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Comparable Tax Rates, Much Lower Tax Revenues A $1.5 billion shortfall

By Eduard Zaloshnja, PhD Research Scientist at Pacific Institute for Research and Evaluation, Washington DC

42

December 2018

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Figure 1. State revenue as % of GDP 40.1%

41.8%

28.0%

ALBANIA

MONTENEGRO

Albania and its two northern neighbors, Montenegro and Serbia, have comparable tax rates, GDP per capita, and economic structure.

However, Albania has much lower tax

The area of revenues where Albania lags the most is in social funds (social security and public medical insurance).

SERBIA

revenues as a percentage of GDP. If we think of GDP as the fruits produced by a fruit tree, Albania plans to collect in 2019 only 28% of those fruits for public coffers, whereas Montenegro 40.1% and Serbia 41.8% (Figure 1).

Figure 2. Social funds revenue as % of GDP 11.8%

It plans to collect for these funds in 2019 only 5.6% of GDP, compared to Montenegro’s 11.8% and Serbia’s 12.7% (Figure 2).

12.7%

5.6%

ALBANIA

MONTENEGRO

SERBIA

Albania lags also significantly in the collection of Value Added Tax (VAT). In 2019 it plans to have VAT revenue at 8.8% of GDP, compared to Montenegro’s 14.6% and Serbia’s 10.5% (Figure 3).

Figure 3. VAT revenue as % of GDP 14.6%

10.5% 8.8%

In other sources of revenues, Albania is comparable to Montenegro and Serbia.

In other words, the gap in the two aforementioned types of revenues accounts for almost the whole difference in state revenues as a percentage of GDP.

ALBANIA

December 2018

MONTENEGRO

SERBIA

If Albania had the VAT and social funds collection levels of Montenegro and Serbia (while it has comparable tax rates), an additional $1.5 billion would be entering Albanian state coffers 43

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