## albaniacdreport

## Source details

**Canonical URL:** [albaniacdreport](https://www.imf.org/-/media/files/publications/cr/2022/albanian/albaniacdreport.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2022/albanian/albaniacdreport.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2022/albanian/albaniacdreport.pdf.json)

---

### PREFACE — Mission overview and report structure
- Mission purpose: Assist the General Directorate of Taxes (GDT) in taking stock of reform efforts and provide advice on future efforts under the IMF Fiscal Affairs Department’s (FAD) capacity development (CD) program concerning revenue administration in Southeast Europe.
- Mission delivery: Remotely, using online video conferencing tools, during January 11 – February 3, 2021.
- Mission leadership and team:
  - Led by Mr. Frank van Brunschot.
  - Team members: Mr. Stephen Vesperman (FAD); Mr. Allan Jensen (FAD Regional Revenue Administration Advisor); Mr. Michael O’Grady (FAD external expert); Mr. Paul Dempsey (FAD external expert).
- Principal meetings and contacts:
  - Meetings with Ms. Delina Ibrahimaj, Director General (DG), and managers and staff from GDT Headquarters (HQ) and Regional Tax Offices (RTO).
  - Meetings with Mr. Ervin Muca, National Agency for Information Society (NAIS).
  - Meetings with development partners: Mr. Patrik Meier, Deputy Head of Mission, Embassy of Switzerland; Ms. Ledia Muco, Delegation of the EU to Albania; Mr. Tommy Carlson, Skatteverket (Swedish Tax Administration); Mr. Erison Kotini, Financial Services Volunteer Corps, USA.
- Report structure:
  - Executive summary and eight sections: (i) Context of Reform; (ii) Strengthening Governance and Organizational Arrangements; (iii) Improving Compliance Risk Management; (iv) Strengthening the Tax Audit Function; (v) Enhancing the Capacity of the Large Taxpayer Office; (vi) Consolidating and Strengthening the Debt Collection Function; (vii) Improving Register Accuracy, Taxpayer Services, and VAT Refund Processes; (viii) Mobilizing Capacity Development Support.

### Executive summary — key findings and context
- Overall assessment:
  - The GDT made solid progress on its reform agenda, despite pandemic disruption.
  - The mission reviewed achievements and identified areas requiring further improvement.
- 2020 reform progress highlighted:
  - Consolidation of the tax debt management function.
  - Expansion of third-party data sources for risk management.
  - Improvement in VAT refund processes.
  - Additional electronic services.
  - Implementation of automatic reporting of non-resident financial account information.
- Fiscal context and revenue ambitions:
  - The economy is expected to have contracted by 7½ percent in 2020.
  - 2020 tax revenues declined by ALL 28.6 billion year-on-year, with the largest percentage falls in Personal Income Tax (PIT) and Profit Tax.
  - The GDT collects close to 60 percent of combined taxes and social contributions.
  - Authorities aim to increase revenues by between 2.3 and 3 percent of GDP as part of a medium-term revenue strategy (MTRS) to be developed later in 2021.
- Major forthcoming challenges for 2021:
  - Implementation of fiscalization, with authorities’ expectation that fiscalization will, over time, deliver an uplift of 10 percent in VAT revenues.
  - Administration of a new central registry of bank accounts (a non-tax function assigned to the GDT).

### Key areas for further development — high-level recommendations
- Organizational flexibility and staff upskilling:
  - Better match resources to emerging risks and operational needs.
  - Greater autonomy and flexibility in staff deployment, work allocation, and organizational change without always needing Ministerial approval.
  - Significant improvement in technical skills across tax audit, data analytics, tax debt enforcement, LTO functions, and tax law interpretation.
- Compliance Risk Management (CRM) and bank information reporting:
  - Intensify data analytics to identify major compliance risk clusters constituting the bulk of the tax gap.
  - Seek automatic reporting to the GDT of key financial account information of Albanian residents.
- Audit and management of large taxpayers:
  - More systematic evaluation of audit activity and outcomes; finalize risk profiling of all LTO companies using the Risk Differentiation Framework advised by FAD.
  - Decisions on LTO audit case selection should mainly be made by the LTO’s Risk Management Unit (RMU).
- Tax debt management and arrears reduction:
  - Stabilize and put tax arrears on a downward trajectory.
  - Expand use of payment installment arrangements.
  - Write off uncollectible debt as allowed by the Tax Procedure Law.
  - Improve procedures and staff expertise for taking insolvency actions.
- Taxpayer service and VAT refunds:
  - Improve guidance on tax law interpretation and procedures.
  - Continue progress on reducing VAT refund arrears with the objective of settling arrears in full as soon as possible and paying all valid claims within statutory time limits.
  - Abolish refund-by-instalment arrangements and make businesses with negative VAT in any period eligible for refund without overly restrictive preconditions.

### Mobilizing capacity development (CD) support — summary
- Current CD project: The FAD CD project with the GDT runs until April 2022; focus areas include improving tax debt collection, data analytics, compliance of high wealth individuals, development of future CRM projects, and organization and management of operational activities.
- Coordination: GDT must coordinate external support (including from the Swedish Tax Agency and the EU) to avoid duplication and explore external support options for large-scale upskilling and leadership training.

### Consolidated mission recommendations (selected)
- Governance and organizational arrangements:
  - Seek more autonomy for the GDT in organizational design, staff deployment, and work allocation.
  - Fill vacant critical staff positions, particularly the third Deputy Director General position.
  - Strengthen integrity assurance measures.
  - Deliver a comprehensive upskilling program in partnership with universities, other tax jurisdictions, and professional associations.
- Improving CRM:
  - Finalize and implement a comprehensive CRM strategy.
  - Intensify data analytics and undertake tax gap analyses.
  - Seek law change to require automatic reporting to the GDT of key bank and other financial account information of Albanian residents.
  - Systematically evaluate the impact of compliance activities.
- Strengthening tax audit and LTO:
  - Remove obstacles hindering assignment of cases to auditors based on skills and abilities.
  - Evaluate audit program performance; implement a strong upskilling program for auditors.
  - Fully implement the Risk Differentiation Framework Implementation Plan for the LTO and ensure RMU-led case selection.
- Debt collection and VAT refunds:
  - Immediately commence a project to write-off uncollectable debt.
  - Expand payment instalment agreements, implement a web-based self-service facility, and assign approval responsibility to the Debt Collection Department.
  - Develop procedures and expertise for insolvency/bankruptcy action.
  - Improve register accuracy, develop a taxpayer service and communications strategy by end-2021, and pay all valid VAT refund claims within legal time limits.

*IMF Fiscal Affairs Department mission report (PREFACE and EXECUTIVE SUMMARY), January 11 – February 3, 2021.*

### Pandemic response and operational resilience (section excerpts)
- Government support implementation:
  - Starting in March 2020, applications under support packages were made online to the GDT for validation and transmission to the Treasury.
  - Government policy response included postponement of Profit Tax payments to 2021, and a loan guarantee scheme.
- Operational resilience:
  - Some 80 percent of staff were able to work remotely.
  - Walk-in service desks were limited; call center and regional office telephone services remained operational.
  - Field audits were reduced in favor of desk-based controls.
  - A late-2020 public perception survey of GDT service performance during the pandemic was, with some exceptions, generally favorable.
- Other developments affecting operations:
  - Fiscalization implementation schedule postponed from 2020 to 2021, phased: business to government from January; cashless B2B from July; cash transactions from September. Authorities expect a 10 percent increase in VAT revenues when fully implemented.
  - VAT turnover threshold increased from ALL 2 million to ALL 10 million from January 2021 (extending to 2029), removing some 32,000 cases from active VAT register.
  - From 2021, enterprises with annual turnover less than ALL 14 million are exempt from Profit Tax; some 12,000 businesses expected to benefit.
  - Decision in 2020 to exempt earthquake reconstruction from VAT poses tax leakage and control challenges.
  - Automatic reporting by Albanian banks to GDT of financial account information of non-residents implemented in 2020; reciprocal information on offshore accounts for Albanian residents expected starting in September 2021.
  - GDT to administer a new central register of bank accounts under anti-money laundering law; bylaws yet to be agreed and function will require significant resources.

