The formula learned, this is how many Albanians will pay as home tax from 2018

The government is getting ready to include its new 2018 Fiscal Package tax on property, but is still not explaining when it will start operating. Usually, the laws or underground acts included in a package of fiscal regulations changes must be in force as of January 1st next year. But as for the amendment required to take place in real estate taxation, there is great uncertainty, even though the line ministry claims it will enter into force immediately.

The Problem

This year's representative of the International Monetary Fund in Tirana, Anita Tuladyar: “, declared in March. Albania lags behind many other countries in collecting property taxes. This partly reflects the lack of a proper property cadastre, which has made full implementation of the existing property tax law difficult. So, the Albanian government is focused, first, on creating a fiscal cadastre, improving property coverage and implementing property tax collection based on current legislation. After that, the value-based property tax presentation process will have to continue with drafting the legal framework, having internal political consensus on this map, mobilise support from donors and neighbouring countries for technical and legal assistance, and implementing technical and legal issues related to it”, it has stated.

The IMF has always been a promoter of tax change on real estate in Albania. According to OECD data for developed countries, income from the property tax in Italy is 2..8% of GDP, in Greece 2% of GDP, in Switzerland at 1.9% GDP's Austria 0.6%, Slovenia 0.1%, Hungary 1.3%. The highest levels hold Britain and France, which collect 4.1% of the Bruto Interior Production Tax on property. Our region has this indicator at around 0.71% of GDP, while the country that has the best performance is Croatia, with about 2% of GDP. Statistics show Albania has the lowest productivity in the region for property tax. Revenues from property tax are less than 0.3 of the Bruto domestic production.

In 2016 the total property tax income for 61 municipalities in the country was $3.9 billion, or about 29m euros, at an increase of nearly 20% compared to the previous year. 82% of the revenue from this tax comes from the building tax and others from the agricultural land tax. Property tax revenues accounted for 5.7% of total local government revenues in 2016. The largest efficiency in property tax collection results in the Vora municipality, providing nearly 15% of income from property tax. The second is the municipality of Belshi, with 11.2% and the third one in Tirana, with 10.6%. Of the worst major cities is Shkodra, which provides only 3.8% of the budget from the property tax. The worst of all is Bulqiza, who almost doesn't even collect this tax, which represents only 0.2% of total income.

The country's capital, Tirana, where it lives about a third of the population, has collected 1.5 billion leks on property in 2016, or 39% of the country's total. The payment of several taxes, along with the water bill, has increased by 47% revenues from property taxation in the capital.

The IMF suggests that, with a new formula, property taxes bring equivalent revenues of around 0.55-0.6% of the country's GDP. This means that the expected revenues from this voice amounted to about 65m euros, with more than twice as much as 29m euros paid by residents of 61 municipalities in the country.

The Solution

There are some problems here. As IMF representative says, the major obstacle is the lack of a completed cadastre of buildings in the country. This has been trying to be resolved recently through a project, implemented by the Power Distribution Operator, together with the Interior Ministry, to complete the building's address. But the government has not yet announced that this job has ended. It is especially difficult to imagine that it has been fulfilled for the most remote areas of the country. According to experts, still 60 percent of buildings in the country are not even mortgaged.

And the difficulty is not just here. That would be the first step. The IMF also suggests that political consensus among the main forces in the country be found to adopt relevant legal changes regarding property taxation, expected to be included in the 2018 Fiscal Package. Can it be thought that this will be achieved, in the timely political situation?

And finally, there's a technical difficulty, which should be the biggest of all. Official sources from the finance ministry say the project, which has already been prepared, envisions the transition -- from the area tax and the age of the building -- to taxes according to the real value on its market. So, teams of all value and taxation would be engaged throughout the country to evaluate separately any building, as two could be attached to each other, but the value would be different, depending on the quality, amortization, services that they offer (sender, water deposits, etc). This is practically impossible to achieve in only any two and a half months remaining from the following year.

Form

But let's go back to the new taxation formula prepared by public finance specialists. What do they propose?

Currently, the assessment is done on thick lines, ranging from the life span and area in which it is located. Thus, it is used as a 1991 partition line to free up older buildings, as well as to divide municipalities in some areas, taxing less those in the suburbs.

Citizens of Tirana already pay their home tax, divided in 12 months, along with the water bill, which is the taskary executive title to be paid. Older buildings are taxed for families at 150 dollars a month, while younger ones pay double. Thus, a family within the Middle Ring pays between 13 and 27 euros a year on average for home tax. Businesses, on the other hand, are taxed with nearly tenfold of their real estate payments.

With the new formula, the bill would change, using several cofficients with whom the value of that property would be multiplied. For this, the real value, which that property would have on the market, would be calculated in case it went out for sale. This means that, from the fixed tax, which is currently, it would be passed on to a <x0 reference tax”.

Thus, for a luxury flat, worth 250 thousand euros, the coEfficent 0.114% would be used, from which a property tax worth 285 euros a year, or nearly 24 euros separated in each of the 12 months of the year. So the owner of that residence would see in the water bill the monthly payment of $3,200.

If the residence was estimated at 120 thousand euros, the monthly tax figure would be 11.4 euros, or 1,300m. To drop to a tax of only 2.2 euros or 300 new dollars per month for a modest apartment estimated at 35 thousand euros. In all of these cases, we would have a significant increase in the tax currently paid (150, 300 dollars a month).

Meanwhile, authors of this new formula propose a significant reduction in business taxation for their properties.

Also, in recent days it has become clear that the second or third houses of an individual or a family will not be taxed with higher cofficiency ʹ a fiscal practice, which many developed countries use but would be valued as all other dwellings. This would help the richest of Albanian society, which have more than one home.

Implementation

In the face of these problems, it seems difficult to start applying the new housing tax immediately as of January 1st next year. But it is not even impossible to begin partially applying. Thus, the addresses of residences in the capital, especially after the recent verification, conducted by the OSHE teams, are available, at least, for Tirana. Finance sources suggest that the implementation of the new tax will likely begin right from here, where much of the country's buildings are located. Later, the expansion would gradually be carried out throughout the country, ranging from other urban spaces to rural areas.

This would be a real challenge for the administration, taking into account the difficulties that the IMF mentioned.