## 1albea2022002

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### Preface — mission background and executive summary
- Mission delivered remotely to Albanian authorities during January 11 – February 3, 2021.
- Mission leadership and team:
  - Led by Mr. Frank van Brunschot.
  - Team comprised Mr. Stephen Vesperman (both FAD); Mr. Allan Jensen (FAD Regional Revenue Administration Advisor); and Messrs. Michael O’Grady and Paul Dempsey (FAD external experts).
- Meetings held with Ms. Delina Ibrahimaj (DG, GDT), GDT HQ and RTO managers and staff, Mr. Ervin Muca (NAIS), and development partners (Embassy of Switzerland, Delegation of the EU to Albania, Skatteverket, Financial Services Volunteer Corps, USA).
- Report structure: executive summary and eight sections including Context of Reform; Strengthening Governance and Organizational Arrangements; Improving Compliance Risk Management; Strengthening the Tax Audit Function; Enhancing the Capacity of the LTO; Consolidating and Strengthening the Debt Collection Function; Improving Register Accuracy, Taxpayer Services, and VAT Refund Processes; and Mobilizing Capacity Development Support.
- Purpose: assist the GDT in taking stock of reform efforts and provide advice on future efforts.
- Reform progress in 2020: consolidation of the tax debt management function; expansion of third-party data sources; improvement in VAT refund processes; additional electronic services; implementation of automatic reporting of non-resident financial account information.
- Government revenue objective: 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.
- Economic impact and revenue shock in 2020:
  - Economy expected to have contracted by 7½ percent in 2020.
  - Overall drop in 2020 tax revenues of ALL 28.6 billion year-on-year, with largest percentage falls in PIT and Profit Tax.
  - The GDT collects close to 60 percent of combined taxes and social contributions.

### Pandemic response, fiscalization, and other operational developments
- Pandemic response and operational resilience:
  - Government support applications made online to the GDT; GDT validated eligibility and processed claims for Treasury payment.
  - Government policy response included postponement of Profit Tax payments to 2021 and a loan guarantee scheme.
  - Some 80 percent of staff were able to work remotely.
  - Field audits reduced in favor of desk-based controls.
  - GDT business continuity systems had been tested following the earthquake in late 2019.
- Fiscalization schedule (phased in 2021):
  - Business to government from January; cashless B2B from July; cash transactions from September.
  - Authorities expect fiscalization will increase VAT revenues by 10 percent when fully implemented.
- VAT and Profit Tax exemptions (2021 onward):
  - VAT turnover threshold increased from ALL 2 million (and zero for regulated professions) to ALL 10 million, 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.
- Offshore account information:
  - In 2020 GDT implemented automatic reporting by Albanian banks of non-resident financial account information and began exchanging with 72 jurisdictions.
  - GDT expects to receive reciprocal information about offshore accounts held by Albanian tax residents starting in September 2021.
- Central register of bank accounts:
  - Under a new anti-money laundering law, GDT will be administrator of a new central register of bank accounts; this non-tax function will require significant resources and management time.
- Tax amnesty proposal: draft law published July 2020 was not supported by FAD or the EU and was not enacted.

### Fiscal and collection figures (as presented)
- Tax Type — 2018 / 2019 / 2020 (Preliminary) Revenue (GDP %)
  - PIT: 36.5 2.2 / 46.1 2.7 / 33.7 2.1
  - Social contributions: 93.2 5.7 / 98.4 5.9 / 97.7 6.2
  - Profit tax: 34.5 2.1 / 36.6 2.2 / 28.4 1.8
  - VAT: 143.5 8.8 / 132.4 7.9 / *130.4 8.3
    - Note: *VAT revenues do not reflect ALL 9.8 bn. in refund arrears at end-2020.
  - Excises: 45.0 2.8 / 46.7 2.8 / 44.5 2.8
  - Customs duties: 6.2 0.4 / 6.5 0.4 / 6.2 0.4
  - National etc. taxes: 38.6 2.4 / 36.4 2.2 / 35.8 2.3
  - Local govt.: 21.9 1.3 / 23.1 1.4 / 22.0 1.4
  - Total: 419.3 25.8 / 426.3 25.4 / 397.7 25.3
- Regional tax collection and field staff (2020)
  - Total Field Staff: LTO 119 / Tirana 291 / Durres 79 / Fier 108 / Other RTOs* 629 / Total 1,226
  - Service staff: 6 / 33 / 20 / 11 / 113 / 183
  - Collection staff: 10 / 48 / 0 / 17 / 22 / 97
  - Audit staff: 73 / 118 / 39 / 41 / 173 / 444
  - Other Support: 30 / 92 / 20 / 39 / 321 / 502
  - Tax Collected 2020 (Net ALL Billion): 78.0 / 92.0 / 12.2 / 6.6 / 33.3 / 218.9
  - Percent of collection: 35 / 42 / 5 / 3 / 15 / 100
  - Percent of field staff: 10 / 24 / 6 / 9 / 51 / 100
  - *Includes the three new debt collection sites

### Governance, organizational arrangements, workforce, and integrity
- Governance framework:
  - Senior management committees: Reform Management Committee; Operational Management Committee; Compliance Management Committee — all chaired by the DG.
  - Strategic Management Group (SMG) chaired by the DG with approved mandates.
- Organizational structure:
  - Function-based HQ with three business streams (program design, delivery, support). Deputy DG for program design position currently vacant.
  - Network of 13 RTOs and a Large Taxpayer Office (LTO).
  - Consolidations: Call Center and Payment Center centralized; arrears collection consolidated; separation of field monitoring from Tax Investigation Department; Transfer Pricing Units consolidated into LTO.
- Workforce and integrity issues:
  - Around 200 vacancies including Deputy DG position; vacant Deputy DG has at least 12 direct reports currently accountable to the DG.
  - GDT needs greater autonomy to adjust organizational design, staff deployment, and work allocation without always requiring Ministerial approval.
  - Critical skill gaps in audit, data analytics, debt collection, legislation interpretation, and LTO functions.
  - Integrity measures implemented: expanded desk audits and electronic services; GPS tracking and piloted video cameras; culture change program being developed; new senior anti-corruption position jointly reporting to DG and Ministry for Justice.
- Recommendations (organizational):
  - 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.
  - Deliver a comprehensive upskilling program in partnership with universities, other tax jurisdictions, and professional associations.
  - Further strengthen integrity assurance measures.