### Governance and organizational arrangements — current situation and workforce
- Governance framework:
  - Three senior management committees chaired by the DG: Reform Management Committee; Operational Management Committee; Compliance Management Committee.
  - Strategic Management Group (SMG) chaired by the DG with approved mandates for committees and SMG.
- Structure and working groups:
  - Function-based HQ structure with three business streams; Deputy DG for program design position vacant.
  - Network of 13 RTOs and an LTO; consolidated Call Center and Payment Center.
  - Working groups for fiscalization, automatic exchange of information, central register of bank accounts, consolidation of arrears collection, pandemic response, IT prioritization.
- Organizational changes:
  - Consolidated most arrears collection activities into fewer sites; separated field monitoring from Tax Investigation Department; consolidated three Transfer Pricing Units into LTO.
  - Debt collection consolidated from 13 RTOs into three regional collection offices and in the LTO.

- Workforce, vacancies, and skills gaps:
  - Around 200 vacancies, including the Deputy DG position in HQ.
  - Urgent need for technical skills across audit, data analytics, debt collection, legislation interpretation, and LTO functions.
  - Auditors lack training in indirect audit methods and detecting unrecorded transactions or unexplained wealth.
  - Debt collection staff insufficiently skilled in bankruptcy and liquidation enforcement.
  - Current training program not based on strategic competency gap assessment.
  - Recommendation: develop and deliver an upskilling program with universities, professional associations, and other tax jurisdictions, with donor support.
- Integrity measures:
  - Expanded desk audits and electronic services, GPS tracking for some field officers, video camera pilots, culture change program in development.
  - New senior position jointly reporting to DG and Ministry for Justice for anti-corruption strategy promotion, monitoring, and enforcement.
  - Recommendation: appoint senior leader responsible for developing GDT’s integrity framework as soon as practicable.
- Resource allocation and autonomy:
  - Need greater autonomy to adjust structures and deploy staff based on risk and throughput; allocation to smaller regional offices inconsistent with work throughput and risk-to-revenue; significant work backlogs in Tirana.

### Key workforce and collection statistics (as provided)
- Field staff distribution (Total Field Staff — Percent of field staff):
  - LTO: Total Field Staff 119 — Percent of field staff 10
  - Tirana: Total Field Staff 291 — Percent of field staff 24
  - Durres: Total Field Staff 79 — Percent of field staff 6
  - Fier: Total Field Staff 108 — Percent of field staff 9
  - Other RTOs*: Total Field Staff 629 — Percent of field staff 51
  - Total: Total Field Staff 1,226 — Percent of field staff 100
- Functional breakdown (counts):
  - Service: 6 (LTO), 33 (Tirana), 20 (Durres), 11 (Fier), 113 (Other), Total 183
  - Collection: 10 (LTO), 48 (Tirana), 0 (Durres), 17 (Fier), 22 (Other), Total 97
  - Audit: 73 (LTO), 118 (Tirana), 39 (Durres), 41 (Fier), 173 (Other), Total 444
  - Other Support: 30 (LTO), 92 (Tirana), 20 (Durres), 39 (Fier), 321 (Other), Total 502
- Tax Collected 2020 (Net ALL Billion) and percent of collection:
  - LTO: 78.0 — Percent of collection 35
  - Tirana: 92.0 — Percent of collection 42
  - Durres: 12.2 — Percent of collection 5
  - Fier: 6.6 — Percent of collection 3
  - Other: 33.3 — Percent of collection 15
  - Total: 218.9 — Percent of collection 100
- Note: *Includes the three new debt collection sites.

### Improving Compliance Risk Management (CRM) — current situation and recommendations
- Governance and capabilities:
  - Compliance Committee tasked with modern CRM methodology; supported by Risk Management Directorate (RMD) responsible for risk identification, CRM project development, and audit case selection.
  - Substantial number of non-risk/low-risk based audit activities remain mandatory due to legal obligations.
- Progress during pandemic:
  - GDT used a mix of compliance instruments beyond audit (e.g., successful letter campaign on under-declaration of wages).
  - Continued progress on national compliance projects in construction and tourism; designing a sectoral project for energy.
- Areas needing improvement and recommendations:
  - Finalize a comprehensive compliance strategy and ensure Compliance Committee leads development and oversight.
  - Ensure all compliance activities are risk based and designed to treat major risks appropriately.
  - Enhance cooperation with other agencies and access to wider third-party data.
  - Involve RTOs in strategy development to improve ownership.
  - Address high informality and “envelope wages” (worsened since 2016) using options from January 2020 FAD mission report.
  - Specific recommendations:
    - Finalize and commence implementing a comprehensive CRM strategy.
    - Intensify focus on data analytics and undertake tax gap analyses to identify major compliance risk clusters.
    - Seek a law change to require automatic reporting to the GDT of key bank and other financial account information of Albanian residents.
    - Systematically evaluate the impact of compliance activities.

### RMD resourcing, data analytics, and evaluation (section excerpts)
- RMD staffing and skills:
  - Three current vacancies in the RMD should be promptly filled by suitable staff, ideally post-graduates with economics and data management backgrounds.
  - In the longer term include personnel with broader skills (e.g., behavioral experts).
  - Continue cooperation with universities, including the “excellence” internship program.
- Data analytics and tax gap analysis:
  - Develop capacity in data analytics and undertake tax gap analyses to identify risks.
  - Develop a clear data management strategy for governance, development, and use of analytics with the new data warehouse and more data sources.
  - Tax gap analyses and environmental scans needed to include pandemic-related risks.
- Third-party data access and automatic reporting:
  - Increase access to third-party data; progress includes data from electricity and water utilities, Customs, and Tirana Municipality.
  - From September 2021, offshore bank account data for Albanian residents will be available from 72 jurisdictions under the OECD Common Reporting System Standard.
  - Similar automatic information not yet available for domestic bank accounts; press for law change to require automatic reporting of key financial account information of Albanian residents.
- Risk feedback loop and evaluation:
  - IT case management system includes a risk feedback loop but is not fully used by auditors.
  - RMD compiles activity statistics (e.g., number of actions and direct yield) but limited evaluation of relative effectiveness; adopt a more systematic approach to evaluate compliance impact.

### Strengthening the Tax Audit Function — current situation, gaps, and recommendations
- Current improvements:
  - Separation of field monitoring from tax investigation; new monitoring unit for desk audit; specialized department for high-wealth individuals and tax avoidance; centralization of audit case selection.
  - Continued audit activity during pandemic though number of audits declined.
  - e-inspector system for field staff monitoring and case management deployed with GPS tracking and video cameras.
- Areas needing improvement:
  - Lack of flexibility in assigning cases across RTOs and staff skill levels; many high-risk cases cannot be audited due to resource/skills constraints.
  - Too many low-risk cases audited; currently 70 percent of cases selected centrally by RMD and 30 percent by RTOs; mandatory audit obligations contribute to low-value work.
  - Desk audit program tasks need re-evaluation; many tasks add little compliance value (e.g., deregistration and bankruptcy cases).
  - Auditor skills require enhancement for high-quality audits and to address emerging risks from fiscalization and third-party data.
- Recommendations:
  - Remove obstacles hindering assignment of cases to auditors based on skills and abilities, including between regional offices.
  - Systematically evaluate audit program performance to improve compliance impact.
  - Develop and implement a strong upskilling program for tax auditors in modern audit techniques, including advanced skills for the LTO.

### Enhancing the Capacity of the Large Taxpayer Office (LTO)
- Current situation:
  - Large taxpayer segment pays over 40 percent of total GDT collection.
  - LTO changes: updated case allocation criteria, establishment of RMU, single Transfer Pricing Team, increase in audit sections from three to four, reduction in industry specializations from 22 to 10.
- Areas needing improvement:
  - Risk profiling shortfall:
    - Risk profiles for 430 cases were scheduled by October 2020, with 100 additional each quarter until all 882 taxpayers profiled.
    - To date only 100 cases have been profiled.
  - Need to tailor compliance treatments by risk level (low/medium/high) and replicate successful letter campaigns.
  - Evaluate alternative audit approaches (desk audits, single-issue audits, indirect techniques, CAATs).
  - LTO RMU should lead selection of audit cases; currently cases selected centrally by RMD.
  - Staffing and specialist gaps:
    - Authorized staffing level for LTO is 128, with eight vacancies.
    - Critical unfilled positions include head of RMU and a transfer pricing specialist.
    - Need advanced expertise in accounting, financial statement analysis, tax technical, international tax, anti-avoidance, commercial awareness, and tailored training.
- Recommendations:
  - Fully implement the Risk Differentiation Framework Implementation Plan, ensuring all LTO taxpayers are risk profiled.
  - Ensure decisions on LTO audit case selection are mainly made by the LTO’s RMU.

