March 2017—The 2008 financial crisis hit Albania in unexpected ways. Although the country was largely unaffected on the surface, the crisis revealed critical cracks and weaknesses in the banking and financial system.
In an effort to stabilize the economy and increase private sector growth, job creation and foreign direct investment, USAID, under its Financial Sector Development program, has been working with the Government of Albania to institute reforms to the financial system. One of the most pressing issues being tackled is reform of Albania’s tax collection.
Albania emerged from a decades-long communist dictatorship in 1991, and continues to lag far behind its European counterparts in terms of income and development. Because of administrative inefficiencies, corruption and political graft, many individual entrepreneurs leading small- and medium-sized companies chose not to pay their share of taxes. This resulted in a loss of an estimated 36 percent to 38 percent of Albania’s gross domestic product from 1996 to 2012, which translates into millions of dollars not reinvested in Albania’s schools, hospitals, infrastructure and other government services.
One of USAID’s projects, launched in February 2016, works with Albania’s General Directorate of Taxation (GDT), similar to the United States’ Internal Revenue Service. The goal is to increase the efficiency of tax collection, improve the business environment, and promote greater transparency and effectiveness.
Volunteer experts, such as Executive Deputy Commissioner Nonie Manion from the New York State Tax Department, visited the directorate to assess its operations and help put together a strategy to improve its overall functioning. They worked together to improve audit processes and taxpayer services while making tax payments easier and less susceptible to corruption.
The project is implemented by the Financial Services Volunteer Corps (FSVC). Manion believes FSVC and subject matter experts like herself have an important role to play in keeping new institutions like the tax directorate on track.
“In developing countries such as Albania, there is constant change and, without the direction provided by experts and the continued counsel of the FSVC experts, the GDT [General Tax Directorate] leadership could easily be diverted from focusing on the mission and the strategic goals. Guidance provided by experts and constant counsel by FSVC can accelerate the maturity of tax administration in a developing country,” said Manion.
FSVC continues its efforts to help the tax directorate tackle major areas for improvement, such as strengthening the audit, debt and tax investigation areas. Throughout this process, the directorate learned that major components of encouraging voluntary compliance with tax laws is educating, not penalizing, taxpayers; giving them incentives to pay voluntarily; and making it easy for them to do so. New, better online services and tax forms that are easy to complete and file have been developed and made available on the directorate’s new website along with instructions on how to better use e-services and declare and pay taxes.
Vasilika Vjero heads the directorate and believes that tax reform will make doing business easier in Albania. “Tax administration will help boost the investment climate through measures that lower compliance costs faced by taxpayers and promote integrity among tax officials,” she said. “Albania achieved promising results by running two phases of informality campaign, establishing clear standards of conduct that were effectively communicated to taxpayers and tax offices.”
“The changes within GDT can have a major impact on the future of Albania,” said Manion. “When citizens feel the GDT is efficiently running and that staff are acting with integrity and treating all citizens fairly, they are more likely to voluntarily comply with the tax laws and pay their fair share of taxes.”
USAID’s Financial Sector Development program, which runs from 2011 to 2018, is implemented by the Volunteers for Economic Growth Alliance.
Last updated: March 20, 2017