Monday, July 30, 2007

FLAT TAX IN ALBANIA: GROWTH, JOBS AND INVESTMENT

Wall Street Journal has recently highlighted the role of jurisdicutional tax competition in Eastern Europe, where Albania, once an economic laggard, adopted 10 percent flat-rated tax on individual and corporate income. By 2008, the corporate income tax will slate from 20 percent to officially set 10 percent rate. The pro-growth tax reform replaced the previous "five-rates" system on monthly personal income between 14,000-40,000 leks ($1=91.62 Albanian leks), 10% between 40,000-90,000 leks, 15% between 90,000-200,000 leks, 25% between 200,000-500,000 leks, and 30% over 500,000 leks. The flat tax code also scrapped the 20 percent dividend tax rate and replaced it with 10 percent tax rate on shareholder dividends. Previously entailed small business tax amounted to 30 percent as applied to individuals, while the new business and growth-friendly tax code scrapped the rate to record-low 10 percent.

As an economic laggard and one of sick men of the Balkan region, Albania swam in the pool of low growth, severe unemployment and rachitic capital formation. Recent regulatory reform has teared-down Albania's unfriendly and business-hostile legislation. Friendlier environment for doing business and investment, aims to boost international competitiveness, letting the foreign direct investment pour in, legalizing the shadow economy and making tax system more transparent and less evasive, friendly and pro-growth, low 10 percent flat tax on capital and labor supply is the right answers to the question how to pursue international competitiveness of a small, open and booming economy such as Albania. Also, flat taxes on labor and capital are one of the most efficient tools to fight legal corruption which is widespread in a post-communist country such as Albania.

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