### Consolidating and Strengthening the Debt Collection Function — status, statistics, and recommendations
- Key arrears statistics:
  - Total tax arrears were ALL 122.4 billion at end September 2020 compared to ALL 116.9 billion at end December 2019.
  - Of the total stock of arrears, ALL 15.5 billion is subject to dispute.
  - Approximately 70 percent of debt is overdue by more than two years.
  - Tax debt amount includes over 96,500 inactive taxpayers collectively owing ALL 83.3 billion (approximately 68 percent of the total tax inventory).
  - A relatively small number of taxpayers (4,040) collectively owe more than ALL 92.1 billion.
- Table 6 key figures (Amounts in ALL millions; Source: GDT Debt Collection Department):
  - Number of taxpayers with tax arrears: 2017: 137,633; 2018: 144,910; 2019: 151,279; 2020 (Sept): 171.510
  - Total stock of tax debt: 2017: 95,506; 2018: 107,701; 2019: 116,994; 2020 (Sept): 122,400
  - Debts over two years: 2017: 45,494 (48%); 2018: 60,803 (56%); 2019: 78,992 (68%); 2020 (Sept): 85,680 (70%)
- Organizational changes:
  - Consolidated arrears collection from 13 RTOs into three regional collection offices and the LTO.
  - New structure with three work streams: (i) Monitoring, Analysis and Enforcement Measures; (ii) Field Implementation; (iii) Legal Proceedings and Enforced Collections.
  - Project working group designing IT changes and updating debt collection manual.
  - Priority on top 100 highest debt cases and State Owned Enterprises management.
- Strategic management and resourcing gaps:
  - HQ-level strategic allocation of resources based on comprehensive analysis not yet systemic.
  - HQ debt collection team focused on monitoring/reporting rather than improving operational effectiveness.
  - Over 45 staff vacancies across the three regional collection offices.
  - Understaffing impacts work output, quality, and early-intervention prospects.
  - Recruitment process underway; recommendation: expedite the recruitment process.
- Writing-off uncollectable debt:
  - 68 percent of tax arrears relates to inactive taxpayers; 70 percent aged over two years.
  - Table 7 (September 2020): Active: Number of taxpayers 74,964; Tax arrears 39.1; Percent of total arrears 32. Inactive: Number of taxpayers 96,546; Tax arrears 83.3; Percent of total arrears 68. Total: Number of taxpayers 171,510; Tax arrears 122.4; Percent of total arrears 100.
  - Tax Procedure Law provides authority to write off uncollectable debt; to date no debt has been written off using this provision.
  - Recommendation: Immediately adopt a project approach focusing initially on the largest and oldest debts.
- Payment instalment agreements:
  - Widely used and broadly consistent with international good practice; further improvements necessary.
  - Recommendation: Implement a web-based (taxpayer self-service) facility for instalment agreements.
  - Current approval requires signature by taxpayer and Director of RTO with processing by desk audit section; recommendation to transfer approval responsibility to Debt Collection Department.
- Stronger enforcement measures:
  - Current tools: outbound call facility, garnishee action, suspension of import/export licenses.
  - Gaps: limited use of bankruptcy/insolvency proceedings; recommendation to develop policies, procedures, and expertise for insolvency/bankruptcy actions.
- Recommendations for arrears collection:
  - Immediately commence a project to write-off uncollectable debt.
  - Continue to expand payment instalment agreements including implementing a web-based self-service facility.
  - Assign responsibility for approving payment installment agreements to the Debt Collection Department.
  - Develop procedures and expertise for taking insolvency/bankruptcy action.

### VAT refunds, registration accuracy, and taxpayer services (selected points)
- VAT refund stock and progress:
  - Stock of refund arrears was ALL 9.8 bn at end-2020 — reduced from ALL 11.25 bn at end-2019 (and ALL 16.8 billion at end-2018).
  - GDT committed to refunding 73 percent of the end-2020 arrears (the pipeline company) by June 30, 2021.
  - Process improvements during 2020 halved the time taken to approve VAT refund claims.
  - Concern: new high-value refund claims (> ALL 150 m) are being paid by instalments (which can extend up to 2 years) under a legal provision introduced in February 2020.
  - Legislative issues: Except for exporters, taxpayers still need VAT credit for three consecutive months and credit amount must exceed ALL 400,000 at the end of the third month, and an explicit VAT refund claim must be made.
  - Recommendation: MOFE seek legislative amendment to refund credits without any minimum carry forward period and without requirement for a separate refund claim.
- Register accuracy and taxpayer services:
  - GDT cannot unilaterally update the register where primary data is incorrect; NBC verifies and corrects register when GDT field staff report inaccuracies.
  - No structured program to test register accuracy; recommendation to develop a program with NBC.
  - Develop and publish taxpayer service and communications strategy by end-2021; improve published tax law interpretation and provide a dedicated website area for tax advisors.
  - Abolish refund-by-instalment arrangements and make businesses with negative VAT in any period eligible for refund without overly restrictive preconditions.

### External support and FAD CD plan (May 2021–April 2022)
- External support providers:
  - Swedish Tax Administration, the EU, and FAD are supporting GDT reforms.
  - Swedish Tax Agency drafting a one-year inception phase CD proposal with preliminary focus areas and potential longer-term cooperation of about 3 years commencing in 2022.
  - EU financed roadmap for a Tax and Customs Administration Training Academy; implementation of components to establish the Academy to commence during 2021.
  - FAD CD supported financially by the EU and SECO.
- FAD preliminary CD plan components:
  - One FAD HQ mission (likely TADAT) in January/February 2022.
  - Ongoing support from Slovenia-based regional FAD advisor.
  - Short-term expert remote assignments and visits planned.
- Short-term expert assignments (planned delivery periods and areas of support):
  - June/July 2021 — Compliance management of high-wealth-individuals (*planning state*)
  - June/July 2021 — Development of capacity in data analytics
  - September/October 2021 — Field organization structure and workload allocation
  - September/October 2021 — Development of annual compliance plan 2022
  - January/February 2022 — Development of capacity in data analytics
  - January/February 2022 — Compliance management of high-wealth-individuals
  - March/April 2022 — Field organization structure and workload allocation
  - Note: Additional short-term expert assignments/visits may be possible depending on FAD and GDT capacities.
- Priority CD needs:
  - Tax audit function identified as weak and requiring considerably more external input; GDT should explore large-scale external support over several years (likely a single provider and the new Training Academy).
  - Management and leadership development: provide emerging and new managers with leadership training and/or executive coaching.

### Appendix I — Implementation status of January 2019 FAD Mission Report recommendations (selected items)
- Section II — Governance and Organizational Arrangements:
  - 1. Schedule more regular meetings of the Reform Management Committee — Implemented.
  - 2. Appoint a third Deputy Director and accelerate filling vacancies — Not Implemented (still only two Deputy DGs and approximately 200 other vacancies).
  - 3. Pursue options to give GDT greater autonomy — Not Implemented.
  - 4. Establish governance for new IT contract — Implemented.
  - 5. Develop overarching integrity strategy — Not Implemented (some measures implemented; new senior position created).
- Section III — Strengthening the LTO:
  - 6. Revise large taxpayer criteria — Implemented (affiliates not yet included).
  - 7. Establish RMU in LTO — Partially Implemented (RMU established but profiling progress insufficient).
  - 8. Review LTO Desk Audit tasks — Not Implemented.
  - 9. Consolidate transfer pricing teams — Implemented.
- Section IV — CRM:
  - 10. Broaden third-party data and procure data-warehouse — Partially Implemented (increased third-party data; no automatic domestic bank data; data warehouse procured but not operational).
  - 11. Develop data management strategy — Not Implemented.
  - 12. Develop multiyear compliance improvement plan — Partially Implemented.
- Section V — Registration and Taxpayer Services:
  - 13. Legislative change to allow GDT register updates — Partially Implemented (NBC verifies and corrects register on GDT reports).
  - 14. Program to test register accuracy — Not Implemented.
  - 15. Develop taxpayer service strategy — Not Implemented (strategy planned for 2021 with Swedish Tax Agency assistance).
  - 16. Engage taxpayers and intermediaries in product/process design — Partially Implemented.
  - 17. Expand published interpretive guidance — Not Implemented.
- Section VI — Tax Arrears Collection:
  - 18. Develop write-off strategy — Not Implemented.
  - 19. Appoint project manager for consolidated arrears pilot — Implemented.
- Section VII — Audit:
  - 20. Analyse low collection rates on audit assessments — Not Implemented.
  - 21. Analyse desk audit function role/performance — Partially Implemented (monitoring unit established; analysis at early stage).
- Section IX — VAT Refunds:
  - 26. Pay outstanding VAT claims quickly — Partially Implemented (stock reduced to ALL 9.8 bn at end-2020).
  - 27. MOFE to improve forecasting to ensure funds for VAT refunds — Not Implemented (high-value claims > ALL 150 m paid by instalments).
  - 28. MOFE to seek legislative amendment to refund credits without minimum carry forward or separate claim — Not Implemented (three consecutive months and ALL 400,000 threshold remain for most taxpayers).

