Albania Abandons Its Flat Tax

On December 28, 2013, the Socialist majority in the Albanian Assembly, in power since September 2013, passed the 2014 budget on  a strict party-line vote.  The budget replaced the 10% flat tax on personal income with two higher rates.

The new personal income tax imposed two rates of 13% and 23%, after exempting the first 30,000 leks of income.  ($1 =102 leks)  The 13% rate applies to incomes between 30,000-130,000 leks, above which 23% is imposed.  The government claims that the higher rates only affect the top 3% of income earners, while those with wages under 130,000 leks will pay less than under the previous 10% flat tax.

Corporate profits tax was increased from 10% to 15%, with an exemption provided for small businesses.

Altogether the new taxes are projected to increase tax revenue by 18 billion leks ($176 million).

The tax increases were part and parcel of a deal with the International Monetary Fund that granted a 300 million euro loan to help stabilize Albania's public finances.  Albania is seeking membership in the European Union, which requires its meeting deficit reduction targets.

Albania is the third country in the past two years (Slovakia and the Czech Republic in 2012) to replace a flat tax with two rates