### Compliance Risk Management (CRM) and Risk Management Directorate (RMD)
- CRM governance and status:
  - Compliance Committee tasked with implementing modern CRM methodology; RMD responsible for identification of tax risks, development of CRM projects, and selection of audit cases.
  - Despite risk-based ambitions, many audits remain mandatory due to legal obligations.
  - CRM projects during pandemic included broader risk treatment methods, a letter campaign addressing under-declaration of wages, national compliance projects in construction and tourism, and a designed sectoral project for energy.
- RMD staffing and skills:
  - RMD has three current vacancies that should be promptly filled.
  - Vacancies ideally filled by post-graduates with economics and data management backgrounds; longer-term staff should include behavioral experts.
  - RMD staff skills would benefit from cooperation with universities, including the “excellence” internship program.
- Data analytics and tax gap analysis:
  - GDT needs to develop capacity in data analytics and undertake tax gap analyses to identify major compliance risk clusters.
  - A new data warehouse and more data sources are becoming available; a clear data management strategy is needed.
- Third-party data and automatic reporting:
  - Good progress on inflow of third-party data (electricity, water utilities, Customs, 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.
  - Domestic automatic reporting of key bank and financial account information for Albanian residents is not yet available — recommendation to seek law change to require automatic reporting.
- Risk feedback loop and evaluation:
  - Risk feedback loop from auditors to RMD underused; case management system not fully utilized by auditors.
  - Recommendation: systematically evaluate the compliance impact of operational activities and adopt a more systematic evaluation approach.
- CRM recommendations (summary):
  - Finalize and commence implementing a comprehensive CRM strategy.
  - Intensify 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.

### Tax audit function and Large Taxpayer Office (LTO)
- Audit activity and tools:
  - 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 is noted as good practice.
  - Introduction of the e-inspector system automates and monitors field staff, includes GPS trackers and video cameras, and allows case management data upload.
- Selected audit statistics (preserved exactly as presented)
  - Albania: Tax Audits 2019 - 2020 (selected figures)
    - Desk: 2019 — Number of Audits 26,668; Number with Results above ALL30,000 = 4,720; Average Monetary Value ALL1000 = 4,896. 2020 (11 Months) — Number of Audits 18,872; Number with Results above ALL30,000 = 3,608; Average Monetary Value ALL1000 = 5,352.
    - Vat Refund: 2019 — 829; 431; 1,367. 2020 (11 Months) — 648; 287; 1,017.
    - Comprehensive: 2019 — 1,221; 1,095; 7,324. 2020 (11 Months) — 616; 467; 5,956.
    - Single Issue: 2019 — 925; 689; 1,110. 2020 (11 Months) — 664; 298; 1,383.
    - Total: 2019 — 29,643; 6,935. 2020 (11 Months) — 20,800; 4,660.
- Audit resourcing and skills gaps:
  - Lack of flexibility in assigning cases across RTOs; 70 percent of cases selected centrally by RMD and 30 percent by RTOs.
  - Desk audit functions include many non-audit tasks that add little compliance value.
  - Auditors lack indirect audit methods and capacity to detect unrecorded transactions or unexplained wealth.
  - Recommendations: remove obstacles to assignment flexibility, systematically evaluate audit program performance, and implement an upskilling program for tax auditors in modern audit techniques.
- LTO — coverage, profiling, and capacity:
  - Large taxpayer segment pays over 40 percent of total GDT collection.
  - LTO developments: updated large case allocation criteria; LTO RMU established; single Transfer Pricing Team; audit sections increased from three to four; industry specializations reduced from 22 to 10.
  - Risk Differentiation Framework (RDF) progress limited: risk profiles for 430 cases scheduled by October 2020, with a further 100 per quarter until all 882 taxpayers profiled; to date only 100 cases have been profiled.
- LTO statistics (preserved exactly as presented)
  - Albania: LTO Audits 2018 - 2020 (selected figures)
    - Desk: 2018 — Number of Audits 5; Number with Results above 100,000 ALL = - . 2019 — 8; -. 2020 — 154; -.
    - Vat Refund: 2018 — 112; 54. 2019 — 144; 65. 2020 — 129; 34.
    - Comprehensive: 2018 — 120; 113. 2019 — 139; 135. 2020 — 114; 103.
    - Single Issue: 2018 — 88; 43. 2019 — 157; 41. 2020 — 328; 32.
    - Total: 2018 — 325; 210. 2019 — 448; 241. 2020 — 725; 169.
- LTO recommendations:
  - Ensure compliance treatments tailored to taxpayer risk profile.
  - LTO RMU should have primary responsibility for selecting LTO cases.
  - Implement fully the Risk Differentiation Framework Implementation Plan ensuring all LTO taxpayers are risk profiled.
  - Fill critical LTO vacancies (authorized staffing level 128 with eight vacancies) including head of the RMU and a transfer pricing specialist.
  - Deliver tailored training to strengthen accounting, financial statement analysis, tax technical, international tax, anti-avoidance, and commercial awareness.

### Debt collection, arrears stock, and strategic management of arrears
- Key arrears statistics and findings:
  - Total tax arrears ALL 122.4 billion at end September 2020 compared to ALL 116.9 billion at end December 2019.
  - Of total stock, 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 total tax inventory).
  - A relatively small number of taxpayers (4,040) collectively owe more than ALL 92.1 billion.
  - September 2020 stock includes component resulting from pandemic impacts and GDT relief measures.
- Tax debt time series (amounts in ALL millions — preserved exactly)
  - 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.
  - Of which: debts over two years: 2017 = 45,494 (48%); 2018 = 60,803 (56%); 2019 = 78,992 (68%); 2020 (Sept) = 85,680 (70%).
- Arrears collection organizational changes:
  - Consolidation of tax debt collection from 13 RTOs into three regional collection offices and in the LTO.
  - Consolidated structure with three work streams: (i) Monitoring, Analysis and Enforcement Measures; (ii) Field Implementation; (iii) Legal Proceedings and Enforced Collections.
- Under-resourcing and write-off issues:
  - Over 45 staff vacancies across three regional collection offices.
  - Tax Procedure Law provides authority to write off uncollectable tax debt after enforcement measures; to date no debt has been written off using this provision.
  - Table 7. 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
- Payment instalment agreements:
  - Web-based taxpayer self-service facility recommended to improve availability.
  - Current requirement: instalment agreements signed by taxpayer and Director of the RTO and processed by desk audit section — can create inconsistencies and integrity risks.
  - Recommendation: transfer approval of payment agreements to the Debt Collection Department.
- Enforcement measures:
  - Current tools include outbound call facility, garnishee action, blocking bank accounts, suspension of import/export licenses.
  - Bankruptcy/insolvency proceedings underused; recommendation to develop procedures and expertise for insolvency/bankruptcy action.
- Debt collection recommendations:
  - Immediately commence a project to write-off uncollectable debt focused on largest and oldest debts.
  - Continue to expand use of payment instalment agreements, implement web-based self-service facility, and assign responsibility for approving instalments to the Debt Collection Department.
  - Develop procedures and expertise for taking insolvency/bankruptcy action.

