Albania to raise corporate tax to 15 pct as it battles rising debt

Tue Dec 17, 2013 1:10am IST

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* Albania could announce IMF loan deal as soon as Tues

* 2014 budget sees deficit at 6.6 pct, growth at 2.1 pct

* Budget to start paying 350 mln dollars in arrears to business

By Benet Koleka

TIRANA, Dec 16 (Reuters) - Albania announced on Monday that it would raise taxes from January, scrapping a flat 10 percent corporate and income tax rate, and plans to end tax exemptions for foreign oil workers, as its new government wrestles rising debt.

Prime Minister Edi Rama said last week that the Balkan country needs a new loan arrangement with the International Monetary Fund as his three-month-old government tries to contain a hole in its finances.

IMF officials are now in Albania wrapping up a fortnight of talks and a government official said a deal on a loan of probably around US$400 million could be announced as soon as Tuesday. Albania was last under an IMF programme in 2009.

Living up to its election promise to tax more heavily those who earned more, the government unveiled plans to raise profit tax for bigger businesses to 15 percent from 10 percent and cut taxes for small businesses.

Finance Minister Shkelqim Cani, outlining the new measures in a draft of the 2014 budget, said the government also plans to introduce two rates of personal income tax of 13 and 23 percent, and would end tax exemptions for foreign personnel at oil and gas companies on VAT, excise and personal income tax.

However, he said the government was still discussing the issue of exemptions for oil workers with the IMF and an oil company official said oil companies planned to talk to the government.

Several oil companies, including a joint venture between Royal Dutch Shell and Canada's Petromanas <PMI.V, are active in Albania either drilling for oil or in the case of Bankers Petroleum, exploiting the Patos Marinza oilfield.

The corporate and income tax increases would come into effect on Jan. 1, 2014, the start of the fiscal year. Some business leaders have warned the government that tax rises would blunt the Balkan state's competitive edge versus neighbours like Kosovo, Montenegro and Macedonia.

Cani said that this year's budget deficit would be 6.2 percent of gross domestic product, much higher than a targeted 3.5 percent of GDP, and would rise to 6.6 percent of GDP next year.

The economy would grow just 1.3 percent this year but growth should accelerate to 2.1 percent in 2014, he said.

Cani had described the state of Albania's finances as "critical and grave" when Rama's Socialist Party took over power three months ago after beating the Democratic Party of Sali Berisha by a landslide in elections in June.

On Monday he said fixing public finances would take time.

"Overcoming this situation is not a short-term duty. Re-establishing macroeconomic balances require a medium-term programme and we should all contribute," Cani said.

According to the draft budget, public debt would be 936 billion leks ($9.15 billion), or 69.1 percent of the gross domestic product, this year and would rise to 74.8 percent of GDP next year, he said.

The government's aim was to reduce the budget deficit to 3 percent of gross domestic product in the medium term and the public debt to 60 percent at most, Cani said.

The government had consulted the International Monetary Fund and the World Bank on the 2014 budget and received their support, Cani said.

The World Bank has said it plans to give Albania between US$100 million and US$200 million as part of next year's budget.

Cani, a former central bank governor, said the 2014 budget aimed to establish economic stability and while public debt would climb to 74.8 percent of GDP, that would be a peak.

"This will be the stabilisation borderline from which the debt will come down in all the following years," Cani added.

The 2014 budget would start paying 350 million dollars of arrears to businesses for public works and unpaid value-added tax reimbursements, known as the previous government's "hidden debt" amounting to 5 percent of GDP, Cani said.

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