The “Fiscal Peace” draft law (Projektligj “Për Marrëveshjen e Paqes Fiskale”) is a 2025 Albanian legislative proposal aimed at offering tax amnesty and voluntary compliance incentives to businesses. It creates a one-year voluntary agreement between taxpayers and the tax administration to pre-pay corporate (or business personal) income tax on a presumptively higher profit base, in exchange for relief from audits and penalties[1][2]. It also allows companies to re-declare past financial statements (up to 5 prior years) and legalize previously unreported assets or profits at a low tax rate[3][4]. In essence, this law intends to boost tax compliance and clear past non-compliance through a “fiscal peace” pact, as part of a broader package that also forgives certain old tax debts[5][2].
Context: Albanian authorities describe this as a final amnesty before tightening enforcement[6]. However, the proposal has raised significant concerns domestically and internationally. Critics (including the EU, IMF, and others) warn it may discourage honest tax compliance, facilitate money laundering, and reward past evaders, thereby undermining financial integrity[7][8]. The analysis below examines the law’s expected impacts on illicit finance and the economy, its key legal mechanisms, potential loopholes, and its alignment with EU and international standards.
Potential Impacts on Financial Crime and the Economy
Money Laundering and Illicit Financial Flows
The draft law could have mixed impacts on money laundering. On one hand, it encourages businesses to surface hidden income and assets, theoretically shrinking the scope of the underground economy. On the other hand, the amnesty-like provisions risk creating a legal backdoor for illicit funds. By paying only a 5% tax on “redeclared” cash or assets, individuals who possess money from illegitimate sources (organized crime, corruption, tax fraud) could launder their proceeds under the guise of “previously undeclared business profits”[9][10]. Opposition figures have bluntly called the plan a “state laundry machine” for criminal and corrupt proceeds, rewarding fraudsters and tax evaders while penalizing honest taxpayers[11]. Indeed, criminal actors not already caught or under investigation would be eligible to participate (the law only bars those in ongoing tax proceedings or with prior convictions)[12]. This means a criminal enterprise could retroactively legitimize ill-gotten gains through a company’s books, paying a token tax and insulating that money from future scrutiny. Without robust safeguards, the Fiscal Peace program could inadvertently enable money laundering on a broad scale, contravening Albania’s anti-money laundering efforts.
From a preventative standpoint, the law’s no-audit guarantee severely limits oversight during the agreement year[13]. While on paper serious fraud cases are excepted (ongoing criminal investigations for VAT fraud or income concealment still allow audits)[13], in practice the blanket audit moratorium could reduce the chances of detecting laundering schemes. Unless financial intelligence units (FIU) and banks remain vigilant, launderers may feel safer moving funds through participating businesses, assuming tax authorities will not closely scrutinize transactions during the “peace” period. This calls into question compliance with FATF Recommendation 3, which requires effective investigation and prosecution of money laundering offenses – a goal potentially undermined if laundered funds are effectively pardoned via the tax agreement.
Corruption and Abuse of Public/Private Funds
By forgiving tax offenses and offering leniency, the draft law risks creating moral hazard and opportunities for corruption. Individuals who embezzled or misused public funds could channel those funds into a corporate entity and regularize them by paying the 5% tax, thus evading both corruption charges and full taxation. The law’s eligibility criteria do exclude persons convicted of tax fraud, money laundering, or hiding income[14], but this is a narrow filter. Public officials or private actors who have siphoned money (but not been prosecuted) might see this as a chance to wipe the slate clean. The lack of thorough origin-of-funds checks in the law is problematic – it does not mandate any disclosure of where newly declared cash or assets came from, beyond labeling them as prior omissions. This opacity could encourage corrupt actors to exploit the amnesty, undermining corruption-prevention frameworks.
Critics note that the initiative sends a dangerous signal of impunity. It effectively “absolves institutional failures” in enforcing the law and punishes businesses that have been compliant[15]. Honest taxpayers and officials may become demoralized, perceiving that rule-breakers can simply pay a small fee to erase wrongdoing. Moreover, there is risk of corrupt abuse in implementation – e.g. officials could be bribed to certify false “re-declarations” or to ignore red flags, since large sums will be changing status with minimal scrutiny. Overall, while the law aims to improve compliance, it may erode trust in rule of law by appearing to favor powerful tax evaders and potentially corrupt individuals.