### Register accuracy, taxpayer services, and VAT refund processes
- Register accuracy and improvements:
  - New online facilities for taxpayers to update register details.
  - Increased cooperation with National Business Center (NBC); NBC will verify and correct register where GDT field staff report inaccuracies.
  - Fiscalization and access to third-party information will provide more opportunities for register integrity.
  - Identified issue: for some 6,200 businesses, economic activity classifications on GDT register were incorrect and needed changing during pandemic support administration.
  - Recommendation: develop program with NBC to test accuracy of economic activity (NACE) codes on an ongoing basis.
- Taxpayer services developments and gaps:
  - 2020 pivoted to supporting pandemic-related financial assistance: dedicated website support, rapid IT development, extensive call center and RTO contact.
  - Additional online services through e-Albania portal; standardized annual financial statement reporting to NBC and GDT; pre-population of monthly VAT declaration and DIVA personal income tax declaration under fiscalization.
  - Planned: taxpayer service and communications strategy to be developed later in 2021 with Swedish Tax Agency assistance.
  - Areas needing improvement: quantity, depth, and clarity of guidance on tax law interpretation; consider a separate website area for tax professionals.
- VAT refund stock, processing, and eligibility rules
  - Stock of unpaid VAT refund arrears: end-2020: ALL 9.8 billion (reduced from ALL 11.3 billion at end-2019 and ALL 16.8 billion at end-2018).
  - VAT refund arrears mainly concentrated in three companies (pipeline, hydropower, oil exploration).
  - Table 8. VAT Refund Situation at End-December 2020 (Amounts in ALL millions)
    - Pipeline: Number of cases 3; Number of taxpayers 1; Stock Amount 7,117
    - Hydro power: Number of cases 3; Number of taxpayers 3; Stock Amount 248
    - Oil exploration: Number of cases 2; Number of taxpayers 1; Stock Amount 1,557
    - Exporters: Number of cases 3; Number of taxpayers 3; Stock Amount 758
    - Other businesses: Number of cases 1; Number of taxpayers 1; Stock Amount 117
    - Total: Number of cases 12; Number of taxpayers 9; Stock Amount 9,797; Number of cases (not in payment arrears) 239; Amount not in arrears 4,598
  - VAT refund payment-by-installment arrangements for claims exceeding ALL 150 million (Council of Ministers decision 13 February 2020):
    - No interest payable under these arrangements.
    - Arrangements can extend for up to two years.
    - Special provisions for treating refund arrears as collateral for a bank loan.
    - GDT entered into five new instalment agreements (in addition to three “legacy” agreements) since decision came into effect.
    - Recommendation: rescind Council of Ministers decision once three legacy arrears cases are settled; all valid refund claims should be repaid in full within statutory time limits.
  - GDT target of zero VAT refund arrears by end-2021:
    - GDT committed to settling the largest refund arrears case (pipeline company) by end-June 2021; if met, will reduce end-2020 arrears stock by some 73 percent.
    - GDT targeting zero overall refund arrears stock by end-2021 despite new high-value claims being placed on instalment arrangements.
  - Processing improvements:
    - Average interval between VAT refund request and transfer by GDT to Treasury for payment in 2020 was 83 days (2019: 170 days).
    - Changes planned for 2021 include new IT platform for VAT refunds allowing online requests and automatic interest where refund not made within legal time limits.
  - Eligibility issue:
    - Except for exporters, a taxpayer must be in VAT credit situation for three consecutive months and credit amount must exceed ALL 400,000 at end of third month to claim refund.
    - Recommendation: a declaration showing negative VAT should automatically be regarded as a refund claim without need for separate claim.
- Recommendations (registration, services, refunds):
  - Ensure operational plans emphasize improving register completeness and accuracy, including systematic cross-checking of relevant third-party data.
  - Develop and publish a taxpayer service and communications strategy by end-2021.
  - Improve range, depth, and clarity of published tax law interpretation and procedural guidance; 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 MOFE: seek legislative amendment to refund credits without any minimum carry forward period and without requirement for separate refund claim.

### Mobilizing capacity development (CD) support and external partners
- Current FAD CD project runs until April 2022.
- FAD preliminary CD plan (May 2021 to April 2022) agreed in principle with GDT:
  - One FAD HQ mission (likely TADAT) to be delivered January/February 2022.
  - Ongoing support from Slovenia-based regional FAD advisor.
  - Short-term expert assignments and visits planned (May 1, 2021 - April 30, 2022).
- External support providers secured:
  - Swedish Tax Administration, the EU, and FAD.
- Short-term expert assignments (May 1, 2021 - April 30, 2022) — delivery periods and areas (preserved exactly)
  - 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
- Priority CD gaps:
  - Tax audit function is weak and requires considerably more external input than current FAD CD project allows; large-scale external support and a Tax and Customs Academy likely needed for overhaul.
  - Leadership training and executive coaching for new managers recommended.
- FAD CD support during May 1, 2020 to April 30, 2021 (selected)
  - One remote FAD mission delivered January/February 2021.
  - Ongoing support from Slovenia-based regional FAD advisor.
  - Short-term expert assignments delivered/confirmed (e.g., consolidation and reengineering of tax debt collection; compliance management of high-wealth-individuals; development of capacity in data analytics; development and implementation of CRM projects).

### Implementation status of prior (January 2019) FAD 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. There are still only two Deputy DGs and there are approximately 200 other vacancies.
  - 3. Pursue options to give the GDT greater autonomy: Not Implemented.
  - 4. Establish a strong governance process for management of the new IT contract: Implemented.
  - 5. Develop an overarching integrity strategy: Not Implemented (some measures implemented; new senior position established).
- Section IV: Strengthening CRM
  - 10. Broaden access to third-party data and procure data-warehouse and analytical tools: Partially Implemented.
  - 11. Develop a data management strategy: Not implemented.
  - 12. Enhance CRM to develop multiyear compliance improvement plan: Partially implemented.
- Section VI: Improving Tax Arrears Collection
  - 18. Develop a strategy to write-off uncollectable tax arrears: Not implemented. No write-off strategy and no write-offs have taken place.
  - 19. Appoint project manager of consolidated tax arrears pilot and progress detailed design: Implemented.
- Section IX: Timely Payment of VAT Refunds
  - 26. Pay outstanding VAT claims as quickly as possible: Partially implemented. Stock of refund arrears ALL 9.8 bn at end-2020 — GDT committed to refunding 73 percent of end-2020 arrears (pipeline company) by June 30, 2021.
  - 27. MOFE to improve forecasting of net tax revenue to ensure funds available to pay all legitimate VAT refund claims immediately: Not implemented.
  - 28. MOFE to seek legislative amendment to refund credits without minimum carry forward period and without separate refund claim: Not implemented.

