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Epoka University

Faculty of Economic and Administrative Sciences

Tax Evasion in Albania

Course: Applied Macroeconomics

Prepared by: Ani Paskali

Accepted by: Assist. Prof. Abdulmenaf Sejdini

Tirana on September 2015

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Table of Contents

Abstact…………………………………… Pg. 3
Introduction……………………………….Pg. 4
Literature Review…………………………Pg. 5
1. Causes of Tax Evasion…………………Pg. 5
2. Damages from Tax Evasion……………Pg. 8
3. Fiscal Policy Challenges and attempted Avoidance of Tax
Evasion……………………………….…...Pg.14
4. Tax Evasion in Albania……………..….Pg.18
5. Conclusions and Recommendations…...Pg.25
6. References……………………………...Pg.26

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Abstract
Tax evasion is first of all in the most affirmative way should be understood as a deliberate
avoidance of tax obligations, resulting from the commission of any economic activity. No matter
in what context, so far the income system has been affected by tax evasion everywhere, which
caused loss of public money, after the failure of prevention has been present at all times during
this decade due to many relevant factors.

Tax evasion can be considered as a disease for the economy and no doubt that is a punitive tax
system mechanism, which puts in question the functioning of the market economy. Tax evasion
represents a really serious problem, not only for the economic development of countries still in
transition, but also for countries with a consolidated tax system. Even in countries like the United
States, tax evasion is estimated to be considerably higher.

The fight against tax evasion, as one of the primary duties of the work of the tax administration
must first be related to the possible corruption in the ranks of the administration, as an offering
made by taxpayers ( dishonest ones who do not report earnings), who are trying to create the idea
of a distorted image of tax administration. The presence of this phenomenon and its size of
spread of course, lead to the reduction of tax revenues. Through the reduction of informal
businesses and reducing tax evasion, tax collection and customs revenue can be improved. The
tax system (public revenues) in general and always in the most advanced countries, where the
law and the state work properly, are exposed to the possibility of being affected from tax
evasion, whose final result is less money available for the state cashbox.

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Introduction

Dimension submission of tax evasion could be of enormous proportions, while the situation does
not change in favor of the formal economy and the full operation of all the mechanisms of the
rule of law. Currently, the extent of tax evasion, one cannot draw an exact parallel, apart from
estimates assumed since no opportunity to verify. For tax evasion can only speak when the
subject that has avoided his obligations, deliberately identified and subjected to procedures
established by law. Taxpayers are considered to be a step ahead when it comes to institutions
such deviant phenomenon and the cause of the occurrence, however, must be sought in the
proper analysis that can be done space and circumstances in which they operate and do business
entities, including sector public. We are all aware that there are numerous factors, which can
have impacts on the growth of tax evasion.

From an economic standpoint, tax evasion reduces annual income. Literature different tax
administration, show that in poor countries has the advantage of allowing corruption related to
taxes. If tax evasion will be reduced, we would have an increase in tax revenues, which would
improve the economy of a country. But can such an intriguing paradox justify policies that
stimulate corruption? The answer is no, and we have three arguments to support this view.

First, during a growth in corruption can increase revenue for a short period, in general, the
opposite will happen in case of a long period. Second, the value of reducing corruption runs
much more of its effect on tax evasion and tax revenues. Acknowledging corruption as a strategy
to increase tax revenues, a country may indicate a lack of values of democracy and governance is
not good. Third, the elimination of corruption should be considered as an end of itself. Tax
evasion is a new phenomenon to us, especially after 90 years. Features of this crime and customs
evasion, is economic-financial damage caused to the state budget, in the form of customs and tax
avoidance. The greatest consequences of this phenomenon felt in the realization of state revenues
in treasury. In connection with the tax evasion has no precise studies about the damage caused to
the state budget, but ever really different analysts to the conclusion that this figure is growing. It
is obvious to note that the organization and direction of work in the fight against tax evasion is
not a primary duty of the state police, the prosecution of economic crime, but the finish and
prevention of this phenomenon is the primary task and functional to be implemented by the
Ministry of Finance: tax and customs police.
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Literature Review

According to the study of (Alm, 2012), the focus is on three specific questions and the answers
to these questions that have emerged over the years. First, how do we measure the extent of
evasion? Second, how can we explain these patterns of behavior? Third, how can we use these
insights to control evasion? In the process, he illustrates his own answers to these questions by
highlighting various specific examples of research. He’s main conclusion is that we have learned
many things but that we also still have many gaps in our understanding of how to measure,
explain, and control tax evasion.

Recent work by (Gould, 1996) emphasizes that it is grossly misleading to represent a complex
system by a single, so-called representative agent, who behaves in some average or typical way.
Instead, most systems have incredible variety, or a “full house” of individual behaviors, and the
proper understanding of any system requires recognition of this basic fact. Indeed, he argues that
the way in which a system changes over time is attributable largely to changes in the amount of
variation within the system, rather than to changes in some largely meaningless “average”
behavior across its individual members.

In addition, according to (Bergman, 2003) view it is the ability of the government in the different
countries to sustain reforms over time and therefore building an autonomous and stable tax
administration capable to find solutions against tax evaders. The efficacy of tax audits plays a
very important role in this case not forgetting to mention sociological and cultural factors which
could lead to credible, not corrupted government institutions, particularly tax institutions.

1. Causes of Tax Evasion

A conclusion to the current policies Tax (process of formulation of taxation and public
expenditure in order to generate cycles upward economic and dispersion economic set with high
rates of employment and protect cycles inflationary), is the lack of a strategy and genuine vision
to balance more clearly in the tax burden between the business community and the population.