Formal vs. Informal Economy
In the short term, the Fiscal Peace Agreement could draw a portion of the informal economy into the formal sector. Businesses that have been partially operating off-the-books are given a one-time pathway to declare hidden turnover/profits and clean up their balance sheets. This may boost official GDP and tax revenues modestly, and increase the number of firms with transparent finances going forward. The government explicitly hopes to “formalize” business activity and then tighten enforcement after this final amnesty[6]. If many businesses participate, the formal economy’s size (in terms of declared income) would increase, at least for the agreement year.
However, the long-term effect on informality could be negative. Repeated or broad amnesties tend to create expectations of future leniency, thereby encouraging continued informality. Entrepreneurs may reason that staying partially informal is acceptable since periodic amnesties will forgive them – a classic moral hazard. The opposition in Albania has warned that “no concessions to informality” should be given[16], arguing that this measure effectively capitulates to the informal sector[15]. By waiving penalties and audits, the state is admitting that past enforcement was weak and is allowing evaders to catch up cheaply. Compliant businesses feel penalized, and previously informal businesses might revert to old habits once the grace period ends, hoping for another “fiscal peace” in the future. Thus, while the law might shrink informality in the immediate term, it risks entrenching a culture of informality and periodic forgiveness in the long run.
Financial Transparency and Regulatory Compliance
The law has ambivalent implications for financial transparency. On one side, participating companies will emerge with cleaner, more truthful financial statements after re-declaration. By adjusting their books to reflect reality (e.g. writing off fictitious assets/liabilities, declaring actual cash reserves), they align reported finances with the truth[17][18]. This could improve transparency for creditors, investors, and authorities in the future – assuming the companies maintain honest reporting post-amnesty. Furthermore, the law immunizes prior auditors from liability for these past inaccuracies[19], which removes a potential obstacle to transparent restatement.
On the other side, the process itself is shrouded in confidentiality and minimal disclosure. Companies are not required to publicly explain the origins of the newly declared funds or the reasons for previous misreporting. The sudden “clean-up” may actually obscure the trail of money that was unaccounted – effectively resetting records without inquiry. From a regulatory compliance perspective, this undermines the principles of financial accountability. For example, FATF Recommendation 10 (Customer Due Diligence) and EU anti-money-laundering directives require financial institutions to question unusual transactions. If a company suddenly injects a large cash amount as part of this program, banks and regulators should scrutinize it. Yet the government’s imprimatur might discourage deep inquiry, as the funds are now “tax legitimated.” Without explicit safeguards, the law risks short-circuiting normal AML controls in the name of tax compliance. This tension is why the EU Delegation urged “strong anti-money laundering measures within this proposal” to ensure it doesn’t prejudice the fight against illicit finance[7][20].
Economic Growth, Investment, and Market Stability
Proponents argue the Fiscal Peace law will have positive macroeconomic effects. It could provide short-term revenue gains for the budget (through the 5% taxes and pre-paid income tax) and relieve businesses of old burdens, potentially spurring investment and growth. By erasing overdue tax liabilities (some over a decade old) and avoiding protracted audits, the law might improve companies’ balance sheets and creditworthiness, making it easier to invest and expand. In theory, a one-time amnesty can jolt economic activity by freeing “dead capital” that was kept in informal channels or reserved for potential tax penalties. The government estimates write-offs of stale debts (~€525 million older than 2014) and reduced fines on newer debts will unshackle businesses financially[21][22]. Additionally, by promising no tax surprises for the agreement year, the law might give investors greater certainty and attract investment into those companies. There is also the argument that an influx of repatriated cash (if any undeclared offshore or cash-at-home funds are brought into businesses to take advantage of the amnesty) could boost liquidity in the economy.