*Source: IMF Fiscal Affairs Department remote mission report to the General Directorate of Taxes (GDT), January 11 – February 3, 2021 (content unit 1albea2022002).*

### PREFACE ___________________________________________________________________________________________________ 6

### PREFACE

### Mission background
- The IMF Fiscal Affairs Department’s (FAD) capacity development (CD) mission was delivered remotely to the Albanian authorities during January 11 – February 3, 2021 using online video conferencing tools.
- The mission was led by Mr. Frank van Brunschot and comprised Mr. Stephen Vesperman (both FAD); Mr. Allan Jensen (FAD Regional Revenue Administration Advisor); and Messrs. Michael O’Grady and Paul Dempsey (FAD external experts).
- Meetings were held with Ms. Delina Ibrahimaj, Director General (DG) of the General Directorate of Taxes (GDT), GDT HQ and Regional Tax Offices (RTO) managers and staff, Mr. Ervin Muca (National Agency for Information Society, NAIS), and representatives from development partners including the Embassy of Switzerland, the Delegation of the EU to Albania, Skatteverket (Swedish Tax Administration), and Financial Services Volunteer Corps, USA.
- The mission expressed appreciation for cooperation from the GDT and mission support from Ms. Irena Xhafa, Chief of Cabinet.
- The report comprises 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; and (viii) Mobilizing Capacity Development Support.

### Executive summary — purpose and reform progress
- Purpose: assist the GDT in taking stock of reform efforts and provide advice on future efforts.
- Reform progress in 2020: 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.
- Pandemic response: the GDT “pivoted to deliver financial supports to affected businesses while managing its core activity with limited disruption.”
- Government revenue objective: 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.
- Economic context and 2020 impact:
  - The economy is expected to have contracted by 7½ percent in 2020.
  - Overall drop in 2020 tax revenues of 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.

### Key 2021 operational challenges identified
- Implementation of fiscalization (real-time monitoring of electronic invoices and cash transactions) in phased approach during 2021; authorities expect fiscalization will, over time, deliver an uplift of 10 percent in VAT revenues.
- Administration of a new central registry of bank accounts (non-tax function) for anti-money laundering purposes, requiring significant GDT resources and management time.

### Key areas for further development (findings and priorities)
- Organizational flexibility and upskilling of staff:
  - GDT needs more autonomy and flexibility in staff deployment, work allocation, and organizational change without always requiring Ministerial approval.
  - Critical need to improve 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 that make up the bulk of the tax gap.
  - Seek automatic reporting to the GDT of key financial account information of Albanian residents (similar to current reporting for non-residents) to enhance risk profiling and improve tax declaration accuracy.
- Audit and management of large taxpayers:
  - Audit activity and outcomes should be more systematically evaluated, particularly as 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 (RMU) rather than solely by the central risk department.
- Tax debt management and arrears reduction:
  - Stabilize and place the growing level of tax arrears on a downward trajectory.
  - Expand use of tax payment installment arrangements and write off uncollectible debt as allowed by the Tax Procedure Law.
  - Improve procedures and staff expertise for taking insolvency/bankruptcy 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 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 ensure businesses with negative VAT in any period are eligible for refund without overly restrictive preconditions.

### Mission recommendations (summary of Table 1 — timing and focus)
- Short-term (1 - 12 months) priorities include:
  - Seek more autonomy for the GDT in organizational design, staff deployment, and work allocation.
  - Fill vacant critical staff positions, including the third Deputy Director General position.
  - Further strengthen integrity assurance measures.
  - Finalize and commence implementing a comprehensive CRM strategy.
  - Immediately commence a project to write-off uncollectable debt.
  - Ensure operational plans emphasize improving register completeness and accuracy, including systematic cross-checking of relevant third-party data.
  - Develop and publish a taxpayer service and communications strategy by end-2021.
  - Pay all valid VAT refund claims within prescribed legal time limits and reduce payment-by-installment arrangements to zero as soon as possible.
- Medium-term (1 - 2 years) priorities include:
  - Deliver a comprehensive upskilling program in partnership with universities, other tax jurisdictions, and professional associations.
  - Intensify 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 and audit program performance.
  - Implement fully the Risk Differentiation Framework Implementation Plan and ensure all LTO taxpayers are risk profiled.
  - Expand the use of payment instalment agreements, including implementing a web-based taxpayer self-service facility, and assign responsibility for approving payment instalments to the Debt Collection Department.
  - Develop procedures and expertise for taking insolvency/bankruptcy action.
  - Develop a program, in cooperation with the National Business Center (NBC), to test the accuracy of economic activity codes recorded on the register.

### Mobilizing capacity development support
- The current FAD capacity development (CD) project runs until April 2022.
- CD support will focus on improving tax debt collection, data analytics, compliance of high wealth individuals, development of future CRM projects, and organization and management of operational activities.
- GDT should coordinate external support (including from the Swedish Tax Agency and the EU) to avoid duplication.
- GDT should explore external support options for large-scale upskilling of auditors and for leadership training.

*Source: IMF Fiscal Affairs Department remote mission report to the General Directorate of Taxes (GDT), January 11 – February 3, 2021.*

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

### 1albea2022002 - 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 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.
- Government 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 (late-2020) of the GDT’s overall service performance during the pandemic was, with some exceptions, generally favorable.
- The GDT’s business continuity systems had been tested following the earthquake in late 2019.

### 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 (and 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.
  - Potential risks: tax arbitrage, “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; expansion of VAT exemption and breach of normal VAT “chain” poses major risks of tax leakage and will be difficult for the GDT to control.
- Offshore accounts: automatic exchange of information:
  - With assistance from the Italian tax administration, in 2020 the GDT implemented automatic reporting by Albanian banks 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:
  - Draft tax amnesty law published in July 2020 was not supported by FAD or the EU; it was not enacted and no information was 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.

### Fiscal and revenue figures (as presented)
- Tax Type — 2018 / 2019 / 2020 (Preliminary) Revenue (GDP %)
  - PIT: 36.5 2.2 / 46.1 2.7 / 33.7 2.1
  - Social contributions: 93.2 5.7 / 98.4 5.9 / 97.7 6.2
  - Profit tax: 34.5 2.1 / 36.6 2.2 / 28.4 1.8
  - VAT: 143.5 8.8 / 132.4 7.9 / *130.4 8.3
    - Note: *VAT revenues do not reflect ALL 9.8 bn. in refund arrears at end-2020.
  - Excises: 45.0 2.8 / 46.7 2.8 / 44.5 2.8
  - Customs duties: 6.2 0.4 / 6.5 0.4 / 6.2 0.4
  - National etc. taxes: 38.6 2.4 / 36.4 2.2 / 35.8 2.3
  - Local govt.: 21.9 1.3 / 23.1 1.4 / 22.0 1.4
  - Total: 419.3 25.8 / 426.3 25.4 / 397.7 25.3
- Table: Regional tax collection and field staff (2020)
  - Area of Work — LTO / Tirana / Durres / Fier / Other RTOs* / Total
    - Total Field Staff: 119 / 291 / 79 / 108 / 629 / 1,226
    - Service: 6 / 33 / 20 / 11 / 113 / 183
    - Collection: 10 / 48 / 0 / 17 / 22 / 97
    - Audit: 73 / 118 / 39 / 41 / 173 / 444
    - Other Support: 30 / 92 / 20 / 39 / 321 / 502
    - Tax Collected 2020 (Net ALL Billion): 78.0 / 92.0 / 12.2 / 6.6 / 33.3 / 218.9
    - Percent of collection: 35 / 42 / 5 / 3 / 15 / 100
    - Percent of field staff: 10 / 24 / 6 / 9 / 51 / 100
  - *Includes the three new debt collection sites
  - Source: GDT/FAD Questionnaire

