5.1.5 Tax laws
When the Parliament passed the first Law on Sponsorship (Law no. 7892 of 1994), arts and culture communities were looking forward to seeing some cash flow from the business sector into arts and culture activities. The Law set a 10% margin of non-taxable income that private businesses could use to sponsor science, arts, culture and sports. There have been three amendments to that Law, in 1998, 2003 and 2007, with the later setting a lower margin of 5% (Law no. 9807). Despite these provisions, business sponsorship is very low, due to a high level of informality in the business sector in Albania. Companies would rather pay cash for services such as advertising, rather than provide "tax deductible donations".
Albania applies flat rates on both corporative and personal income tax and the related legal framework does not provide any tax deduction in favour of individual donations. As a result, private donations are almost non-existent, while business sponsorship is mainly oriented towards public events that get media, especially TV, coverage.
Arts and culture companies or individuals, as a rule, do not enjoy any tax relief. They all pay VAT, customs, corporate tax and tax on individual revenue. However, there are two exceptions: the VAT on book sales is zero and corporate tax does not apply for film production companies. Both changes took effect in 2006.
The introduction of a coherent tax system to increase state finances and combat tax evasion (estimated at 50%) is still the primary objective of tax policy. The relationship of trust between the citizen and the state, which is the basis for a functioning tax system, is still suffering from the disturbances caused by the "pyramid" financing collapse on savings and investment and consequently on gross domestic product and tax revenue. In September 1997, the government set up a tax system which introduced indirect taxes (on alcohol, tobacco and fuel) and entrusted a special office with the collection of taxes.
The application of a single VAT rate, which was raised from 12.5% to 20% in September 1997, is debatable especially from the point of view of the book market. According to the Association of Albanian Publishers, only 5 or 6 publishing houses pay their VAT regularly. This evasion is an indirect form of unfair competition affecting decisions on book prices. Duty on paper and other imported materials is also set at 20%. The cost of paper (and of production costs in general) appears to be comparatively higher than the European average. Albania has still not signed the Florence Accord, which stipulates that imports of cultural products should be tax exempt.