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1.1. Corruption reasons

From a survey conducted in Albania recently, 25% of companies surveyed admit they pay bribes.
(Institution of Sindical Studies) From numerous studies about corruption among tax
administrations in developing countries with economic and similar areas with Albania it is seen
that the biggest reason in fact remain to be the wages of tax inspectors. Wages in the
administration of similar to us, it is about the limits of the salary in Albania. However, these
wage levels can create space in the ranks of the inspectors without integrity and professional, for
accepting bribes from taxpayers enabling the tax administration not to come in large amounts of
revenue. It seems to be a subtle link, where intervention is required to improve the situation by
promoting estimated inspectors, to be more honest with the task, in fact morally have taken over.
This can be supplemented by giving inspectors the possibility of compensation for the income he
can collect from taxpayers dishonest or that have a high cost of collecting tax revenue from
them. Such a path if followed properly drafted and will not reduce the income tax administration.
By reducing the amount of corruption of inspectors, it will lead to the reduction of taxpayers who
avoid taxes. Another reason is the emergence of corruption in the recruitment work of
individuals, who lack even basic knowledge of tax and accounting. This category, which are
named auditors focused debates inspection performing unprofessional lapses figures etc. how to
review and breakdown of all phenomena occurring in economic activities in Albania diverse
companies. These reports controllers and probably remain outside the economic and fiscal reality
of the current situation by the failure to monitor any effect on the business that is subject to
control. The strategy of controlling needs to make possible the calculation of the corruption
related to inspectors, in order to avoid as much as possible as a phenomenon. One would be to
control the results were viewed with a certain scale of potential for inspectors to penalize if after
reviewing the inspection act judged that the inspector has concealed tax evasion. While the other
would extend control standards up to the level evasion would not bring benefits and is corruptly
inspector. It depends on the conditions in the tax practice of judgment, about which to choose. In
case the fines for evasion are high enough or are near the border bribe accepted by fiscal evader,
then the second form seems preferable. But if fines are smaller and closer bribery is the
minimum acceptable by an inspector, then the first form becomes priority.

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1.2. Work of the controller and his reward

Job search (whether they will take as example the version with corrupt inspectors) could describe
briefly thus: - The taxpayer declares his income, despite the fact honestly or not. Tax
Administration has hired tax inspectors, who according to legal procedures (Manual Control,
orders, circulars, programs) must verify these claims, the manner and the probability of selecting
taxpayers to be controlled. These taxpayers, who are the target of controllers and are thought to
be potential evaders, have undeclared sources of income. Given the possibility that these
controllers can be corrupted by this contingent of dishonest taxpayers, a re-examination must be
done that normally leads to additional costs for tax administration. One of the ways to solve this
problem is to establish penalties and administrative measures for these corrupt inspectors. In its
argument it can be said that low-value bribes accepted by inspectors depends on the share of
evaders related to the total income of taxpayers. As many such taxpayers, so much will increase
the number of inspectors who take small bribes. Just offering rewards in this context, gives tax
authorities the possibility to eradicate corruption at a low cost. In a situation when every major
taxpayer checked by an inspector, giving tax income percentage by which he has collected can
be applied to these large companies. Their payments based on percentage fiscal comprise high
and controller. Small companies or those that pay taxes and local small business, constitute
another group that is much more widespread. This group Taxpayers pay taxes based on the
assessment that they themselves make and declare as income and checked randomly, due to the
large number that are in proportion to the number of controllers. Inspectors should be
encouraged with direct rewards for good work by period compared with tax revenues are
estimated to have been collected from him.

1.3. Instead of bribery

The problem of tax administration is the development of an optimal mechanism, where any part
of it is a scheme. Every part of it must correspond to a message expected to be reported
voluntarily by taxpayers. The central idea is exactly how inspectors be given incentive and
control work that they do, in order to achieve the central objective, that of maximizing tax
revenue. This is related to the penalty to be taken at any time fiscal evader, who is concerned that
attempts to profit from changing laws. Tax authorities have to do to turn the eyes of the inspector
tax reward, as a "bribe" that comes not from forgiveness of fines, but a higher price for his

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fruitful work, for taxes that it collects. If such a form of spread, it not only will prompt inspectors
to working honestly, but affects and to dishonest taxpayers to reduce evasion doing. The reason
is that they will be aware of the behaviors of the controllers, who rewarded them by the tax
authority will choose the version of the penalties levied instead of a small bribe given in
exchange by the taxpayer. And maybe even, and it was given to the inspector to achieve a high
percentage of fines it imposes and collects would be optimal for maximizing tax revenues. This
would help to limit corruption and aimed the possibility of achieving the same level of maximum
income, but while the inspectors to be characterized by honesty in their work.

2. Damages from Tax Evasion

2.1. Tax evasion undermines a country's economy

A large mass of disturbing proportions of tax evasion, severely affects the consolidated budget of
the country. Economic experts and institutions representative, are of the opinion that regarding
the scale of tax evasion, it is a phenomenon that seriously impairs a country's economy. In fact it
is extremely difficult to measure the exact extent of tax evasion. Efforts should be continued not
only verbal, regarding the fight against informality projects. With special mechanisms, efforts
should be made that taxpayers are aware of their obligations, but if there are deviations
purposeful, must follow the penalties. There are times when difficulties due to certain
circumstances, such as control of all borders, free movement in all territories, the inability to
operate with tax officials in some areas. Fighting informality will help the economy of a country
quite specific, as if combat informality, would increase budget revenues, would increase the
opportunity to ask more ways to develop education, to build more schools. It would help
economic and social development of a country.

2.2. Excise withdrawn and law evasion, "path" to economic collapse

Tax evasion, as a phenomenon of corruption overall economy of our country, in this extended
period of transition, tends not only by moral anti-law to benefit, above all, the adoption of the
law, not in the real conditions of development our economic, mentality, transitions and versatile
infrastructure fiscal non maneuver. The result of these negative phenomena financial, related to

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the fact that a good part of the Albanian firms, especially excise, the victim of a truth and
mentality evident, that, "If we paid all state taxes, in not only did not win, but losing out ".
Easily, the question arises: Is doing a study of the fiscal system, if the sale price of the responses
actually business formula "value = cost + Taxes + Profitable Fiscal" or pricing practice is smaller
than the value of the above? In fact, it is not intended to recognize this reality.