### Reform progress and planned agenda
- Achievements in 2020:
  - 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 agenda and medium-term strategy (2022-2025):
  - Most significant 2021 task: implementation of fiscalization, requiring 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 2021 plans: establishing a specialized unit for high-wealth individuals; consolidating databases; developing an asset register; completing reorganization of the Tax Debt Collection Department.
  - Development of a medium-term strategy for the GDT is underway and will be finalized in tandem with the government's proposed MTRS strategy.
- Progress on prior recommendations:
  - Stock-take of January 2019 FAD mission recommendations: 50 percent of the recommendations were implemented or partially implemented. Remaining recommendations are updated and integrated with recommendations in this report.

### Governance and organizational arrangements — current situation
- Governance framework:
  - Senior management committees: (i) Reform Management Committee (strategic direction and reform supervision); (ii) Operational Management Committee (annual planning and performance monitoring); (iii) Compliance Management Committee (implementation of CRM system). All three are chaired by the Director General (DG).
  - Strategic Management Group (SMG), chaired by the DG, responsible for overarching governance. Approved mandates exist for each committee and the SMG.
- Working groups:
  - Established to guide and monitor key reform projects and operational initiatives; usually chaired by a senior leader.
  - Focus areas include fiscalization, automatic exchange of information, central register of bank accounts, consolidation of arrears collection, oversight of operational activities (including pandemic response), and IT prioritization.
- Organizational structure:
  - Function-based HQ with three business streams (program design, delivery, support). Each stream managed by a Deputy DG (Deputy DG for program design currently vacant).
  - Network of 13 Regional Tax Offices (RTO) and a Large Taxpayer Office (LTO).
  - Consolidations implemented: centralized Call Center and Payment Center; consolidation of arrears collection; separation of field monitoring from Tax Investigation Department; consolidation of Transfer Pricing Units into LTO.

### Integrity, IT, and support arrangements
- Integrity measures implemented in last 12 months:
  - Expanded use of desk audits and electronic services to reduce face-to-face contact.
  - GPS tracking used for some field officers; video camera use piloted.
  - Culture change program of training and information to emphasize integrity is being developed.
  - New senior position (jointly reporting to DG and Ministry for Justice) established for promoting, monitoring, and enforcing anti-corruption strategy.
- Information Technology:
  - GDT relies on the National Agency for Information Society (NAIS) for all IT services, including reform system changes and maintenance.
  - NAIS manages the platform for the new fiscalization system, which requires real-time sales data reporting to the GDT and provides the platform for mandatory e-invoicing, including risk analysis and data warehouse functionality.

### Areas needing improvement — organizational arrangements, workforce, integrity
- Autonomy and staff deployment:
  - GDT needs greater autonomy to adjust organizational structure, staff deployment, and work allocation in response to risk and operational needs.
  - Allocation of staff to smaller regional offices appears inconsistent with work throughput and level of risk-to-revenue; significant work backlogs reported in the Tirana office.
- Vacancies and management capacity:
  - Around 200 vacancies including a Deputy DG position in HQ; vacant Deputy DG has at least 12 direct reports currently accountable directly to the DG.
- Skills and competency gaps:
  - Urgent need to improve technical skills across the workforce, especially in audit, data analytics, debt collection, legislation interpretation, and LTO functions.
  - Auditors focus almost exclusively on reconciling accounting records to tax returns and lack training in indirect audit methods and capacity to detect unrecorded transactions or unexplained wealth.
  - Debt collection staff lack sufficient skill in enforcement measures (e.g., bankruptcy and liquidation action).
  - Current training program is not based on a strategic assessment of skills gaps.
- Integrity strengthening:
  - Planned appointment of a senior leader responsible for developing the GDT’s integrity framework should be implemented as soon as practicable.

### 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 workforce competencies in partnership with universities, other tax jurisdictions, and professional associations.
- Further strengthen integrity assurance measures.

### Improving compliance risk management — current situation and needs
- CRM governance and progress:
  - Compliance Committee tasked with implementing modern CRM methodology, promoting integrated compliance improvement strategies, and approving design and launch of compliance projects.
  - 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, many non-risk/low-risk based audit activities remain mandatory due to legal obligations disproportionate to risk.
  - CRM projects progressed during the pandemic: use of a broader range of “risk treatment” methods, successful letter campaign addressing under-declaration of wages, continuation of national compliance projects in construction and tourism, and design of a sectoral compliance project for the energy sector.
- Areas needing improvement:
  - A comprehensive compliance strategy has started but needs finalization to commence implementation.
  - 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 agencies and access to a wider range of third-party data.
  - RTOs should be involved in developing the strategy and new compliance projects to improve ownership and commitment.
  - No evidence of decline in overall informality in Albania; “envelope wages” situation appears to have worsened since 2016.
  - Options for addressing informality on a holistic basis are available in the January 2020 FAD mission report and may be considered in strategy development.

*Source: 1albea2022002 - 3.      The GDT played a key role in implementing various pandemic-related  financial (IMF PDF).*

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

### 1albea2022002 - 29.      The RMD should be adequately resourced with specialist staff. A fully staffed RMD is

### Risk Management Division (RMD) — staffing and skills
- Findings:
  - The RMD has three current vacancies that should be promptly filled.
  - Ideally vacancies are filled 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.
- Recommendations (from Section C, paragraph 34 relevant to CRM):
  - 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.

### Data analytics, tax gap analysis, and data management
- Findings:
  - The GDT needs to develop capacity in data analytics and undertake tax gap analyses to help identify existing and emerging risks.
  - A new data warehouse and more data sources are becoming available, creating the need for a clear data management strategy that defines 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 major risk clusters.

### Third-party data and automatic reporting
- Findings:
  - Good progress has been made on increasing inflow and range of third-party data, including 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 in relation to domestic bank accounts of Albanians, creating a major inconsistency compared to offshore account reporting.
- Recommendation:
  - The GDT needs to continue pressing for a law change to require automatic reporting of key financial account information of Albanian residents.

### Risk feedback loop and audit reporting
- Findings:
  - The risk feedback loop from tax auditors to the RMD needs enhancement using the IT systems’ case management system.
  - The current case management system, which includes a risk feedback loop, is not fully used by auditors.
  - On a limited basis, auditors are manually providing the RMD with feedback on effectiveness of risk selections.
  - Ongoing work on standardizing and computerizing audit reports should help address this issue.

