation as well as on every action of tax authorities;

•  every specific executive act with regard to a separate taxpayer.

•  Appeals should be presented in a written form according to the format defined in the respective instruction of the Minister of Finances and according to law “On tax procedures in the Republic of Albania ”

•  Taxpayers should present their appeals at the lower level of the appealing system within 30 days from the date they have been officially notified about the fact, object of the appeal.

•  The hierarchy for the appealing on tariffs and taxes, from the lowest level to the highest is: :

•  Chairman of the Commune/Municipality for local taxes and tariffs

•  GDT for national tariffs and taxes and also for other obligations administrated by GDT

•  Tax Appealing Commission for all kinds of obligations

•  Courts

•  An appeal cannot be taken into consideration in a higher scale of appealing before passing through the lower scales, except the cases predicted in the law “On tax procedures”

•  Taxpayer has the right to give explanations on different issues related to tax appeal. Tax appealing cannot be withdrawn if new facts that prove that the total amount of obligations is not enough. In any other case the taxpayer has the right to withdraw the tax appeal.

•  If the respective tax authorities do not deliver to the taxpayer the results of tax appeal verification within 30 days, the latter has the right to complain to the next scale of the appealing hierarchy.

The Fiscal Package 2005 and more concretely the law Nr. 9333, dated 06.12.2004 “On some amendments and changes in the law no.8560, dated 22.12.1999 “On tax procedures in the Republic of Albania ”, provides for some changes in the way of expression of all the above mentioned paragraphs. This law also provides some technical changes in the fourth paragraph. So far, the taxpayers would direct to the GDT only for the appeals regarding to VAT, now they can direct to this authority for every national tax and tariff administrated by the GTD. On the other hand, taxpayers may also direct their appeals on very tax and tariff, VAT included, to the Tax Appealing Commission. The old law provided Tax Appealing Commission as not responsible for the appeals related to VAT.

1.4.14. Taxpayers' right for information

•  When a legal court case starts against a taxpayer, he is entitled to examine all relevant documentation, except cases when it is important to protect the secrecy of public or private interests, as in the case of a third party's business secrecy or that of informer's identity. Refusal of examination requests requires a special executive decision from the General Tax Director.

1.4.15  Record keeping and declaration

•  Taxpayers are obliged to present periodical tax statements according the deadlines and the ways specified in the tax laws.

•  Tax authorities distribute, with no condition, to taxpayers once in 6 months the application form of the tax declaration. The fact that the taxpayer or his representative has not taken the application form does not mean that they are excluded from the obligation of presenting their tax declaration. Every one who has not taken the application form must request them in the tax authorities. The way and the time when this application forms are distributed are decided in the Instruction of the Minister of Finances.
In the 2005 Fiscal Package it is defined the periodically distribution of tariff declarations. For more the law “On tax procedures in the Republic of Albania ” changed with the 2005 Fiscal Package, does not exclude any kind of tax with regard to the timeline to present filled declarations forms, as it was the case of VAT in the old law.

1.4.16. Confirmation of the taxpayer status

•  On taxpayers' request, tax authorities are obliged to give a certificate on the fiscal status of the taxpayers, not later than 3 days from the date of the request.

Law No. 9333, dated 06.12.2004 “On some changes and amendments in the law No.8560 dated 22.12.1999 “On tax procedures in the Republic of Albania ” defines that the tax authorities can give a certification only for the tax payments of the taxpayer and not any confirmation on his taxable incomes, profit and/or capital.

Changed in the 2005 Fiscal Package, with the law No.9326, dates 06.12.2004 “On some amendments and changes in the law No. 8438”, dated 28.12.1998 “On income tax”

Changed in the 2005 Fiscal Package, with the law No.9332 dated 06.12.2004 “On a change in the law No.7928, dated 27.04.1995 “On value added tax”,

Changed in the 2005 Fiscal Package, with the law No.9328 dated 06.12.2004 “On some amendments and changes in the law No.8976, dated 12.12.2002 “On excise tax” amended with the law No.9041, dated 03.2003 and with the law no. 9163, dated 18.12.2003

Changed in the 2005 Fiscal Package, with the law No. 9325 dated 06.12.2004 “On some changes in the law No. 8982, dated 12.12.2002 “On the local tax system”

The amount of 1.000.000 Leks is defined in the law No. 9333 dated 06.12.2004 “On some amendments and changes in the law “On tax procedures in the Republic of Albania ”. In the old law this amount was 300.000 leks.

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