The market economy experience with abusive solution

Albania, with the entry into the market economy felt a duty to adopt Western laws in various
sectors of the economy, and specifically, in the fiscal sector. For the implementation of these
laws, not only to us he had no experience, but the level of tax tradition of the population was
unknown. Western Europe, in reality it enforced these laws for a long period, subject to supply
and demand. This resulted in the harmonization of the price upon request. Products and sundry
goods demanding market, effectively not specialize maximum high output, achieving low cost
production. These costs were using taxation with higher values to balance the law of demand and
supply and to ensure the necessary revenue to the budget, to improve the economic situation. In
these cases, in our country, to make way for maneuver abuse is very "card" of excise tax for
different western European countries, varies based on practice and tradition of the national
interest. In the way of this experience, they entered the eastern countries, but to them, history
was repeated in compressed period. Due to the low level of life and fiscal mentality, excises were
put under a strict technical control, not produced rampant evasion. They defined levels of tax
payable and especially, excise duties to achieve the objective of their optimum absorption by the
state, to realize not only the budget revenues (out lower)

In order to create an anti-evasion atmosphere because populations larger than our country and
not only that, but the state tradition most part, these countries rushed to recognize capitalists
young and teach the masses, with the tradition of the new tax reduction tax evasion by using tax
policy carefully.

But what happened to the Albanian economy? The desire and effort to fill the budget
theoretically one side and ignorance of the Albanian reality, made to fixed quotas excise
arbitrary values, provoked by withholding production firms or tax evasion. We are sure, that the
reduction of excise duties in some sectors production and marketing, will expand the clear basis

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of pleaders and therefore, not only would reduce the level of tax evasion, but would be seen in
reality, who are producers, as It is the amount of production and what is the reality of import-
export. In the case of the Albanian reality, import-export ratios, gave priority to imports and
therefore domestic producers were denigrated. "Enemy" the only domestic production is high
excise duty and unmotivated, while these same products are imported excise low or no. And this
is done on behalf of alleged promotion of investments in the Albanian economy and public
services. In fact it is the opposite. The flood of imports, facilitated by some financial obligations
custom terrain creates free and full current to destroy local production or to block it next.

2.3. Billions euro losses from tax evasion / tax havens, the boom has not stopped

With the growth of the budget and the country's economy continues to grow and tax evasion.
Counted enormous amount of evasion caused by black market, the informal economy and tax
evasion. Tax evasion remains one of the biggest challenges for any government, the
consequences of which is borne by the citizens. Although there are mechanisms own, through
which collects revenues, is of great importance that they be supported with tools, be government
agenda every time and vice versa require accountability from relevant institutions for the work
done in terms of reduction of this phenomenon. It should be noted that customs are clear
indicators for reducing tax evasion.

Fiscal Paradise

Government leaders say loudly, that would like to see to close tax havens. But as shown by a
series of studies, tax havens flourish today more than ever, with an attraction that is not damaged
or affected at all by numerous lists called black lists, circulating in the world's chancelleries.
Perhaps they are changing the account holders or beneficiaries encrypted, or perhaps are
changing countries of origin of assets subject to finance. But in general, estimates processed in
the first year after the great financial crisis, show a remarkable vitality.

In 2009, fiscal evaders made to disappear from circulation almost a thousand billion dollars. And
this, at a time when the global economy suffered a contraction of 1.9 per cent and the United
States nearly 8 million families out on the street. It is in America, where the economy gives some
signal recovery. The president has recently presented his plan of financial reforms, it was

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legitimate to expect some change of roles for beneficiaries. However, in the end, lobbies of Wall
Street, big corporations and hedge fund-s were those who benefited more again.

Thus, in two thousand-plus pages of revolution announced by the White House tax havens
abroad are mentioned very little, a sign that even in the United States are feeling the pressures in
the European Union have thus far prevented a determined action. "Perhaps the increase of capital
hidden in foreign accounts is the most disturbing news and the most difficult to digest in this
economic times," says Chuck Collins, director of the program on disparities at the Institute for
Policy Studies, a research center in the US.

A consultancy and American think-tank with conservative capital deposits in accounts around
the world increased in 2009 by almost a thousand billion dollars, reaching the figure
astronomical 7.400 billion. The trend is growing even in 2010. (Boston Consulting Group, 2009)

A very important slice which is about 27 percent of the total, or 2 thousand billion dollars is still
hiding in Switzerland, where banking secrecy continues to hold good, despite the concessions
made by Halveti have allowed America to recover100 billion euro, 1.8 billion Irish and British
authorities £ 800 million.

Whatever be the most accurate estimate, it is clear, however, that it is a very large mountain
before evasion. A report recently of Scorpio Partnership, a group financial consultancy from the
UK, estimates for example, if they invested even if only 20 percent of such capital, would be
achieved to be given a boost more important and efficient recovery international economy.