### Evaluation of compliance outcomes
- Findings:
  - The RMD compiles statistics on compliance activities (e.g., tax audit) in terms of number of actions and direct yield outcomes.
  - There is only limited evaluation of the relative effectiveness of different types of interventions in terms of compliance impact.
- Recommendation:
  - Adopt a more systematic approach to evaluating the compliance impact of operational activities.

### Tax audit function — activity and tools
- Findings:
  - The organization of audit and field monitoring has improved, including separation of field monitoring from tax investigation and a new monitoring unit for desk audit.
  - A specialized department focused on high-wealth individuals and tax avoidance has been established.
  - Centralization of audit case selection is noted as good practice.
  - The GDT continued audit activities during the pandemic, but the number of audits declined.
  - Introduction of the e-inspector system automates and monitors field monitoring staff, includes GPS trackers and video cameras, and allows case management data to be uploaded to the main IT system.
- Table: Albania: Tax Audits 2019 - 2020 (selected figures preserved exactly as presented)
  - Desk: 2019 — Number of Audits 26,668; Number with Results above ALL30,000 = 4,720; Average Monetary Value ALL1000 = 4,896. 2020 (11 Months) — Number of Audits 18,872; Number with Results above ALL30,000 = 3,608; Average Monetary Value ALL1000 = 5,352.
  - Vat Refund: 2019 — 829; 431; 1,367. 2020 (11 Months) — 648; 287; 1,017.
  - Comprehensive: 2019 — 1,221; 1,095; 7,324. 2020 (11 Months) — 616; 467; 5,956.
  - Single Issue: 2019 — 925; 689; 1,110. 2020 (11 Months) — 664; 298; 1,383.
  - Total: 2019 — 29,643; 6,935. 2020 (11 Months) — 20,800; 4,660.

### Audit resourcing, selection, and auditor skills
- 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; imbalances mean high-risk cases at some RTOs cannot be audited.
  - Currently, 70 percent of cases are selected centrally by the RMD, while 30 percent are selected by the RTOs; many cases are still selected due to mandatory audit obligations (e.g., taxpayer deregistration, bankruptcy) that may not present substantial tax risk.
  - Desk audit functions include many tasks not audit-related (follow-up on non-submitted returns, pursuing collection of new debts, agreeing installment arrangements, helping taxpayers make corrections, "other validations", responding to taxpayer queries); many add little value in terms of compliance impact.
  - Skills and competencies of auditors need enhancement to perform high-quality audits and address emerging risks; introduction of fiscalization and increased third-party data will shift work towards more comprehensive audit and investigation activities requiring advanced skills.
- Recommendations:
  - Consider removing obstacles that hinder assignment of cases to auditors based on their skills and abilities, including between regional offices.
  - Systematically evaluate 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.

### Large Taxpayer Office (LTO) — coverage, profiling, and capacity
- Findings:
  - Large taxpayer segment pays over 40 percent of total GDT collection.
  - The LTO has continued operational development: updated large case allocation criteria, establishment of an LTO Risk Management Unit (RMU), a single Transfer Pricing Team, increase in audit sections from three to four, and reduction of industry specializations from 22 to 10.
  - The LTO has made limited progress on implementing 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.
- Table: Albania: LTO Audits 2018 - 2020 (selected figures preserved exactly as presented)
  - Desk: 2018 — Number of Audits 5; Number with Results above 100,000 ALL = - . 2019 — 8; -. 2020 — 154; -.
  - Vat Refund: 2018 — 112; 54. 2019 — 144; 65. 2020 — 129; 34.
  - Comprehensive: 2018 — 120; 113. 2019 — 139; 135. 2020 — 114; 103.
  - Single Issue: 2018 — 88; 43. 2019 — 157; 41. 2020 — 328; 32.
  - Total: 2018 — 325; 210. 2019 — 448; 241. 2020 — 725; 169.
- Areas needing improvement and recommendations:
  - Compliance improvement treatments must be tailored to each taxpayer’s risk profile (low risk → taxpayer support; medium risk → selective audit and engagement; higher risk → focused treatment on identified risks).
  - LTO should evaluate and develop effectiveness of alternative audit approaches, including indirect audit techniques and computer assisted audit tools.
  - The LTO RMU should have primary responsibility for selecting cases for audit or other treatment within the large taxpayer segment, rather than central selection by the RMD.
  - Implement fully 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.
  - Enhance LTO capacity by filling critical vacancies (authorized staffing level for the LTO is 128, with eight vacancies) including head of the RMU and a transfer pricing specialist, and by delivering a tailored training program to strengthen expertise in accounting, financial statement analysis, tax technical, international tax, anti-avoidance, and commercial awareness.
  - Continue to implement outstanding recommendations from the December 2019 FAD expert report.

### Debt collection — arrears stock and restructuring
- Findings and key 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.
  - Approximately 70 percent of debt is overdue by more than two years.
  - The 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.
  - The September 2020 stock of tax arrears includes a component resulting from economic impacts of the pandemic and the GDT’s consequential relief measures.
- Table: Albania: Tax Debt 2017 - 2020 (amounts in ALL millions — preserved exactly as presented)
  - 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.
  - Of which: debts over two years: 2017 = 45,494 (48%); 2018 = 60,803 (56%); 2019 = 78,992 (68%); 2020 (Sept) = 85,680 (70%).
- Organizational developments:
  - The GDT consolidated tax debt collection activities from 13 RTOs into three regional collection offices and in the LTO.
  - The consolidated structure incorporates three distinct work streams: (i) Monitoring, Analysis and Enforcement Measures; (ii) Field Implementation; and (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.
- Operational focus and priorities:
  - Priority increasingly given to managing higher risk collection cases; detailed analysis of active cases assists prioritization.
  - Following recent FAD advice, the GDT is sharpening focus on the top 100 highest debt cases for intensive active management.
  - Increased focus on managing tax debt owed by State Owned Enterprises is achieving positive outcomes.
  - Payment installment agreements are being used; these are broadly consistent with international good practice and are a useful option during the pandemic period.
- Areas needing improvement:
  - Further improvements to optimize use of installment agreements are necessary.

*Source: 1albea2022002 (IMF content provided).*

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

### 1albea2022002 - 58.      A more strategic approach to managing the arrears collection function is required.

### Arrears collection: strategic management and HQ role
- Some effort to prioritize arrears cases based on risk exists, but not in a systemic way.
- HQ needs to actively plan strategic allocation of resources based on comprehensive analysis to achieve the optimum return on the use of those resources (see section II.B above for organizational arrangements).
- Preliminary audit findings from the Supreme State Audit Institution are consistent with the need for a more strategic approach.
- The HQ debt collection team is largely focused on monitoring and reporting and is not taking an active role in improving operational effectiveness of arrears collection teams.
- The GDT needs to allocate resources based on risk assessment and identify high risk debt cases that require proactive management.