Despite these potential benefits, many experts fear market distortions and credibility risks. The IMF cautions that “Fiscal Peace” could “undermine Albania’s recent progress in tax administration and compliance”[23], which in the long run harms the investment climate. Fair competition may be impacted: firms that cheated (and now pay 5%) gain a cost advantage over consistently compliant firms that paid full taxes – this uneven playing field could disincentivize honest entrepreneurship. Moreover, investor trust in Albanian markets might suffer: major stakeholders like the EU and American Chamber of Commerce have criticized the lack of transparency and consultation in these policies[24]. International investors may view Albania as a higher-risk environment if rule enforcement is seen as negotiable or politically driven. As one opposition MP noted, the amnesty “weakens economic security and undermines the trust that international investors should have in Albania”[25].
In the long term, fiscal stability could be threatened. Repeated reliance on amnesties can erode the tax base; businesses might delay tax payments hoping for future forgiveness, potentially reducing regular revenues. If the anticipated compliance boost does not materialize after the amnesty, Albania could face budget shortfalls or have to cut spending/raise taxes abruptly, unsettling the economy. Additionally, if significant illicit funds enter the formal economy unchecked, Albania risks reputational damage (e.g. grey-listing by international AML bodies), which can harm financial sector stability. In sum, the law offers a short-term stimulus and formalization effect, but at the possible cost of long-term credibility, fairness, and fiscal discipline[26][11].
Key Legal Mechanisms in the Draft Law
The “Fiscal Peace” draft is underpinned by several legal mechanisms that define how the program operates. Below we identify and interpret its key provisions:
- Fixed Presumptive Profit Increase (18% Rule): The law defines an “assessed taxable profit” as the previous tax year’s taxable profit plus 18%[1]. Participating businesses must accept this fixed increase as their baseline for the agreement year. In practice, this means a company will pre-pay income tax on 118% of last year’s profit. For example, a firm that declared a 10 million ALL profit last year would agree to be taxed on 11.8 million ALL profit this year, regardless of actual performance. This presumptive uplift is intended to ensure the state immediately gains extra revenue and that the business demonstrates greater income declaration. It sets a minimum growth target of +18% profit; failure to exceed the previous year’s profit by at least this amount triggers termination of the agreement[27].
- Prepayment of Tax and Dividend Taxation: Under the agreement, the participant must prepay the calculated income tax for the year based on that 18%-higher profit figure[1][28]. The normal corporate tax rate (or personal business income tax rate) is applied to the baseline profit. Any actual profits above the baseline are taxed at a preferential flat 5% rate[29][30]. This is a core incentive: normally corporate profits would be taxed at the standard rate (15% in Albania for large businesses), but under fiscal peace, the “excess” profit is only taxed 5% as a reward for participation[31][32]. Additionally, if a company chooses to distribute previously undeclared profits as dividends during the re-declaration, those distributions are also taxed at 5% (treated as a special final tax on retained earnings)[33][34]. This low dividend tax is meant to encourage owners to bring hidden profits into the open and even withdraw them for personal use lawfully. Notably, 5% is far below the usual dividend withholding tax, effectively a one-time tax forgiveness on past evaded profits.
- Reporting and Application Procedure: Participation is voluntary but requires an application. Taxpayers must apply via the electronic tax filing system, confirming they wish to enter the agreement and (if applicable) commit to re-declare financial statements[35][36]. The tax administration then formulates a proposal for the Fiscal Peace Agreement, calculating the predefined taxable profit and corresponding tax based on the provided formula[28][37]. This proposal (which includes the profit baseline and tax amounts) is communicated to the taxpayer through the e-filing portal[37]. The taxpayer has the right to accept or refuse by a fixed deadline (e.g. April 15 for the year). Acceptance is done via electronic signature, at which point the agreement is legally binding for that fiscal year. Thus, the mechanism is one of opt-in compliance: businesses come forward and agree to higher declared income and tax in exchange for the benefits of the deal. They must also timely declare and pay the tax per normal schedules (the law references existing tax procedure law for payment)[38], otherwise the agreement is void and standard penalties apply[39].