At the global level, another interesting factor is the change in part of countries of origin of capital
hidden in the secret offshore bank. Change is confirmed by managers of funds major investment
on the planet who, responding to a questionnaire Boston Consulting Group have expressed some
assessments on property planetary, placing it in relation to the growth of capital hidden, noting
especially his role in wealthy growth coming from Russian and Asian world. In 2009, the wealth
of the super-rich as a whole grew by 11.5 percent, reaching stratospheric figure of 115.5
thousand billion dollars. A World Bank report estimates that 50 percent of Latin American
financial resources are hidden in foreign accounts, while for Africa, the figure exceeds 800
billion dollars. From India, in recent years the rich and different companies have exported more
than 2 trillion dollars. (Boston Consulting Group, 2009)

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Together with the countries of origin of the capital, they are in constant transformation and the
channels to be followed and the final destinations. According to data from the US Treasury
Department, for example, that the banking secrecy has come under pressure in Switzerland More
funds are transferred to the HSBC Asian accounts, the first European bank. Countries like
Singapore, Bangladesh, Hong Kong, Pakistan, India, Maldives, as well as Dubai or Uruguay are
considered new paradises. However, European equities while traveling to new havens, those of
developing countries fly mainly to Europe and the United States. In the first case, the privileged
are the Netherlands, England and Ireland. Regarding the United States, the main destination is
Delaware, where they go to all companies that want to escape the tax. Exactly American state is
at the top of the international list of countries where banking secrecy is impenetrable.

Banking secrecy and tax evasion gray area, if not the tax evasion constitute a business for the big
names of finance. List of banks and offshore companies present in too long. It could almost say
that in America more evasion follows what does not, or rather what does not appear in the gray
area that surrounds it. Some names among the great. Bank of America and Citigroup, despite
billions of dollars in public funds it received from the US administration (almost 200 billion
between loans and contributions) are still hundreds of subsidiaries in tax havens center known as
Aruba, Antigua and Barbados. These were added to companies like Microsoft, Caterpillar,
General Electric and Kellogg Brown Root 7, until shortly before the Halliburton subsidiary in
Iraq, to continue to dribble finance.

Recently, in accounts abroad are also cast and pension funds, the culmination of fiscal hypocrisy,
nonprofit organizations. Furthermore, it was revealed that the charity societies created by
Michael Bloomberg, the billionaire mayor of New York and by Meg Whitman, the former
number one on e-bay and currently the Republican candidate for the office of Governor of
California, investing hundreds of millions of dollars in tax havens. In the case of Bloomberg
talking about almost 400 million, part of which may have ended in mysterious financial groups
such as UGLAND House, a cottage very modest in the Cayman Islands, which has become
famous for, it was revealed that there have their offices more than 18 thousand foreign
companies that thousand of which are American. "I do not control directly to my investment",
defended Bloomberg, despite it became known that the declarations of assets of the foundation
have his signature, "then it is not illegal, the Foundation makes to increase profits later uses for

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charity". In Europe they gave hitting flashing lights of German Chancellor Angela Merkel in the
era of accounts with Liechtenstein and recently the list of evaders published by Herve Falciani, a
former officer of HSBC in Geneva, a list that later ended up in the hands of authorities French
and from there in the prosecution of different countries. In France, Liliane Bettencourt’s scandal,
(heiress and owner of L'Oreal cosmetics) was also important. The charge is that exported capital
worth billions of euro in collaboration with Eric Woerth, a minister who was considered among
the people closest to President Sarkozy. Events are enough to give an idea of the resistance that
has any initiative to combat tax havens.

2.4. Indicators of tax evasion

Smuggling and tax evasion, often do not have detailed assessment, with the exception of a
general indication of the alleged or found with estimates. If according to official data available
on trade of a country, there is a decrease in the total volume of imports, while the volume of
exports remained almost the same, according to this, it can be noted that, smuggling and tax
evasion in this Instead, there may be downward. Even more logical hypothesis and simple,
would like to say that the collapse of the former can be the cause of increase in the second or tax
evasion. There is correlation or correlation between parallel import growth on the one hand, and
tax evasion on the other side. In such cases, the comparison between the two increases in
structure to ascertain the rise or fall of one index over another. In the case when dealing with the
reduction of import, it means that we have and reduction of customs revenue from imports. It can
be considered that the decline in import volume and percentage important, it may be due to
increased smuggling and tax evasion. When legitimate trade in a fall, there is increasing risk that
smuggling and tax evasion. To assess the extent of the latter must be taken into account other
indicators such as prices and inflation performance, to detect whether we are dealing with
economic growth and budget. If we do, in all likelihood the increase in smuggling and tax
evasion, then it is not growing, but the damage to the budget. Planning, management, and
monitoring expenditures of the state budget remain a sector that needs significant improvements,
transparency and greater accountability. Manipulation and misuse of budget, smuggling and tax
evasion, are the easiest job, but that is more difficult to fight.

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3. Fiscal Policy Challenges and attempted Avoidance of Tax Evasion

3.1 Tax evasion, the main challenge for the government

Violation of the law would mean violation of their rights and disrespect of their development.
Any departure from taxes, meaning good escape from a large number of citizens and
strengthening the rights and benefits to a very limited group, which each time will be less.
Smuggling of goods and tax evasion in a country, it has been consistently issues, which have
been criticized by various international mechanisms. It needed a strong institutional commitment
in this regard.

Tax evasion, our main challenge

Corruption remains one of the factors inhibiting investment. "Unfortunately there is a form of
magic to fight corruption in public finances, but the implementation of anti-corruption policies,
should start from the highest levels of government. This negative phenomenon must be
overcome because it is a serious obstacle for business. Likewise, the Government remains the
main challenge of tax evasion. Fiscal reforms, contained in a specific country, should be
effective somehow, to give positive effects on the state budget. Another challenge remains the
promotion of voluntary repayment obligations of taxpayers. "Performing the analysis of the risks
of taxpayers to identify the main sources of tax evasion and reduce the growth of receipts
voluntary tax, strengthen the control and monitoring of registration, filing and payment
obligations, simplifying procedures for the declaration of payment and improve the collection
and analysis of information ". On the other hand increase the quality of service to taxpayers and
the credibility, improving in this way the business climate or strengthening excellence,
management control and internal audit in tax administration, fight corruption and non-
implementation of the right rules and procedures, through an independent inquiry and complaint
procedures, will be among the main policies to be taken in this regard. Also important is sharing
experiences between countries, in order to strengthen tax administration. Increased performance
and reliability of the Tax Administration is one of the pillars of the strategy of public finance,
located in a strategic context with the objective of last term economic development and
prosperity.