### Under-resourcing risk
- There are over 45 staff vacancies across the three regional collection offices.
- Understaffing can:
  - Detrimentally impact work output.
  - Create pressure for employees.
  - Impact on the quality of work.
- Early intervention increases the likelihood that tax debt can be collected; the ability to respond quickly is impeded when staffing levels are not maintained.
- 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.
- 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
- 68 percent of the tax arrears relates to inactive taxpayers.
- 70 percent of the total arrears inventory is aged over two years.
- 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 focused initially on the largest and oldest debts.
- A recommended approach is set out in detail in a recent FAD expert’s report.

### Payment installment agreements
- Installment agreements are a useful service for taxpayers experiencing cash flow difficulties and can increase the likelihood that debt will be collected.
- A web-based (taxpayer self-service) facility should be designed and implemented as soon as practicable to improve availability.
- Current procedures require installment agreements be signed by the taxpayer and the Director of the RTO; processing is assigned to the desk audit section.
  - This can result in inconsistencies in approval decisions and provides an unnecessary opportunity for integrity breaches.
- Action should be taken to transfer approval of payment agreements to the Debt Collection Department; this is currently being considered by the GDT.
- The Debt Collection Department should be responsible for approving payment installment agreements.

### Stronger enforcement measures
- The GDT uses outbound call facility, garnishee action, blocking bank accounts, and suspension of import/export licenses.
- Action beyond these interventions is limited.
- Bankruptcy or insolvency proceedings should be used where other enforcement actions have been exhausted, particularly if the business continues to trade.
- Next steps: develop policies, procedures, and expertise for taking insolvency/bankruptcy action.

### 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.

### Improving register accuracy, taxpayer services, and VAT refund processes — Tax register accuracy
- Recent developments improving register accuracy:
  - New online facilities for taxpayers to update register details.
  - Increased cooperation with the National Business Center (NBC).
  - NBC will verify and correct the register where GDT field staff report inaccuracies.
  - Cooperation agreement provides for wider range of data to be exchanged electronically (including on liquidations, mergers, and divisions).
- Fiscalization law (to come into effect in phases in 2021) and increased access to third-party information (electricity and water providers, planned Albanian national electronic address register) will provide more opportunities for assuring register integrity.
- Systematic cross-checking of the register against relevant databases and fiscalization register information will help ensure accuracy, completeness, and timeliness.

### Areas needing improvement in register accuracy
- Economic code accuracy weaknesses exposed during pandemic-related financial support programs:
  - For some 6,200 businesses, economic activity classifications on the GDT register were incorrect and needed changing during administration of support programs.
  - Need for regular testing (in cooperation with the NBC) of the accuracy of economic codes (NACE classifications) recorded in the register.
- Operational plans need greater emphasis on improving register completeness and accuracy, including systematic cross-checking of available data sources in addition to field work.

### Taxpayer services — current situation and issues
- In 2020, GDT taxpayer service effort pivoted to supporting pandemic-related financial assistance programs:
  - Dedicated website support, rapid IT systems development, extensive contact with call center and RTOs.
  - A GDT public perception survey (November-December 2020) of service performance was, with some exceptions, generally favorable.
- Improvements in 2020:
  - Additional online services through the e-Albania portal.
  - Standardized format of annual financial statement reporting to both NBC and GDT.
  - New arrangements to pre-populate the monthly VAT declaration of purchases and sales books under fiscalization.
  - DIVA personal income tax declaration form is also being pre-populated.
- GDT intends to develop a taxpayer service and communications strategy later in 2021, with assistance from the Swedish Tax Agency.

### Areas needing improvement in taxpayer services and communications
- Need to draw together various service and communication policies into an overarching strategy document.
- Issues with quantity, depth, and clarity of GDT communications and guidance on tax legislation and procedures; businesses express concerns.
- Tax advisors report dissatisfaction with quantity and depth of interpretive guidance given many “grey areas” in the tax code.
- Support for and engagement with accountants and other tax advisors can be improved:
  - Recent cooperation arrangement between GDT and the Institute of Certified Accountants (formal agreement not yet signed).
  - Consider introducing a separate area of the website for tax professionals.

### Timely payment of VAT refunds — stock and processing
- Stock of unpaid VAT refund arrears:
  - End-2020: ALL 9.8 billion (reduced from ALL 11.3 billion at end-2019 and ALL 16.8 billion at end-2018).
  - Refund arrears mainly concentrated in three companies involved in pipeline construction, hydropower generation, and oil exploration.
- Table 8. Albania: VAT Refund Situation at End-December 2020 (Amounts in ALL millions)
  - Pipeline: Number of cases 3; Number of taxpayers 1; Stock of VAT refund claims in payment arrears Amount 7,117
  - Hydro power: Number of cases 3; Number of taxpayers 3; Stock Amount 248
  - Oil exploration: Number of cases 2; Number of taxpayers 1; Stock Amount 1,557
  - Exporters: Number of cases 3; Number of taxpayers 3; Stock Amount 758
  - Other businesses: Number of cases 1; Number of taxpayers 1; Stock Amount 117
  - Total: Number of cases 12; Number of taxpayers 9; Stock Amount 9,797; Number of cases (not in payment arrears) 239; Amount not in arrears 4,598
- VAT refund payment-by-installment arrangements for high-value claims were formalized by a Council of Ministers decision of 13 February 2020 for claims exceeding ALL 150 million:
  - No interest payable under these arrangements.
  - Arrangements can extend for up to two years.
  - Special provisions for treating refund arrears as collateral for a bank loan.
  - GDT entered into five new installment agreements (in addition to three “legacy” agreements) since decision came into effect.
  - Recommendation: Council of Ministers decision should be rescinded once three legacy arrears cases are settled; all valid refund claims, regardless of amount, should be repaid in full within statutory time limits.
- GDT target of zero VAT refund arrears by end-2021:
  - GDT committed to settling the largest refund arrears case (pipeline company) by end-June 2021; if met, will reduce end-2020 arrears stock by some 73 percent.
  - GDT targeting zero overall refund arrears stock by end-2021 despite new high-value claims being placed on installment arrangements.
- Processing improvements:
  - Average interval between a VAT refund request and transfer by GDT to the Treasury for payment in 2020 was 83 days (2019: 170 days).
  - Improvements due to streamlined (risk-based) decision-making and workflows introduced in April 2020.
  - Changes planned for 2021 include a new IT platform for VAT refunds to allow online requests and automatic interest where refund is not made within legal time limits.
  - Legal timing examples: 60 days generally, and 30 days for certain exporters.

### Eligibility requirements for VAT refund — issue
- Current eligibility rules are overly restrictive and incompatible with EU norms:
  - Except for exporters, a taxpayer must be in a VAT credit situation for three consecutive months before a refund can be claimed, and the credit amount must exceed ALL 400,000 at the end of the third month.
  - A business with one-off or irregular significant purchases or investments resulting in negative VAT cannot claim a refund under current rules.
  - Recommendation: A declaration showing negative VAT should automatically be regarded as a refund claim without need for a separate claim.