*Source: albaniacdreport (IMF Fiscal Affairs Department staff report content).*

### PREFACE ___________________________________________________________________________________________________ 6

### PREFACE

### Mission overview
- Mission purpose: Assist the General Directorate of Taxes (GDT) in taking stock of reform efforts and provide advice on future efforts under the IMF Fiscal Affairs Department’s (FAD) capacity development (CD) program concerning revenue administration in Southeast Europe.
- Mission delivery: Remotely, using online video conferencing tools, during January 11 – February 3, 2021.
- Mission leadership and team:
  - Led by Mr. Frank van Brunschot.
  - Team members: Mr. Stephen Vesperman (FAD); Mr. Allan Jensen (FAD Regional Revenue Administration Advisor); Mr. Michael O’Grady (FAD external expert); Mr. Paul Dempsey (FAD external expert).
- Principal meetings and contacts:
  - Meetings with Ms. Delina Ibrahimaj, Director General (DG), and managers and staff from GDT Headquarters (HQ) and Regional Tax Offices (RTO).
  - Meetings with Mr. Ervin Muca, National Agency for Information Society (NAIS).
  - Meetings with development partners: Mr. Patrik Meier, Deputy Head of Mission, Embassy of Switzerland; Ms. Ledia Muco, Delegation of the EU to Albania; Mr. Tommy Carlson, Skatteverket (Swedish Tax Administration); Mr. Erison Kotini, Financial Services Volunteer Corps, USA.
- Acknowledgements: The mission expresses appreciation for the cooperation and hospitality received from the GDT and thanks Ms. Irena Xhafa, Chief of Cabinet, for mission support.

### Report structure
- The report contains an executive summary and eight sections:
  - (i) Context of Reform;
  - (ii) Strengthening Governance and Organizational Arrangements;
  - (iii) Improving Compliance Risk Management;
  - (iv) Strengthening the Tax Audit Function;
  - (v) Enhancing the Capacity of the Large Taxpayer Office;
  - (vi) Consolidating and Strengthening the Debt Collection Function;
  - (vii) Improving Register Accuracy, Taxpayer Services, and VAT Refund Processes;
  - (viii) Mobilizing Capacity Development Support.

### Executive summary — key findings and context
- Overall assessment:
  - The GDT made solid progress on its reform agenda, despite pandemic disruption.
  - The mission reviewed achievements and identified areas requiring further improvement.
- Reform progress highlighted in 2020:
  - Consolidation of the tax debt management function.
  - Expansion of third-party data sources for risk management.
  - Improvement in value added tax (VAT) refund processes.
  - Additional electronic services.
  - Implementation of automatic reporting of non-resident financial account information.
- Pandemic response and operational resilience:
  - The GDT pivoted to deliver financial supports to affected businesses while managing core activity with limited disruption.
- Fiscal context and revenue ambitions:
  - The economy is expected to have contracted by 7½ percent in 2020.
  - 2020 tax revenues declined by ALL 28.6 billion year-on-year, with the largest percentage falls in Personal Income Tax (PIT) and Profit Tax.
  - The GDT collects close to 60 percent of combined taxes and social contributions.
  - The authorities aim to increase revenues by between 2.3 and 3 percent of GDP as part of a medium-term revenue strategy (MTRS) to be developed later in 2021; this strategy will include tax administration improvements and policy changes.
- Major forthcoming challenges for 2021:
  - Implementation of fiscalization (real-time monitoring of electronic invoices and cash transactions), with the authorities’ expectation that fiscalization will, over time, deliver an uplift of 10 percent in VAT revenues.
  - Administration of a new central registry of bank accounts (a non-tax function assigned to the GDT for anti-money laundering purposes), requiring significant GDT resources and management time.

### Key areas for further development (summary of mission advice)
- Organizational flexibility and staff upskilling:
  - Need to better match resources to emerging risks and operational needs.
  - Greater autonomy and flexibility required in staff deployment, work allocation, and organizational change without always needing Ministerial approval.
  - Significant improvement in technical skills and competencies across the workforce, especially in tax audit, data analytics, tax debt enforcement, Large Taxpayer Office (LTO) functions, and tax law interpretation.
- Compliance Risk Management (CRM) and bank information reporting:
  - Intensify data analytics to identify major compliance risk clusters constituting the bulk of the tax gap.
  - Automatic reporting to the GDT of key financial account information of Albanian residents (analogous to current non-resident reporting) would greatly enhance risk profiling and tax declaration accuracy.
- Audit and management of large taxpayers:
  - More systematic evaluation of audit activity and outcomes, particularly as the focus shifts to desk audit post-fiscalization.
  - Finalize risk profiling of all LTO companies using the Risk Differentiation Framework advised by FAD.
  - Decisions on LTO audit case selection should mainly be made by the LTO’s Risk Management Unit (rather than central risk department).
- Tax debt management and arrears reduction:
  - Stabilize and put tax arrears on a downward trajectory.
  - Expand use of payment installment arrangements.
  - Write off uncollectible debt as allowed by the Tax Procedure Law.
  - Improve procedures and staff expertise for taking insolvency actions.
- Taxpayer service and VAT refunds:
  - Improve range, depth, and clarity of guidance on tax law interpretation and procedures.
  - Continue progress on reducing VAT refund arrears with the objective of settling arrears in full as soon as possible and paying all valid claims within statutory time limits.
  - Abolish refund-by-instalment arrangements and make businesses with negative VAT in any period eligible for refund without overly restrictive preconditions.

### Mobilizing capacity development (CD) support
- Current CD project:
  - The FAD CD project with the GDT runs until April 2022.
  - Focus areas: improving tax debt collection, data analytics, compliance of high wealth individuals, development of future CRM projects, and organization and management of operational activities.
- Coordination and external support needs:
  - The GDT must ensure arrangements to coordinate external support (including from the Swedish Tax Agency and directly from the EU) to avoid duplication.
  - Explore external support options for large-scale upskilling of auditors and for leadership training.

### Consolidated mission recommendations (high-level from Table 1)
- Strengthening governance and organizational arrangements (short-term and medium-term items):
  - Seek more autonomy for the GDT in organizational design, staff deployment, and work allocation.
  - Fill vacant critical staff positions, particularly the third Deputy Director General position.
  - Further strengthen integrity assurance measures.
  - Deliver a comprehensive upskilling program in partnership with universities, other tax jurisdictions, and professional associations.
- Improving CRM:
  - Finalize and commence implementing a comprehensive CRM strategy.
  - Intensify focus on data analytics and undertake tax gap analyses to identify major compliance risk clusters.
  - Seek a law change to require automatic reporting to the GDT of key bank and other financial account information of Albanian residents.
  - Systematically evaluate the impact of compliance activities.
- Strengthening the tax audit function:
  - Remove obstacles hindering assignment of cases to auditors based on skills and abilities, including between regional offices.
  - Systematically evaluate audit program performance to improve compliance impact.
  - Implement a strong upskilling program for tax auditors in modern audit techniques, including advanced skills for the LTO.
- Enhancing LTO capacity:
  - Fully implement the Risk Differentiation Framework Implementation Plan, ensuring all LTO taxpayers are risk profiled.
  - Ensure decisions on LTO audit case selection are mainly made by the LTO’s Risk Management Unit (RMU).
- Consolidating and strengthening debt collection:
  - Immediately commence a project to write-off uncollectable debt.
  - Continue to expand use of payment instalment agreements, including implementing a web-based (taxpayer self-service) facility.
  - Assign responsibility for approving payment installment agreements to the Debt Collection Department.
  - Develop procedures and expertise for taking insolvency/bankruptcy action.
- Improving register accuracy, taxpayer services, and VAT refunds:
  - Emphasize improving register completeness and accuracy, including systematic cross-checking of third-party data.
  - Develop an ongoing program, in cooperation with the National Business Center (NBC), to test accuracy of economic activity codes on the register.
  - Develop and publish a taxpayer service and communications strategy by end-2021.
  - Improve published tax law interpretation and procedural guidance and provide a dedicated website area for tax advisors.
  - Pay all valid VAT refund claims within prescribed legal time limits and reduce payment-by-installment arrangements to zero as soon as possible.
  - For the Ministry of Finance and Economy (MOFE): seek a legislative amendment to refund credits without any minimum carry forward period and without a requirement for taxpayer to submit a separate refund claim.

