ALBANIA IMPLEMENTS 10% FLAT TAX

Albania, a country situated in Southern Europe, has recently announced a strong streamline in fiscal reform. The reform proposal includes the reduction of corporate tax rate from current 20 percent to 10 percent by January 2008. Albania currently enjoys low income tax rates topping at the margin of 20 percent. In January 2006, the government cut the corporate tax rate by 3 percentage points to 20 percent including the tax cut on small businesses. As one of the freest economies in Southern Europe, Albanian central bank has been given an independence to enhance price stability and a fundamental monetary reform resulted in a low inflation which explains the responsibility of policy design conducted. In fighting inflation, Albania has been one of the most successful reformers in the group of transition countries. CPI-measured inflation rate currently stands at 2,3 percent.

As a transition country, Albania can take benefits from global tax competition by slashing the corporate and personal tax burden to attract more foreign investment needed to boost the economic growth and accelerate the pace of GDP convergence. If Albania wants to stay competitive in the global sphere, it has to attract more corporate inflow and this means more new net jobs, faster venture capital creation and possibly lower unemployment. The announced flat tax implementation contains a drop in employer's social security contribution rate from 20 percent to 10 percent by the start of 2008 respectively. The proposal suggests further cuts in capital gains and dividend tax which is a welcoming feature since it will not punish investors for their results emerging from productive behavior. In addition to boost competitiveness and sustainability, Albania will have to face the structural problems, mostly corruption and a cheapscape protection of private property rights which is a fundamental framework within which the economy works.