- Enforcement Tools and Audit Exemptions: A cornerstone of the Fiscal Peace law is the guaranteed audit protection it offers. Article 9 explicitly suspends any field tax audits (“kontrolle tatimore në terren”) of corporate or business income tax for the duration of the agreement, so long as the agreement is in effect[40]. The only exceptions are if a formal criminal case has already been opened for serious tax fraud (e.g. creation of VAT fraud schemes or willful income concealment as criminal offenses)[13]. In other words, a participating company is immune from routine or investigative audits on its income tax – a significant incentive for those fearing discovery of past evasion. Instead of audits, the tax authority will conduct periodic desk reviews (“monitorim nga zyra”) of the declared data during the year[41]. These reviews are limited checks (e.g. verifying the agreed tax is paid) and not full inspections of accounts. If the taxpayer honors the agreement (pays the due tax on the presumptive profit), the tax authority forgoes deeper enforcement for that year. The law also stipulates that no administrative penalties under the tax procedures code will apply for the re-declaration transactions[42] – effectively waiving fines that normally accompany misreported statements. However, if the taxpayer breaches the agreement (for instance by underpaying or violating criteria), the agreement is terminated and normal audit and enforcement powers resume, including reassessment of tax for any restated items[43][44]. There are also specific termination triggers (covered below) which serve as enforcement safeguards.
- Key Safeguards, Sanctions and Termination Clauses: The draft law contains several conditions to prevent abuse and to sunset the agreement if conditions aren’t met. Article 10 lists scenarios that end the agreement’s validity mid-year, including: failing to achieve the required +18% profit increase, changing the declared business activity, ceasing business operations, repeated tax offenses that “undermine fiscal honesty,” not paying the tax obligations, no longer meeting the initial conditions, or conversely overshooting profit by more than +50% compared to the prior year[45][46]. These clauses aim to keep the arrangement within a “good faith” band – if a company’s profit drops or soars abnormally, or if it misbehaves, the deal is off. In particular, the >50% profit increase clause prevents companies from abusing the 5% low tax rate by declaring dramatically higher profits than before (an indication they might be dumping illicit income in one go)[46]. Should the agreement be terminated, the law empowers the tax administration to fully audit and reassess the taxpayer’s obligations for that year and the redeclared past statements, applying the standard income tax law rates (and presumably penalties)[43]. This acts as a penalty for non-compliance – the taxpayer could lose the amnesty benefits and be subject to back-taxes on any discrepancies revealed in restatements. Additionally, there is a time limit on the program’s availability: the agreement can cover one tax year with the right to renew for up to two additional years[47], after which presumably the special treatment ends. The first year’s implementation deadlines and procedures will be set by subordinate regulations[48], indicating a sunset or phased approach. Finally, eligibility criteria (Article 7) function as upfront safeguards: taxpayers with outstanding undeclared taxes, those under audit or criminal investigation, those convicted of tax or money-laundering crimes, and those involved in concessionary public-private projects are not eligible to apply[12][14]. These criteria attempt to screen out the worst offenders and ensure participants start with a “clean” (if not fully honest) slate.
- Re-declaration of Financial Statements (Asset/Liability Cleansing): One of the law’s most novel mechanisms is the ability for companies to revise their last 3 (or 5) years of financial statements to reflect true asset values, liabilities, and equity. Article 6 grants this “right to redeclare specific elements” of the annual financial statements for up to three prior fiscal years[36] (though other sources indicate five years may be allowed[4]). Companies entering the agreement can opt to adjust things like cash on hand, accounts receivable, fixed assets, debts, and retained earnings. To encourage this cleanup, the law imposes only a 5% flat tax on any net increases in assets or equity revealed by the re-declaration (up to a 30% discrepancy threshold)[49][34]. The detailed sub-clauses of Article 6(3) specify how different scenarios are handled, for example:
- If actual cash holdings exceed the book value (or vice versa), the difference can be recorded and a 5% tax is due on that variance[50]. This essentially legalizes unrecorded cash (or unexplained cash shortfalls) at a low cost.
- For “fictitious” assets or liabilities that were on the books but don’t exist in reality (often inserted to balance sheets in fraudulent accounting), the company can remove them. Writing off a fake asset (e.g. non-existent inventory or intangible) or a fake liability will likewise incur only a 5% tax on the adjustment[51]. This encourages purging of false entries that had been used to mask profits or inflate expenses.
- Previously unreported real assets (e.g. undeclared equipment or property) can be newly declared, with a 5% tax on their value[52]. This allows companies to bring off-book assets onto their ledgers legitimately.