*IMF Fiscal Affairs Department mission report (PREFACE and EXECUTIVE SUMMARY), January 11 – February 3, 2021.*

### 3.      The GDT played a key role in implementing various pandemic-related  financial

### 3.      The GDT played a key role in implementing various pandemic-related  financial

### Pandemic response and operational resilience
- Starting in March 2020, the government introduced a series of support packages to individuals and businesses in sectors adversely affected by the pandemic. Applications under these programs were made online to the GDT, who validated eligibility and processed claims prior to transmission to the Treasury for payment.
- The government’s policy response also included:
  - the postponement of Profit Tax payments to 2021, and
  - a loan guarantee scheme.
- Operational resilience and continuity:
  - Some 80 percent of staff were able to work remotely.
  - Walk-in service desk facilities were limited; call center and regional office telephone services were kept operational.
  - Field audits were reduced in favor of desk-based controls.
  - A public perception survey (taken in late-2020) of the GDT’s overall service performance during the pandemic was, with some exceptions, generally favorable.

### Other developments affecting GDT operations
- Fiscalization implementation schedule:
  - Implementation postponed from 2020 to 2021 and being implemented in phases: business to government from January; cashless business to business (B2B) from July; and cash transactions from September.
  - Authorities expect that, when fully implemented, fiscalization will increase VAT revenues by 10 percent.
- Exemption for smaller businesses:
  - From January 2021 (extending to 2029), the VAT turnover threshold is increased from ALL 2 million generally (and zero for regulated professions) to ALL 10 million for all categories, removing some 32,000 cases from the active VAT register.
  - From 2021, enterprises with an annual turnover of less than ALL 14 million are exempt from Profit Tax. Some 12,000 businesses in this category are expected to benefit.
  - Risks: tax arbitrage and abuses such as “business splitting” and artificial shifting from employment to self-employment.
- VAT-exempt earthquake reconstruction:
  - Decision in 2020 to exempt from VAT earthquake reconstruction activity, including for sub-contractors and suppliers; GDT required to approve eligible entities—poses major risks of tax leakage and control challenges.
- Offshore accounts: automatic exchange of information:
  - With assistance from the Italian tax administration, the GDT implemented in 2020 the automatic reporting by Albanian banks to it of financial account information of non-residents and began exchanging this information with 72 foreign jurisdictions.
  - The GDT expects to receive reciprocal information, starting in September 2021, about offshore accounts held by Albanian tax residents.
- Tax amnesty proposal:
  - A draft tax amnesty law published in July 2020 was not supported by FAD or the EU and has not been enacted; no information was made available on its present status.
- Central register of bank accounts:
  - Under a recently enacted anti-money laundering law, the GDT will be the administrator of a new central register of bank accounts and one of the state bodies allowed access to data, subject to bylaws yet to be agreed. This non-tax function will require significant resources and management time.

### Reform progress and forward agenda
- 2020 achievements:
  - Consolidation of the debt management function.
  - Expansion of third-party data sources.
  - Improvement in VAT refund processes.
  - Additional electronic services.
  - Implementation of automatic reporting of non-resident account information.
- 2021 priorities and medium-term planning:
  - Most significant task for 2021: implementation of fiscalization, including intensive support and engagement with business and a change in audit selection processes (shift to more desk audits).
  - Establishing and administering a new central register of bank accounts.
  - Other major changes planned for 2021: establishing a specialized unit for high-wealth individuals; consolidating databases; developing an asset register; completing reorganization of the Tax Debt Collection Department.
  - Developing a medium-term strategy for 2022-2025 is under way and will be finalized in tandem with the government’s proposed MTRS strategy.
- Implementation of previous recommendations:
  - A stock-take of progress on recommendations in the FAD mission report of January 2019 shows 50 percent of the recommendations were implemented or partially implemented; remaining recommendations are updated and integrated with those in this report.

### Governance and organizational arrangements — current situation
- Governance framework:
  - Three senior management committees chaired by the Director General (DG): Reform Management Committee; Operational Management Committee; Compliance Management Committee.
  - A Strategic Management Group (SMG), also chaired by the DG, oversees overarching governance. Approved mandates exist for each committee and the SMG.
- Working groups:
  - Established to guide and monitor key reform projects and operational initiatives (examples: fiscalization project; automatic exchange of information; central register of bank accounts; consolidation of arrears collection; pandemic response oversight; IT prioritization).
- Reporting and structure:
  - Comprehensive reporting framework with extensive operational reports monitored by management committees and senior leadership.
  - Function-based HQ structure with three business streams (program design, delivery, support); each managed by a Deputy DG (Deputy DG for program design is currently vacant).
  - Network of 13 Regional Tax Offices (RTO) and a Large Taxpayer Office (LTO). Consolidations include a centralized Call Center and a Payment Center.
- Organizational changes implemented (examples):
  - Consolidated most arrears collection activities into fewer sites.
  - Separated field monitoring and verification from the Tax Investigation Department.
  - Consolidated three Transfer Pricing Units into the LTO structure.
- Debt collection consolidation:
  - Tax debt collection activities consolidated from 13 RTOs into three regional collection offices and in the LTO to improve business processes and as a potential model for further consolidation.

### Workforce, competency, and integrity
- Staffing and vacancies:
  - Around 200 vacancies, including the Deputy DG position in HQ. The vacant Deputy DG position has at least 12 direct reports currently accountable directly to the DG.
- Skills gaps and training needs:
  - Urgent need to improve technical skills across audit, data analytics, debt collection, legislation interpretation, and LTO functions.
  - Auditors: focus on reconciling accounting records to tax returns; lack training in indirect audit methods and establishing unrecorded transactions or unexplained wealth.
  - Debt collection staff: insufficiently skilled in firmer enforcement measures (e.g., bankruptcy and liquidation).
  - Current training program is not based on a strategic assessment of competency gaps.
  - Recommendation to develop and deliver an upskilling training program reflecting assessed skills gaps; contract expertise from local universities, professional associations, and other tax jurisdictions, with donor support.
- Integrity measures implemented in last 12 months:
  - Expanding use of desk audits and electronic services to reduce face-to-face contact.
  - GPS tracking used for some field officers; video cameras piloted.
  - Culture change program of training and information to emphasize integrity is being developed.
  - New senior position established (jointly reporting to the DG and the Ministry for Justice) for promoting, monitoring, and enforcing the government’s anti-corruption strategy.
- Need for further action:
  - Planned appointment of a senior leader responsible for developing the GDT’s integrity framework should be put in place as soon as practicable.
- Resource allocation and autonomy:
  - GDT needs greater autonomy to adjust organization structure, staff deployment, and work allocation to respond to risk and operational needs.
  - Allocation of staff to smaller regional offices appears inconsistent with work throughput and risk-to-revenue.
  - Significant work backlogs reported in the Tirana office.
  - Modern practice: allocate staff based on greatest risk to revenue and adjust structures without Ministerial approval in all cases.

### Key statistics from workforce and collection (as provided)
- Area of Work — Field staff distribution (Total Field Staff and percent of field staff):
  - LTO: Total Field Staff 119 — Percent of field staff 10
  - Tirana: Total Field Staff 291 — Percent of field staff 24
  - Durres: Total Field Staff 79 — Percent of field staff 6
  - Fier: Total Field Staff 108 — Percent of field staff 9
  - Other RTOs*: Total Field Staff 629 — Percent of field staff 51
  - Total: Total Field Staff 1,226 — Percent of field staff 100
- Functional breakdown (counts):
  - Service: 6 (LTO), 33 (Tirana), 20 (Durres), 11 (Fier), 113 (Other), Total 183
  - Collection: 10 (LTO), 48 (Tirana), 0 (Durres), 17 (Fier), 22 (Other), Total 97
  - Audit: 73 (LTO), 118 (Tirana), 39 (Durres), 41 (Fier), 173 (Other), Total 444
  - Other Support: 30 (LTO), 92 (Tirana), 20 (Durres), 39 (Fier), 321 (Other), Total 502
- Tax Collected 2020 (Net ALL Billion) and percent of collection:
  - LTO: 78.0 — Percent of collection 35
  - Tirana: 92.0 — Percent of collection 42
  - Durres: 12.2 — Percent of collection 5
  - Fier: 6.6 — Percent of collection 3
  - Other: 33.3 — Percent of collection 15
  - Total: 218.9 — Percent of collection 100
- Note: *Includes the three new debt collection sites.