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3.2. Alternatives to combat tax evasion

Tax scandal shook the foundations of society, because it certainly is not good, that part of the
elites fail in this way, regardless of the prestige of the person, act with all severity of the law. It is
right and necessary and the persons concerned must also feel this severity.

More stringent measures against tax evasion

Forum parliamentary watchdog, responsible for secret services should discuss tougher measures
against tax evasion. In general, for a given country, massive tax evasion scandal for the citizens
of the rich can have fatal consequences for the country concerned. It suggested pursuing a
tougher course against entrepreneurs who cheat Fiscal issues.

"Who does not respect the rules and goes against the economy and society, it must be excluded
and cannot be protected anymore." Tax evasion should not be considered in society as offense
praying ". To reduce a little bit the phenomenon of tax evasion, should be planned checks to
those who have not paid tax obligations.

Currently in many countries, mainly in developing countries, not enough is being done about the
creation of proper policies, which would make impossible the growth of tax evasion in the extent
to which thought it is. This means that the policy process on registration of businesses through
their oversight and administration of taxes by the competent authorities.

Avoiding payment of tax obligations, it is considered as a criminal offense, but is it enough just
that the taxpayers not to be pushed to do such action, taking into account the penalties (fines)?
Creation of preventive measures and policies will be welcomed to the business community for
the establishment of social welfare but also for the government of a country. This should be
understood in such a way that as to be effective in the prevention of the informal economy, the
reduction of tax rates has its effect on macroeconomic categories. For example, circulating a
campaign about understanding the broad measure of damages evasion, smuggling, corruption
etc., Will raise awareness much more citizenship of a country and have a positive impact in the
community where they live and work. Another form of prevention, I think that is the
organization of symposia, seminars, conversations with subjects etc. In many countries,
appropriate mechanisms are established, who aim to increase the level of voluntary tax

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payments. Different countries have to find resources abundant, which are ready to influence the
improvement of the image so that the money investors and other parties of interest, to reflect its
readiness to prevent to the maximum occurrences deviant, including tax fiscal. Strengthening the
judiciary is immediate demand of time, to make implementation of the legislation when the
phenomenon occurs, but even more important is to raise social awareness of the highest level and
contributing to the state. Every government must take bold steps to reduce tax rates, only that
businesses have greater access to the accumulation of their profit, which is considered as a step
preventive to prevent evasion, during the implementation of fiscal policies. It is characteristic of
the fact that indirect taxes exhibit high degree of non-transparency than direct them, or express
high degree of tax evasion, but the essence of all this is the way the management of these two
categories. Increasing the rate of VAT does not burden business / profit of the company, since it
is a tax that hits directly social strata (the customer), yet they tend to hide in than other types of
taxes. The phenomenon of tax evasion may increase, when consumption goes into decline, for
which low purchasing power, and require businesses to have sufficient liquidity. In a state such
businesses cannot be contained due to the panic that can overtake you, and the first thing to do is
hide the taxes or non-payment of state obligations. All traffic / revenue share of the business
entity that performs, is driven to respond to the demands of suppliers, deviating from paying tax
obligation. Otherwise the situation may be with the individual income tax and wages. With the
opening of an individual business, p.sh during the establishment of a construction company,
should be drawn Whereas norms and to determine how many workers might be that company,
which could be the minimum wage for a worker, or an engineer etc. In this context may pose the
question, is it possible that an engineer working in a company for 200 euro monthly salary?
Logically, the answer is no. In case of draw the reasonable norms would then be made aware of
all that to operate a construction firm say there should be min 5 employees, while a bakery must
have a minimum of 2 or more workers and to set minimum wages below the threshold which can
not declare for tax payment, unless it is a loss. To avoid an unwanted situation where a worker is
discriminated against, and does not enjoy the rights which it works, is it necessary to have such
norms which would make impossible or will minimize the occurrence of tax evasion. These
norms would not be anything other but policies that were in favor of regional competitiveness
and mitigation measures are in terms of business tax burden. This form of fiscal policy has been
implemented in several countries of the region and certainly has given its effects seem though

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undemocratic. It is very logical that more firms are likely to make tax evasion when tax rates
rise, while tax evasion is lower when tax rates lowered. What could be their effect, taking into
account fiscal environment and culture that is inherited from the past? To be so, the business and
each is subject to tax, must be convinced that the payment of taxes is at his best and society.
Through their expenditure covered the public, ensure peace and order, infrastructure rises,
provided better services for citizens and health administration. To operate the system, the degree
of corruption should be minimized. Corruption is detrimental to the category of economic
development, and runs alongside tax evasion, which has been and thought to be present in our
society. Corruption indirectly may affect the psyche of every man to deliberately avoided tax
payments, so whenever this category have attached great importance not to reflect in the business
community or simply the image of our common institutions. Furthermore, despite the reduction
of tax rates has a positive effect on the expansion of the economic base, no comment that are
interconnected with other elements that have indirect impacts on this. Often it talked written by
others that fiscal culture has great importance in filling the state treasury. This culture is more or
less inherited from the previous system, and unless the civic consciousness rises, tax evasion will
be present at a high level. Countries in the region have long since passed the tax system with
rates flat (flat rate) and certainly the effect has been positive, but do not forget they were states
much earlier, had the opportunity to accumulate capital, and had the opportunity even taking
loans from the most powerful financial institutions such as the IMF and World Bank. Within
this, if eventually lowering the tax rates will not give effect to that expected, which is the way
out? When it comes to the tax base, understood as something that added horizontally, namely in
the expansion of the curve to the right, that means encouraging supply and aggregate demand.
The expansion of the economic base means encouraging economic activity, namely the
expansion of the base consisting of reducing unemployment, stabilizing prices, reducing rates,
increased capital investment or even more simply said rising GDP. The economic development
of a country if we want to have the objective to expand the economic base cannot support the
higher tax rates. On the contrary the application of high tax rates, it is only when the government
wants to achieve quick results in any particular area.

