IMF: The Albanian government foresees the restoration of VAT on insurance in 2026

2024-02-01 07:21:00, Ekonomi CNA

IMF: The Albanian government foresees the restoration of VAT on insurance in

The Albanian government may restore the application of value added tax on insurance in 2026.

In the latest report on Albania, the International Monetary Fund (IMF), based on the information of the Ministry of Finance, lists the imposition of VAT on insurance as one of the measures part of the medium-term revenue strategy.

Non-Life insurance was included in the VAT scheme in Albania until 2014. From January 1, 2015, insurance was treated as a supply exempt from VAT, in accordance with the relevant directive of the European Union. However, the insurance premium tax was applied to insurance premiums, at the rate of 3% until 2016 and then 10%, a rate that continues to be in force today.

The IMF report does not specify the amount of VAT that is intended to be applied, but nevertheless, based on previous suggestions from the IMF itself, it is expected that non-life insurance will be included in the VAT scheme with a standard rate of 20%. The introduction into the VAT scheme would replace the insurance premium tax, which would translate into a change in the tax rate by 10 percentage points.

The insurance industry has expressed itself in all cases against the return of VAT, even from 2021 it has officially requested the government to reduce the tax on the premium for voluntary non-life insurance products, from 10% which is currently at the level of 2%. The insurers have motivated their proposal with the need to facilitate the consumer of voluntary products and to motivate the further expansion of this market.

According to the insurers, the reduction of the tax on the premium for voluntary insurance would bring support to the citizens, who are vulnerable to health and material risks, indirectly easing the fiscal burden borne by the Albanian state, as these expenses will be covered by the companies insurance.

According to fiscal legislation experts, in the European Union, insurance is exempt from VAT and to date there is no initiative to suggest the imposition of VAT on insurance.

Meanwhile, the practices of other countries regarding the application of a tax on premiums are different, but in general such a form of tax is applied, with a more favorable spirit for voluntary insurance products. In EU countries, the fiscal treatment of premiums varies greatly between countries.

20 member states apply taxes on premiums and the rate of taxation varies considerably. Some countries tax premiums at levels similar to the VAT rate and taxation can reach the level of 19%-24%, while other countries apply very low taxes, ranging between 2% and 4%.

A third group of countries apply differentiated premium taxes depending on the type of insurance. For example, in France the tax on premiums is applied between 7% and 30%, while in Italy between 0.05% and 21.25%.

Last year, non-life insurance companies reported gross written premiums in the amount of 21 billion ALL. Premiums are taxed with a fixed tax of 10%, which translates to about 2.1 billion ALL, while the 20% VAT applied on the same value of premiums would result in about 4.2 billion ALL. However, the net effect for the budget would be smaller, because inclusion in the VAT scheme creates the possibility of VAT deduction on purchases.

In the mid-term revenue strategy that was put up for discussion in 2022, another proposal was the imposition of VAT for a part of financial services, mainly for fees and commissions, while maintaining the exemption for interest income. However, such a measure is not cited by the IMF in the latest report, which hints that so far this move is not included in the government's medium-term fiscal objectives./ Monitor Magazine