### Recommendations (Governance and organizational arrangements)
- Seek more autonomy for the GDT in organizational design, staff deployment, and work allocation.
- Fill vacant staff positions that are critical, particularly the third Deputy Director General position.
- Deliver a comprehensive upskilling program to improve the competencies of the workforce in partnership with universities, other tax jurisdictions, and professional associations.
- Further strengthen integrity assurance measures.

### Improving Compliance Risk Management — current situation and needs
- Governance and capabilities:
  - The Compliance Committee is tasked with implementing modern CRM methodology; promoting integrated compliance improvement strategies; and approving design and launch of compliance projects.
  - The Compliance Committee is supported by the Risk Management Directorate (RMD), responsible for identification of tax risks, development of CRM projects, and selection of audit cases.
  - Despite ambitions for risk-based operations, a substantial number of non-risk/low-risk based audit activities remain mandatory due to legal obligations that are disproportionate to the level of risk.
- Progress during the pandemic:
  - The GDT progressed CRM projects and used a mix of compliance instruments beyond audit, e.g., a successful letter campaign addressing under-declaration of wages by employers.
  - Continued progress on national compliance projects in the construction and tourism sectors; designing a sectoral compliance project for the energy sector.
- Areas needing improvement:
  - Finalize a comprehensive compliance strategy so implementation can commence; Compliance Committee to play key role in development and oversight.
  - Medium-term strategic goal: ensure all compliance activities are risk based and designed to treat identified major risks appropriately.
  - Strategy should address enhanced cooperation with other relevant agencies and access to a wider range of third-party data.
  - Involve RTOs in developing the strategy and new compliance projects to improve ownership and GDT-wide commitment.
  - Informality remains high with little sign of decline; “envelope wages” appear to have worsened since 2016.
  - Options for addressing informality holistically are available in the January 2020 FAD mission report and may be considered in strategy development.

*Source: albaniacdreport - 3.      The GDT played a key role in implementing various pandemic-related  financial (IMF staff report content).*

### 29.      The RMD should be adequately resourced with specialist staff. A fully staffed RMD is

### albaniacdreport - 29.      The RMD should be adequately resourced with specialist staff. A fully staffed RMD is

### RMD resourcing and staff skills
- Three current vacancies in the RMD should be promptly filled by suitable staff, ideally by post-graduates with economics and data management backgrounds.
- In the longer term the RMD should include personnel with a wider range of skills (for example, behavioral experts).
- Development of RMD staff skills would benefit from ongoing cooperation with universities, including continuing the “excellence” internship program.

### Data analytics, tax gap analysis, and data management
- The GDT needs to develop capacity in data analytics and undertake tax gap analyses to help identify existing and emerging risks.
- With the availability of the new data warehouse and more data sources, it is important to develop a clear data management strategy covering how data analytics will be governed, developed, and used within the administration.
- Tax gap analyses and environmental scans (to include new risks stemming from the pandemic) are needed to complement current work on identifying the major risk clusters that make up the bulk of the tax gap.

### Third-party data access and automatic reporting
- Access is needed to a wider range of third-party data, particularly automatic reporting of bank information.
- Progress has been made increasing inflow and range of third-party data from electricity and water utility companies, General Directorate of Customs, and Tirana Municipality.
- From September 2021, offshore bank account data for Albanian residents will be available from 72 jurisdictions under the OECD Common Reporting System Standard.
- Similar financial information is not yet automatically available for domestic bank accounts of Albanians; the GDT needs to press for a law change to require automatic reporting of key financial account information of Albanian residents.

### Risk feedback loop and evaluation of compliance outcomes
- The risk feedback loop from tax auditors to the RMD needs enhancement using the IT systems’ case management system.
  - The current case management system includes a risk feedback loop but is not fully used by auditors.
  - On a limited basis auditors manually provide the RMD with feedback on the effectiveness of risk selections.
  - Ongoing work on standardizing and computerizing audit reports should help address this issue.
- The RMD compiles statistics on compliance activities (e.g. tax audit) in terms of number of actions and direct yield outcomes, but there is only limited evaluation of the relative effectiveness of different types of interventions in terms of compliance impact.
- A more systematic approach should be adopted to evaluating the compliance impact of operational activities.

### Recommendations for Improving Compliance Risk Management
- Finalize and commence implementing a comprehensive CRM strategy.
- Intensify the focus on data analytics and undertake tax gap analyses to identify the major compliance risk clusters that make up the bulk of the tax gap.
- Seek a law change to require automatic reporting to the GDT of key bank and other financial account information of Albanian residents.
- Systematically evaluate the impact of compliance activities.

### Strengthening the Tax Audit Function — current situation
- Organizational improvements: separation of field monitoring from tax investigation; new monitoring unit for desk audit; specialized department for high-wealth individuals and tax avoidance; centralization of audit case selection.
- The GDT continued audit activities during the pandemic; number of audits declined reflecting pandemic impacts.
- Introduction of the e-inspector system for field staff monitoring and case management:
  - Automates and monitors activities of field monitoring staff, enables allocation and tracking of work, includes GPS trackers and video cameras, and uploads case management data to the main IT system.
  - GPS tracking and video cameras aim to strengthen evidence, reduce risk of false accusations, and dampen opportunities for corruption.

### Strengthening the Tax Audit Function — areas needing improvement
- Lack of flexibility in assigning cases across RTOs and to staff with different skill levels impedes effective use of scarce audit resources; high-risk cases at some RTOs cannot be audited due to resource and skills limitations, causing inconsistent treatment across Albania.
- Too many low-risk cases are audited:
  - Currently 70 percent of cases are selected centrally by the RMD, while 30 percent are selected by the RTOs.
  - Many selections are due to mandatory audit obligations (deregistration, bankruptcy, audit requests from other agencies) that may not present substantial tax risk; the GDT should review mandatory audit obligations.
- Elements of the desk audit program need re-evaluation to minimize resource use with low compliance impact:
  - Desk audit tasks include following up on non-submitted returns, pursuing collection of new debts, agreeing installment arrangements, helping taxpayers correct earlier returns, “other validations” (verifying financial statements), and responding to taxpayer queries.
  - Many such audits add little value in terms of compliance impact (e.g., deregistration and bankruptcy cases).
  - The new desk audit monitoring unit should (1) identify tasks to eliminate, automate, or reassign, and (2) understand factors contributing to low revenue results.
- Auditor skills and competencies need enhancement for high-quality audits and to address emerging risks:
  - GDT plans to test auditors’ skills to establish training needs.
  - Fiscalization and increased third-party data will reduce verification work and enable increased comprehensive audit and investigation activities for serious tax evasion and avoidance, requiring more advanced skills.
- The GDT needs a training and development program tailored to auditors, with the proposed Tax and Customs Academy (supported by the EU) prioritizing delivery of a multi-year comprehensive training plan with modules tailored to auditors’ needs.

### Strengthening the Tax Audit Function — recommendations
- Consider removing obstacles that hinder assignment of cases to auditors based on skills and abilities, including between regional offices.
- Systematically evaluate the performance of the audit program to improve compliance impact.
- Develop and implement a strong upskilling program for tax auditors to improve capacity in modern audit techniques, including advanced skills required by the LTO.

### Enhancing the Capacity of the Large Taxpayer Office (LTO) — current situation
- The large taxpayer segment pays over 40 percent of total GDT collection.
- The GDT has a long-established LTO; progress made on implementing many recommendations from the December 2019 FAD expert report.
- Changes: updated large case allocation criteria, establishment of a Risk Management Unit (RMU) in the LTO, a single Transfer Pricing Team, increase in audit sections from three to four, reduction in industry specializations from 22 to 10.