All physical and legal entity, have their right to know by spending their money, collected in the
form of taxes. American slogan "no taxation without reflection entitled" must value for each
country. It actually means an unwritten agreement between the state and the people, by setting

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appropriate targets so that spending the money collected be made efficiently. Despite all these
things, we are all more than aware that no one can escape liability causing tax evasion, but no
help to it.

4. Tax Evasion in Albania

4.1. Combating tax evasion or fiscal amnesty in Albania?

According to official data, the Albanian economy is almost 70-80% informal, which means that
the state does not reap revenue from these. (INSTAT) The fight against tax evasion is the duty of
the state, but that the Albanian economy, especially now in times of crisis, needs that enterprises
operating in key industries should be an amnesty, although in this way legitimize evasion of
some firms. It is good to consider the long term effects of the amnesty. Fiscal amnesty law, but
step inside, there is nothing else but a legalization of currently undeclared capital to enter the
economy. So, a kind of apology for assets acquired in various informal ways to return to formal
or even to absorb the Albanian capital outside the country. So if in the western part of the
continent look at examples where the fight against tax evasion is based in detail, made maximum
efforts to implement the fiscal law equally on all, where there fragrance state consolidated and
with a dedication worthy statesmen try to the authority granted by the law to fight tax evasion
matter how complex, complicated and small it may be. The law approved is a famous model who
applied recently developed many euro zone countries, often in the last decade. In fact it would
not be good overall fiscal amnesty, where he prayed every fiscal debt by numerous businesses
that have committed tax evasion for long. This kind of forgiveness, when for years there an
ongoing attempt by the state to collect as many taxes, sounds like a surrender by the tax
administration to this challenge and will hurt even more mentality of tax payment and less
culture fiscal cultivated in these years. Combating tax evasion must be deepened by all means,
but it cannot be an amnesty unfair. In their place may be differentiated fiscal policy followed by
economic development priorities. Amnesty should include all sectors and be well studied, so that
the business be simulated. Comprehensive amnesty means that every business be nullified by
arrears in years and stimulated to declare hidden assets. The real secret declaration means
business is formalized and this fact will help him in dealing with the banks, because in this way
there will be more collateral to obtain loans. Albania scheme is like that of Moldova, where

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applicable amnesty for business, but decided and a penalty fee of 5% as the business has to pay
for the value of assets that would legalize.

- The advantages of fiscal amnesty:

It seems that the economic crisis is what has forced the government to undertake fiscal amnesty
and not having business needs. Share the view that some economic experts, while others argue
that it is need of all parties. Basically, finance and economy experts estimate initiation of
amnesty as the right tool to increase investment, expand liquidity etc. Amnesty creates
opportunity for the government to increase liquidity in circulation, or even to increase revenue,
business and introduced the dilemma of paying taxes. Tax amnesties are conducted by many
countries in the past, in order to return home around the world invested money through
companies registered in tax havens. In most cases, the subject amnesty has the obligation to pay
an extra tax. For cases of poor and backward, fiscal amnesties are used by governments to
legalize half dictatorial money earned through abuse of power. Theoretically, amnesties forgive
the sins committed during the creation of assets without paying taxes, but in many places, people
who manage to perform the duty free business do this thanks to political support they enjoy.
Fiscal amnesty is a well known practice in developed countries, but also developing ones.
Generally, the tax amnesty is used as an opportunity that delivers fiscal administration from the
weight of resolving disputes with businesses to fiscal obligations for the medium, but also as an
opportunity for business to close prior history and a kind of sense to start both sides again. Tax
amnesties are exceptions to the rule, as also are criminal amnesties or pardons. The instrument is
legitimate and should not be prejudiced, on the other hand its use should produce net public
benefit. Understanding the proper time is the quality, not the calendar, so when there is an
appropriate combination of factors that contribute to the public benefit from the use of amnesty.
In the case of Albania:

• For objective reasons the stage of economic development and institutional development of the
country, operating with a certain degree of economic agents tax evasion was inevitable, some
responsibility "for the fallen". This has produced a certain amount of capital circulating outside
the formal system.

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• Fiscal discipline has reached the point today that the use of amnesty is more likely to be
perceived as "force and reason of state" and not "his weakness" then promises reduction of tax
evasion.

• State Administration released from stress to investigate and punish past focus on fiscal and
fiscal future.

• The fiscal reforms, tax reduction, strengthening of discipline, use of information technology,
promise reduction of tax evasion in the future.

• An amount of capital released by the need to hide and enter the formal economic circulation.

• An amount of income, even modest, as the tax amnesty, entering the state budget.

• There is no negative effect between fiscal amnesty and degree of success of the state in dealing
with organized crime and mafia capital flows generated by it. If not zero, the effect can only be
positive.

• Other countries around us or European, so the markets in which communicates the Albanian
economy, have done, are doing or will do amnesty.

Meanwhile worth noting that a full amnesty will help expand private investment in the economy;
business would be oriented and moved freely from one sector or economic activity to another,
through a restructuring process with sufficient flexibility; It would increase the positive pressure
on banks to reduce their interest rates on bank loans that offer; and would increase employment
opportunities.