### Recommendations for Taxpayer Registration, Taxpayer Services, and VAT Refund Processes
- Tax Register Accuracy
  - Ensure operational plans put more emphasis on improving register completeness and accuracy, including systematic cross-checking of relevant third-party data.
  - Develop a program (in cooperation with the NBC) to test, on an ongoing basis, the accuracy of economic activity codes recorded on the register.
- Taxpayer Services
  - Develop and publish a taxpayer service and communications strategy by end-2021.
  - Improve the range, depth, and clarity of published tax law interpretation and procedural guidance and provide a dedicated website area for tax advisors.
- Timely Payment of VAT Refunds
  - Pay all valid VAT refund claims within the prescribed legal time limits and reduce the current 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.

### Mobilizing capacity development support
- External support has been provided for more than a decade from several providers; good progress has resulted.
- During 2020, in addition to FAD, the WB provided support to development of a compliance project concerning under-declaration of wages (“Letter Project”).
- FAD CD support during May 1, 2020 to April 30, 2021:
  - One remote FAD mission delivered in January/February 2021 to take stock of GDT development efforts and provide recommendations.
  - Ongoing support throughout the year from the Slovenia-based regional FAD advisor.
  - Remote short-term expert assignments planned/delivered as shown in Table 9.
- Table 9. Albania: Short-Term Expert Assignments to the GDT, May 1, 2020 – April 30, 2021
  - September/December 2020: Consolidation and reengineering of tax debt collection — Delivered
  - November 2020 – January 2021: Compliance management of high-wealth-individuals — Delivered
  - March/April 2021: Development of capacity in data analytics — Confirmed
  - March/April 2021: Compliance management of high-wealth-individuals — Confirmed
  - March/April 2021: Development and implementation of CRM projects — Confirmed
  - March/April 2021: Consolidation and reengineering of tax debt collection — Confirmed

*Source: 1albea2022002 - 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

### 1albea2022002 - 83.      Continued external support is required to facilitate the consolidation the GDT

### Continued external support and secured providers
- Continued external support is required to facilitate the consolidation the GDT achievements so far and to further strengthen the administration.
- The authorities have secured support from:
  - the Swedish Tax Administration,
  - the EU,
  - FAD.

### FAD preliminary CD plan (May 2021 to April 2022) — agreed in principle with the GDT
- 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 as shown in Table 10 (May 1, 2021 - April 30, 2022).

- Context notes from footnotes:
  - Swedish Tax Agency: drafting a project proposal for an inception phase of one year of CD support to the GDT; preliminary focus areas may include taxpayer services; integrity enhancements; CRM; tax audit and investigations; automatic information exchange with authorities abroad; VIES; and business process redesign. Initial cooperation expected to develop into a longer-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 expected to commence during 2021.
  - The FAD CD support shown in Tables 9 and 10 is delivered by FAD with financial support from the EU and SECO.
  - TADAT description: The Tax Administration Diagnostic Assessment Tool (TADAT) is 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) — delivery periods and areas
- 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

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

### Priority areas lacking sufficient CD support
- The tax audit function is weak and would require considerably more external input than is possible through the current FAD CD project.
  - The 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 to achieve a complete shift in audit approach and focus.
  - Only when audit capacity is overhauled will implementation of compliance strategies have a lasting impact on taxpayer compliance and the tax gap.
- Providing emerging and new managers with leadership training and/or executive coaching would be very beneficial for the GDT’s reform and operational efforts, as well as employee relationships.

### Appendix I — Implementation of the January 2019 FAD Mission Report Recommendations (selected items)
- Section II: Improving 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. There are still only two Deputy DGs and there are approximately 200 other vacancies.
  - 3. Pursue options to give the GDT greater autonomy: Not Implemented.
  - 4. Establish a strong governance process for the management of the new IT contract: Implemented. Managed through the Strategic Management Group.
  - 5. Develop an overarching strategy to build a strong integrity culture: 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 all largest taxpayers are managed by the LTO: Implemented. However, affiliates are not yet included.
  - 7. Establish a risk management unit in the LTO: Partially Implemented: unit established, but risk profiling of the taxpayer segment has not progressed sufficiently.
  - 8. Review tasks undertaken by LTO Desk Audit for non-audit work: Not Implemented.
  - 9. Finalize arrangements to consolidate three transfer pricing teams into a single unit within the LTO: Implemented.

- Section IV: Strengthening Compliance Risk Management
  - 10. Broaden access to and use of third-party data and procure a data-warehouse and analytical tools: Partially Implemented. Increase in available third-party data (electricity and water utilities, Customs, Tirana Municipality). 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 optimizing use of data from all sources, including e-fiscalization: Not implemented.
  - 12. Enhance CRM work to develop 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 legislative change allowing GDT to update the register where field reports show inaccuracies: Partially Implemented. Law still restricts unilateral updates; arrangements now in place where NBC will verify and correct the register when GDT field staff report inaccuracies.
  - 14. Develop a program to test register accuracy with NBC: Not implemented.
  - 15. Develop a taxpayer service strategy with clear governance arrangements: Not implemented. A taxpayer service and communications strategy document is planned for 2021—with assistance from the Swedish Tax Agency.
  - 16. Engage taxpayers and intermediaries in tax product and process design: Partially implemented. Engagement exists on major tax changes and cooperation with the Albanian Institute of Certified Accountants, but focus is more on implementation than design.
  - 17. Expand published technical interpretive guidance: Not implemented. Ongoing concerns about 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: Not implemented. No write-off strategy and no write-offs have taken place; some work on necessary procedures has been done.
  - 19. Appoint project manager of consolidated tax arrears pilot and progress detailed design: Implemented. Consolidation of most debt collection activities into three sites has been completed.

- Section VII: Improving Audit
  - 20. Analyse reasons for low collection rates on audit assessments and develop responses: Not implemented. Efforts commenced to develop a system to monitor collection of audit assessment.
  - 21. Analyse the role and performance of the desk audit function to improve outcomes and eliminate low value work: Partially implemented. Separate unit now monitors desk audits; analysis 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: (status not specified).
  - 24. Improve procedural fairness by allowing flexibility to the tax payment/guarantee and appeal time limit pre-conditions in exceptional circumstances: (status not specified).
  - 25. Reduce time taken to finalize appeals and review procedures for low-value penalty appeals: (status not specified).

- 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 forecasting of net tax revenue to ensure funds are available to pay all legitimate VAT refund claims immediately: Not implemented. Target to have zero refund arrears by end-2020 exists, but new high-value refund claims (> ALL 150 m) are not being refunded once approved and are being paid by instalments (which can extend up to 2 years) under a legal provision introduced in February 2020.
  - 28. MOFE to seek legislative amendment to refund credits without any minimum carry forward period and without requirement for 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: IMF FAD mission report extract as provided in the content unit.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1albea2022002.pdf_