### Enhancing the Capacity of the LTO — areas needing improvement
- LTO needs to finalize risk profiling of the large taxpayer segment via full implementation of the Risk Differentiation Framework (RDF) plan:
  - Risk profiles for 430 cases were scheduled to be completed by October 2020, with a further 100 to be completed each quarter until all 882 taxpayers are profiled.
  - To date only 100 cases have been profiled.
- Compliance improvement treatments need tailoring to specific taxpayer risk profiles:
  - Low risk: focus on taxpayer support.
  - Medium risk: selective audit of specific issues and engagement to encourage voluntary compliance.
  - Higher risk: treatment (including audit) focused only on identified risks.
  - Replicate successful letter campaigns (underdeclared wages, construction project) for other initiatives.
- Evaluate and develop effectiveness of alternative audit approaches (desk audits, single-issue audits, indirect audit techniques, computer assisted audit tools).
- LTO RMU should be responsible for selection of cases for audit or other treatment; currently LTO RMU does not select cases (cases are selected centrally by RMD).
  - LTO RMU can provide more focused risk analysis using financial and tax-specific indicators relevant to large taxpayers.
  - LTO audit results, particularly for VAT refund, desk, and single-issue audits, which remain low (see LTO audits table), should improve if selected by the RMU.
- Enhance capacity through recruitment of specialists for critical vacancies and a tailored training program:
  - Authorized staffing level for the LTO is 128, with eight vacancies.
  - Critical positions unfilled include head of the RMU and a transfer pricing specialist.
  - LTO needs advanced expertise in accounting, financial statement analysis, tax technical, international tax, anti-avoidance, and commercial awareness, and investment in a tailored training program is required.
- Continue implementation of recommendations from the FAD expert report (e.g., allocating affiliated companies to the LTO case base, improving liaison with representative bodies, providing LTO auditors with computer aided audit tools, establishing a specialist anti-avoidance unit).

### Enhancing the Capacity of the LTO — recommendations
- Implement fully the Risk Differentiation Framework Implementation Plan, ensuring all LTO taxpayers are risk profiled.
- Ensure that decisions of LTO audit case selection are mainly made by the LTO’s RMU.

### Consolidating and Strengthening the Debt Collection Function — background and recent developments
- Over the last three years efforts focused on strengthening legislative framework, improving business processes, and optimizing stronger collection enforcement strategies.
- Key tax arrears statistics:
  - Total tax arrears were ALL 122.4 billion at end September 2020 compared to ALL 116.9 billion at end December 2019.
  - Of the total stock of arrears, ALL15.5 billion is subject to dispute.
  - A large percentage of debt (approximately 70 percent) is overdue by more than two years.
  - Tax debt amount includes over 96,500 inactive taxpayers collectively owing ALL 83.3 billion (approximately 68 percent of the total tax inventory).
  - A relatively small number of taxpayers (4,040) collectively owe more than ALL 92.1 billion.
- Table 6 key figures (Amounts are in ALL millions; Source: GDT Debt Collection Department):
  - Number of taxpayers with tax arrears: 2017: 137,633; 2018: 144,910; 2019: 151,279; 2020 (Sept): 171.510
  - Total stock of tax debt: 2017: 95,506; 2018: 107,701; 2019: 116,994; 2020 (Sept): 122,400
  - Debts over two years: 2017: 45,494 (48%); 2018: 60,803 (56%); 2019: 78,992 (68%); 2020 (Sept): 85,680 (70%)

### Consolidating and Strengthening the Debt Collection Function — organizational changes and focus
- GDT largely implemented new organizational arrangements consolidating arrears collection from 13 RTOs into three regional collection offices and the LTO.
- New structure includes three distinct work streams with clear functional specialization:
  - (i) Monitoring, Analysis and Enforcement Measures
  - (ii) Field Implementation
  - (iii) Legal Proceedings and Enforced Collections
- A project working group is designing IT changes and updating the debt collection manual to support the new structure.
- Priority is increasingly given to managing higher risk collection cases:
  - Focus on top 100 highest debt cases for intensive active management (following recent FAD advice).
  - Increased focus on managing tax debt owed by State Owned Enterprises is achieving positive outcomes.
- Payment installment agreements are widely used; GDT’s use is broadly consistent with international good practice, but further improvements are necessary to optimize use.

*Source: albaniacdreport - 29.      The RMD should be adequately resourced with specialist staff. A fully staffed RMD is*

### 58.      A more strategic approach to managing the arrears collection function is required.

### 58.      A more strategic approach to managing the arrears collection function is required.

### Strategic management of arrears collection
- HQ-level strategic allocation of resources based on comprehensive analysis is not yet systemic; current prioritization based on risk is limited and inconsistent.
- The HQ debt collection team is largely focused on monitoring and reporting and not taking an active role in improving operational effectiveness of regional arrears collection teams.
- Supreme State Audit Institution preliminary findings are consistent with the need for a more strategic approach.
- The GDT needs to allocate resources based on an assessment of risk and identify high risk debt cases that require proactive management.

### Under-resourcing of the debt collection function
- There are over 45 staff vacancies across the three regional collection offices.
- Understaffing risks:
  - Detrimental impact on work output and quality of work.
  - Increased pressure on remaining employees.
  - Impeded ability to respond quickly to new debt cases, reducing early-intervention collection prospects.
- A recruitment process is underway, managed centrally by the Department of Public Administration; “All efforts should be made to expedite this recruitment process.”

### Writing-off uncollectable tax arrears
- A significant proportion of the stock of tax debts are not collectable:
  - 68 percent of the tax arrears relates to inactive taxpayers.
  - 70 percent of the total arrears inventory is aged over two years.
- Table 7 (Albania: Active and Inactive Taxpayers with Arrears – September 2020):
  - ALL Billions; Percent of total arrears
  - Active: Number of taxpayers 74,964; Tax arrears 39.1; Percent of total arrears 32
  - Inactive: Number of taxpayers 96,546; Tax arrears 83.3; Percent of total arrears 68
  - Total: Number of taxpayers 171,510; Tax arrears 122.4; Percent of total arrears 100
  - Source: GDT Debt Collection Department
- Legal and procedural context:
  - The Tax Procedure Law provides authority to write off uncollectable tax debt after relevant enforcement measures have been taken.
  - To date, no debt has been written off using this provision.
  - Recommendation: Immediately adopt a project approach focusing initially on the largest and oldest debts; a detailed recommended approach is set out in a recent FAD expert’s report.

### Payment installment agreements
- Installment agreements can be beneficial for taxpayers experiencing cash-flow difficulties and can increase likelihood of collection if used correctly.
- Recommendation: Implement a web-based (taxpayer self-service) facility for installment agreements as soon as practicable.
- Current procedural issue:
  - Approval of installment agreements currently requires signature by the taxpayer and the Director of the RTO and processing is assigned to the desk audit section.
  - This leads to inconsistencies and unnecessary opportunities for integrity breaches.
  - Recommendation: Transfer approval responsibility for payment installment agreements to the Debt Collection Department (this is currently being considered by the GDT).

### Stronger enforcement measures
- Current enforcement tools used:
  - Outbound call facility for early intervention, garnishee action to recover funds and block bank accounts, suspension of import/export licenses.
- Gaps:
  - Limited use of actions beyond these measures.
  - Bankruptcy or insolvency proceedings are under-used despite being appropriate when other collection actions are exhausted and businesses continue to trade.
- Recommendation: Develop policies, procedures, and expertise to undertake insolvency/bankruptcy actions.

### Recommendations for improving the Arrears Collection function
- Immediately commence a project to write-off uncollectable debt.
- Continue to expand the use of payment instalment agreements including implementing a web based (taxpayer self-service) facility.
- Assign responsibility for approving payment installment agreements to the Debt Collection Department.
- Develop procedures and expertise for taking insolvency/bankruptcy action.

*Source: albaniacdreport - 58.      A more strategic approach to managing the arrears collection function is required.*

### 83.      Continued external support is required to facilitate the consolidation the GDT

### Continued external support is required to facilitate the consolidation the GDT

### External support secured and providers
- The authorities have secured support from:
  - the Swedish Tax Administration,
  - the EU,
  - FAD.

- Notes on providers (as described in the source):
  - Swedish Tax Agency: drafting a project proposal for an inception phase of one year of CD support to the GDT. Preliminary focus areas: taxpayer services; integrity enhancements; CRM (“soft components” like communication and services); tax audit and investigations; automatic information exchange with authorities abroad; VIES (VAT Information Exchange System); and business process redesign. Initial cooperation expected to develop into a more long-term cooperation for about 3 years commencing in 2022.
  - EU: financed activities by a Netherlands’ consultancy that in 2020 developed a broad roadmap for the establishment of a Tax and Customs Administration Training Academy. Implementation of components to establish the Training Academy will commence during 2021.
  - FAD CD support is delivered by FAD with financial support from the EU and SECO.