4.2. Efforts to control tax evasion in Albania

Leaders of the economy are trying to reduce as much as possible evasion and informality of
Albanian businesses, while researchers economy not hide the skepticism about the new measures
and estimate that despite the improvement of results in customs and taxes, the premises of abuses
They are still great. According to some economic studies here in Albania, informality is not only
dominated, but he thrives on a large scale. . "The Albanian economy continues to have a high
degree of informality. I think that to worry arbitrary use of instruments such as reference prices
at customs that continue 10 years, the wages of reference, or a tie and gain control rates

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"according to Mr. Zef Preci (Leader of the Center for Economic Studies). Financial authorities
have been holding talks with representatives of the business rules of the market economy in an
effort to uncover abuses and hidden profits from counterfeit ex officio. Coercive measures
against evasion and informality should be used in a selective and as an instrument for the
redistribution of lucrative markets in favor of certain business groups to stay close to political
circles. Estimated tax evasion and informality that are widespread in the Albanian economy.
Although there was never a measure for them, experts estimate as one of the main inhibitors to
economic development.

The fight against tax evasion and money laundering remains a battle to be won by authorities in
Tirana and honest businesses. It is known that between fiscal evasion, informal economy and
money laundering that it aims to strike, there is an organic link. Grace comes from tax evasion
arising informal economy, which is the area where money laundering takes place. But there are
cases when the dirty money affects the clean part of the Albanian economy, hampering its
integration into the European market.

Just tax evasion, would make benefit formal, because that would reduce unfair competition
because the informal to the formal conversion to. But this is not easily accomplished justice
reduce tax evasion. This requires a spirit of commitment of all tax administration, headed by the
respective ministers. Furthermore, it requires the engagement of the whole society, businessmen
themselves, but also the wider public.

Anti-evasion is focused on honest businessmen, those who pay. Look not included in the "base
growth", the "reduction of fiscal evasion", which has long since made unfair competition to
honest businesses. Those who do not pay any tax (or those who pay little, as being registered
persons, so if working alone, one time employing several people, etc.) Some ways are: increasing
the personal income tax; rape my placement with wage set by the government, for example,
calculate taxes if the salary is 25 thousand (for thus has tax collector on his board salary!),
regardless of the actual salary is only 18 thousand; backhand passing as "big business" through
"reclassifications, or revaluations"; arbitrary determination of profit, "you cannot have smaller
profit than that"; non subtracting VAT arbitrary, "there is no way to receive input VAT, because
your supplier is evaders"; etc., etc. According to some economic studies, from the way it is being

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implemented our anti-evasion, will remain on the market only dishonest businesses, because Fair
or will go bankrupt or be forced to return dishonest.

4.3. Corruption investigations: fictitious companies evade

With a chain of structures and through collaboration with counterparts in the Balkans, Albanian
law enforcement agencies are trying to counter corruption with public funds, tax evasion or
fictitious companies. And according to some specialists the economy, Albania is beginning to
become a difficult place for tax evasion and informal economy. A chain structures in defense of
the law and their cooperation in the Western Balkans homologous structures were decreases the
phenomenon. Targeted the central body of the indictment remain corrupt employees in tax and
customs system. For a more efficient fight against corruption, tax evasion and the source of the
informal economy, since the beginning of this year the Prosecutor General of the Republic of
Albania operates Task Force structure. It coordinates the work of corresponding structures in the
capital and the main cities of Albania 6: Durres, Shkodra, Fier, Vlora, Korca and Gjirokastra.
The aim is to fight corruption. There is a growing investigation of corruption cases and increased
public confidence in the work done against this phenomenon. Naturally, the bulk of complaints
for tax evasion make the State Police as specialized structures, but the citizens come in second
place. "

Corruption of public funds

The main target in the activities of the Task Force is the public sector and mainly public tenders,
where the possibility of the corrupt is greater. Their attention is focused more on the public
sector. And corruption in the public sector is a criminal offense, but less tangible one in the
private sector. The prevailing idea is that corruption has become public funds. The concept of
teamwork, cooperation between all structures involved in the fight against economic and
financial crime has yielded positive results.

Even among physicians are not lacking those who take bribes to perform the task. To justice not
only those intended to be taken that are called "small fish". It is for senior management levels,
ranging from department directors and deputy ministers ended in rank, who received a guilty
verdict by the courts for criminal acts, primarily of corruption. In the first successes of the Task
Force at the Prosecutor General's Office has played its cooperation with corresponding structures

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in the Western Balkans and the EU. The most recent example is the signing in Rome recently,
the Memorandum of Cooperation between the General Prosecutors of the Region. "They created
some prosecutors regional networks that include the Western Balkans to share experiences and
relevant information in a more informal in the sense of avoiding bureaucracy".

Results in difficult terrain

The synergy in the fight against tax evasion, faces the difficult terrain of the anonymity of the
subjects and the companies that make tax evasion. Fran Rica leads the Department for
Combating Economic and Financial Crime Directorate General of State Police. He says police
structures have referred to the prosecution last year 40 cases of tax evasion. But economic and
financial crime finds ways to survive. The most common form remains fictitious companies.
"Are created fictitious companies with forged documents carry trade activity, but then disappear,
after leaving a tax evasion on a grand scale in taxes and customs, mainly by smuggling". This
situation hinders the investigation. "While the informal economy continues to exist, it hinders
investigations, as we do not find traces and evidence of activity".

