Protection from the Flat Tax
07/11/2011 00:00
Linda Rama: Between Family, Work and Albania’s Future 18/08 14:30
In 2007, when applying the Flat Tax that increased the obligations of
individuals with small revenues, the government undertook a protective
measure for this part of the population.
For all people who were paid up to 30.000 ALL per month, the first 10.000 ALL was excluded from the tax. This way, these individuals would not pay 10% taxes as the rest, but 4.5 for those with minimal wages to 6.6 for those who were paid up to 30.000 ALL.
Since that time, the wage limit has remained the same. Based on the INSTAT official data, the market prices have increased with 15.6% since 2007. The negative effect of this inflation for the poor was even bigger, because the price increase was higher for basic food products, with almost 22%.
This means that with 30.000, today you can buy 15.6% less goods than in 2007. And if a poor worker spends most of the wage on food, the 30.000 has a lower value. Therefore, the government is protecting the poor class less than before 2007 from the negative effect of the flat tax.
The government has increased wages for compensating the price increase, but this is not enough. The government has increased wages only for the public sector, where there is more than 10% of the employed force in Albania, but the government cannot guarantee if the business has done the same thing.
Secondly, all those who receive a wage under the 30.000 limit, regardless the wage increase, are less protected than those who were paid with the same wage before 2007. The best way for safekeeping the revenues of this class would be the increase of the untaxable part of the wage, at least in a same proportion with the price increase. This could be achieved by excluding more than the first 10.000 ALL of a 30.000 ALL wage from taxes, or by increasing the 30.000 ALL limit, or a combination between both of them.
In case of an economic crisis, the revenues of the poor class receive most of the hits. For this reason, in time of crisis, governments not only don’t damage, but they increase the protection measures for the poor class. One of the basic functions of the budget is what the experts call automatic stabilization of the economy, which also reduces its obligations. Moreover, the budget cost is easily affordable.
The calculations of the Ministry of Finances show that if the untaxable part would increase to the first 15.000 of the wage, the financial effect in the budget would be around 5 million USD per year, 100 times less than the interests that the government is paying for the debt.
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