### FAD preliminary CD plan (May 2021–April 2022)
- Agreed in principle with the GDT. Components:
  - One FAD HQ mission (likely a Tax Administration Diagnostic Assessment Tool (TADAT)) to be delivered in January/February 2022.
  - Ongoing support from the Slovenia-based regional FAD advisor.
  - Short-term expert remote assignments and visits planned (see Short-term expert assignments).

- TADAT: designed to provide an objective assessment of the health of key components of a country’s system of tax administration.

### Short-term expert assignments to the GDT (May 1, 2021 - April 30, 2022) — planned delivery periods and areas of support
- June/July 2021 — Compliance management of high-wealth-individuals (All activities are in the planning state (*))
- June/July 2021 — Development of capacity in data analytics
- September/October 2021 — Field organization structure and workload allocation
- September/October 2021 — Development of annual compliance plan 2022
- January/February 2022 — Development of capacity in data analytics
- January/February 2022 — Compliance management of high-wealth-individuals
- March/April 2022 — Field organization structure and workload allocation

- (*) Depending on FAD and GDT delivery/absorption capacities, it may be possible to deliver a few additional short-term expert assignments/visits.

### Priority areas needing additional capacity development (CD)
- Tax audit function:
  - Identified as weak and requiring considerably more external input than currently possible under the FAD CD project.
  - GDT would need to explore options for large-scale external support over several years (probably from a single provider and the new Tax and Customs Academy) to overhaul both theoretical and practical upskilling of auditors.
  - Rationale: only when a complete shift in audit approach and focus is achieved will compliance strategies have a lasting impact on taxpayer compliance and the tax gap.

- Management and leadership development:
  - Providing emerging and new managers with leadership training and/or executive coaching would be very beneficial for GDT reform, operational efforts, and employee relationships.

### Appendix I — Implementation status of the January 2019 FAD Mission Report recommendations (selected items by section)

Section II: Improving Governance and Organizational Arrangements
- 1. Schedule more regular meetings of the Reform Management Committee to drive the reform agenda and keep the strategic plan under review.
  - Implemented.
- 2. Appoint a third Deputy Director into the vacant role as soon as possible and accelerate the filling of other vacancies across the organization.
  - Not Implemented. There are still only two Deputy DGs and there are approximately 200 other vacancies.
- 3. Pursue options to give the GDT greater autonomy to adjust organizational structures and deploy resources.
  - Not Implemented.
- 4. Establish a strong governance process for the management of the new IT contract at the senior level in the GDT.
  - Implemented. Managed through the Strategic Management Group.
- 5. Develop an overarching strategy to build a strong integrity culture across the workforce and address corruption risks.
  - Not Implemented. However, several measures have recently been implemented to strengthen integrity assurance. A new position at senior level has been established (jointly reporting to the DG and the Ministry for Justice) for promoting, monitoring and enforcing the government’s anti-corruption strategy.

Section III: Strengthening the Large Taxpayer Office
- 6. Revise the large taxpayer criteria to ensure that all the largest taxpayers are managed by the LTO.
  - Implemented: However, affiliates are not yet included.
- 7. Establish a risk management unit in the LTO to support implementation of the risk differentiation framework, including tax revenue analysis and taxpayer profiling.
  - Partially Implemented: Risk management unit has been established, but its main task to risk profile the taxpayer segment has not progressed sufficiently.
- 8. Review the range of tasks undertaken by LTO Desk Audit and determine more appropriate organization arrangements for non-audit work.
  - Not Implemented: While LTO has started to use desk audits and increase the number of single issues audits, the review of tasks for non-audit work has not yet been undertaken.
- 9. Finalize the arrangements to consolidate the three existing transfer pricing teams into a single unit within the LTO.
  - Implemented: There is now one transfer pricing team within the LTO.

Section IV: Strengthening Compliance Risk Management
- 10. Broaden the access to and use of third-party data, including automatic reporting of bank data ― and procure a data-warehouse and analytical tools.
  - Partially Implemented. Increase in available third-party data (information from electricity and water utility companies, Customs, and Tirana Municipality). There is no automatic reporting of domestic bank account data. A data warehouse has been procured but is not yet operational.
- 11. Develop a data management strategy that optimizes the use of data from all sources, including the data from e-fiscalization.
  - Not implemented.
- 12. Enhance the CRM work to progress the development of a multiyear compliance improvement plan.
  - Partially implemented. Work on developing a comprehensive compliance strategy has started.

Section V: Improving Registration and Taxpayer Services
- 13. Propose a legislative change that allows the GDT to update the register where there is clear evidence from field reports that register data is inaccurate.
  - Partially Implemented: The law still provides that the GDT cannot unilaterally update the register where primary data is found to be incorrect, but arrangements are in place whereby NBC will verify and correct the register where GDT field staff report inaccuracies to it.
- 14. Develop a program to test the accuracy of the register, in cooperation with the NBC, including the accuracy of the passive register.
  - Not implemented: There is no structured program to test register accuracy.
- 15. Develop a taxpayer service strategy and put in place clear governance arrangements to steer its coordinated implementation.
  - Not implemented: However, a taxpayer service and communications strategy document is planned for 2021—with assistance from the Swedish Tax Agency.
- 16. Engage and involve taxpayers and tax intermediaries in tax product and process design with a view to simplifying compliance and reducing costs.
  - Partially implemented: Engagement exists on major tax changes and new cooperation arrangements with the Albanian Institute of Certified Accountants, but focus is more on implementation of settled policy rather than product and process design.
- 17. Expand the range of published technical interpretive guidance.
  - Not implemented: No significant improvement — ongoing concerns about the quantity, quality, and depth of legislative and procedural guidance.

Section VI: Improving Tax Arrears Collection
- 18. Develop a strategy to write-off uncollectable tax arrears following the legislative amendments.
  - Not implemented. There is no write-off strategy and no write-offs have taken place, although some work has been done to develop necessary procedures.
- 19. Appoint the project manager of the consolidated tax arrears pilot and progress the work to develop the detailed design.
  - Implemented. The consolidation of most debt collection activities into three sites has been completed.

Section VII: Improving Audit
- 20. Undertake analysis to understand the reasons for the low collection rates on audit assessments and develop appropriate responses.
  - Not implemented. Efforts have commenced to develop a system to monitor the collection of audit assessment.
- 21. Undertake analysis of the role and performance of the desk audit function to improve audit outcomes and eliminate low value work.
  - Partially implemented. A separate unit in the audit department now monitors the desk audits. The analysis to improve the desk audit function is at an early stage.

Section VIII: Getting Taxpayer Appeals Right
- 22. Transfer the MOFE’s taxpayer appeal function back to the GDT.
  - Not reviewed.
- 23. Improve transparency by publishing anonymized summaries of administrative appeal outcomes, and statistics relating to appeals and outcomes.
  - (Status not provided)
- 24. Improve procedural fairness by allowing, for genuine cases in exceptional circumstances, some flexibility to the tax payment/guarantee and appeal time limit pre-conditions.
  - (Status not provided)
- 25. Reduce the time taken to finalize appeals and review procedures for dealing with low-value penalty appeals.
  - (Status not provided)

Section IX: Timely Payment of VAT Refunds
- 26. Pay the outstanding stock of VAT claims as quickly as possible.
  - Partially implemented: The stock of refund arrears was ALL 9.8 bn at end-2020 — reduced from ALL 11.25 bn at end-2019 (and ALL 16. 8 billion at end-2018). The GDT has committed to refunding 73 percent of the end-2020 arrears (the pipeline company) by June 30, 2021. Process improvements during 2020 have halved the time taken to approve VAT refund claims.
- 27. MOFE to improve the forecasting of net tax revenue to ensure that funds are available to pay all legitimate VAT refund claims immediately.
  - Not implemented: While there is a target to have zero refund arrears by end-2020, new high-value refund claims (> ALL 150 m) are not being refunded once approved but are being paid by instalments (which can extend up to 2 years) under a legal provision introduced in February 2020.
- 28. MOFE to seek a legislative amendment to refund credits without any minimum carry forward period and without the requirement for taxpayers to submit a separate refund claim.
  - Not implemented: Except for exporters, a taxpayer still needs to be in a VAT credit situation for three consecutive months before a VAT refund can be claimed — and the credit amount must exceed ALL 400,000 at the end of the third month. Also, an explicit VAT refund claim must still be made.

*Source: albaniacdreport - 83. Continued external support is required to facilitate the consolidation the GDT*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2022/albanian/albaniacdreport.pdf_