Tax evasion, control over pharmaceutical warehouses

Investigation Department of Tax deals with "filtering" of official data submitted by the
pharmaceutical wholesalers in Albania. Meanwhile, the owners reviewed the balance sheets of
the pharmaceutical warehouses in the country and importers of medicines. Tax evasion and
"illegal balances do up" it seems to be the main objective of this working group, which was set
up by a special decision of the Council of Ministers. According to data provided by the tax
office, re-verification of balances wholesalers is much needed at a time when reported deviations
from the obligations of these wholesalers, especially in regions of the country. According to
sources from the tax office, the biggest fluctuations statements were allegedly committed in the
districts. This thought has come thanks to the "common sense" that find local wholesalers
operators of local tax districts. Investigation Department has the right to conduct surveillance and
to those businesses that provide evidence of tax evasion. If someone sends information related
taxes x private entity, for instance the real number of employees, necessarily, the associate
receives remuneration. Tax Investigation Directorate, the Directorate General of Taxation is
responsible for the management, in order to unify the structures of tax investigation. Financial

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Investigation Directorate can take input from legal sources, or by collusion with individuals.
"Secret cooperation with individuals, Albanian or foreign citizen, is always made with the
agreement on the basis of free will, without compensation or reward, maintaining at all times,
confidentiality agreement and information" ( governing DCM activity of the directorate).
Already taxation cooperate with the General Directorate of Customs, the unit of money
laundering, the State Police and other services intelligently, by sharing information, giving or
receiving the expertise of qualified, in view of the discovery of crimes in the area of taxation,
money laundering etc. For this she has to appoint specialist to coordinate work with these
institutions. Authorized employees of the Directorate of Tax Investigations have the right to call
to ask representatives of the subject taxpayer, citizen witnesses or others who know about crimes
in the area of taxes and fees. These employees can observe the premises where documents and
goods that serve as a source of evidence for investigation, according to all the rules defined in the
Code of Criminal Procedure and draft appropriate documents, provided in this code. Employees
of tax investigation units for security and investigation of criminal offenses, fixing and
documenting evidence, have the right to use technical and electronic tools, special. Assets of
specific types and their usage rules are established by the General Directorate of Taxation.
Leaders of other structures within the tax sector, together with the Directorate of Tax
Investigations, send materials and information on specific subjects about taxpaying, which
allegedly can commit or have committed tax evasion or tax fraud. Another important institution
that "traces" tax evasion is the Task Force Team which is established near Tirana prosecutor. The
organization of this joint investigation commission has played an important role to discourage
illegal activity of economic agents and any criminal activity in the economy.

The big problem of fictive companies

For the current level of the informal economy there is no official data at disposal. Nini Mano, a
member of the association of economic journalists, lists several reasons why persist in Albania
tax evasion and informal economy, among them the long transition phenomena through which
passed Albania and a weak state. But important is the trend of reducing them. Uncompromising
fight against corruption associated with the implementation of the laws remain the strongest
weapons of the Task Force and the State Police to reduce the minimum tax evasion and informal
economy.

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Challenges in Albania

It should be noted that in order to ensure dynamic and sustainable rates of growth for the future
also, be overcome several key obstacles to productivity-enhancing investment in the private
sector. Albania should come out of this "vicious circle" of an evasion of the large fiscal,
collection difficult tax, low income tax (as a percentage of national production), poor quality of
public services and public institutions that do not function properly should. These in turn are a
key factor in explaining the high rate of tax evasion. Great efforts should be made to modernize
the fiscal system in order to collect taxes fairly and equally on the basis of a tax code simple and
transparent rules and penalties on all enterprises and on the basis of profit them. In line with the
advice given in years past, we believe that any proposal for tax reform should be consistent with
the overall fiscal framework and to protect the integrity of the tax system. The light to be taxes,
the easier it is to expand the base and reduced tax evasion and the sooner can be lowered tax
rates.

5. Conclusions and Recommendations

Tax evasion should be discontinued at the grassroots level, so with specific measures of fiscal
policy need to be: Eliminating mass as large informal economy and its introduction into the legal
framework, covering borders with points of customs control and tax , equal treatment of all
countries, ensuring full equality of conscripts customs and tax and legal infrastructure for the
provision of management accounting records.

 Construction of the measures and instruments to combat tax evasion.


 The elimination of the informal economy and the introduction of sal in legal.
 Approval and implementation of laws in the economic field.
 Training of operational control and strict enforcement of penalties for evasion of tax
obligations.
 Ensuring full equality of customs and tax tributaries.
 Provide legal infrastructure for the conduct of accounting standards based on
international standards.
 Customs clearance and taxation of the full value of goods imported.
 Activation of local fiscal instruments.

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 Advocacy and create a climate of opinion favorable to an acceptable and effective system
of fiscal and business development function.
 Independence of the tax and customs from different influence and their protection and
security.
 Drafting and approval of a program of cultural development fiscal transparency and
communication with taxpayers.
 Preparing the teams for the interpretation of macroeconomic indicators as procedures and
microeconomic.
 Preparation and staff education and training of staff working in local government.
 Occasional communication with the public regarding the revenues and expenses.

References

James Alm, (2012) Economics Department, School of Economic Studies

James Alm, Jorge Martinez-Vazquez (2007) School of Policy Studies Georgia State University,
Atlanta, GA, USA

William F. Fox, (221Economics Department, Tennessee University, USA

B.R. Soller, Y. Yang, S.M.C. Lee, C. Wilson and R.D. Hagan, Tax Evasion and the drafting of the
right taxes

Schneider, Friedrich and Dominik H. Enste (2000). “Shadow Economies: Size, Causes, and
Consequences,” The Journal of Economic Literature

Evazioni fiskal, Përfaqësimi Social, Njohuria mbi Taksat, Pajtimi i Taksave

Eduart Gjokutaj, “Korrupsioni dhe tatimpaguesit e pandershëm”

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Zoti Zef Preçi, Drejtues i Qendrës për Studime Ekonomike

Fran Rica, Drejtor i Departamentit në luftën kundër Krimit Ekonomiko-Financiar në Drejtorinë


e Përgjithshme të Policisë së Shtetit (2010)

www.tatime.gov.al

DREJTORIA E PËRGJITHSHME E TATIMEVE – LEGJISLACIONI TATIMOR

Marrëveshjet Bilaterale – Konventat Ndërkombetare për eleminimin e tatimeve të dyfishta

www.instat.gov.al

www.minfin.gov.al

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