- Critically, any undeclared retained earnings or past profits can be reclassified and even distributed as dividends to owners, with only a 5% tax on those amounts[34]. This is a direct incentive to “come clean” on past underreported profits – by paying 5%, the profit is recognized and can be paid out to shareholders with no further tax or penalty. The law explicitly states that revalued shareholder equity or payable amounts “may be freely used by them for business or personal purposes” once the 5% is paid[53], essentially treating it as fully regularized money.
To preserve integrity in accounting, Article 6(4) mandates that all such adjustments be treated as non-taxable for income tax purposes (or non-deductible, if an expense) in the profit tax calculations[54]. This means the act of correcting the books won’t itself skew current profit – the only tax due is the special 5%. Furthermore, no retrospective increase in expenses or other tax-reducing items can be claimed as a result of these changes[55] (e.g. you cannot use a written-off fake asset to claim a loss). The law also grants that statutory auditors who previously signed off on the (now restated) financials are immune from liability for those past misstatements[19], given that the discrepancies arose due to this legal re-declaration process. Finally, all such restatement transactions are protected from penalties and shielded from tax audit[42] – the tax authority essentially agrees not to question how those differences came about, as an amnesty trade-off. This mechanism is the heart of the law’s promise of a “fresh start” for corporate accounts.
In summary, the draft law combines favorable tax rules (fixed low tax on incremental profit and past corrections) with strong protections (no audits, no penalties), balanced by certain conditions (growth targets, eligibility screens, termination triggers). Legally, it functions as a contract: the taxpayer gets peace from tax enforcement, and the state gets a prompt increase in tax revenue and more truthful reporting moving forward.
How Mechanisms May Reduce or Enable Illicit Practices
Given these mechanisms, it is crucial to assess whether they truly improve tax compliance and transparency, or instead open avenues for money laundering, corruption, and tax avoidance. Two aspects stand out: the audit exemptions combined with low presumptive taxes, and the financial statement re-declaration facility.
Audit Exemptions vs. Undeclared Income Incentives
The moratorium on audits is a double-edged sword. In theory, relieving honest taxpayers from the fear of aggressive inspections could encourage them to voluntarily disclose more income, knowing they won’t immediately trigger back-tax assessments or legal troubles. The required 18% profit increase attempts to ensure they pay a meaningful amount of additional tax in exchange for this peace. If implemented on a genuinely voluntary, good-faith basis, this could bring some shadow economy income onto the books – the taxpayer essentially pays a premium (18% more profit taxed) to guarantee no audit hassles. For a business that has been under-reporting slightly, this is attractive: they pay somewhat more tax now, but eliminate the risk of a full audit that could uncover greater liabilities or even criminal tax evasion charges.
However, the absence of audits can also incentivize abuse. A participant might believe that, once under the umbrella of the agreement, they can get away with not fully declaring even the 18% increased profit since field audits are barred. While the law allows desk reviews, those are far less likely to detect complex under-reporting or false invoices compared to on-site audits. Dishonest companies could conceivably agree to the terms, but then use creative accounting to still hide some income during the year, counting on the audit freeze to protect them. If caught via desk checks or other means, the agreement would end – but detection is the issue. The risk of non-detection is higher when audits are off the table, potentially making the program a shield for continued underreporting. This perverse incentive undermines the stated goal of increased compliance.
Another concern is the low tax rate (5%) on excess profits, which might encourage tax planning to route income into that lower band. Companies expecting a big jump in profits could manipulate the system: for instance, deliberately underestimate their prior year profit (if the law’s baseline uses last declared profit, which could be artificially low) and then show a large increase that is taxed lightly. The 50% cap on profit growth in the agreement year is meant to discourage extreme gaming[46]. Yet, firms might still find it beneficial to smooth out profits – e.g. they could defer revenue from a high-growth year into the next year (if they plan to renew the agreement) to stay under +50% each year and enjoy multiple years of 5% tax on significant portions of profit. In effect, some tax avoidance behavior could be enabled by the preferential rate, as businesses shift timing or accounting of income to maximize what counts as “excess” at 5% rather than normal 15%. This contradicts the spirit of OECD BEPS principles which aim to ensure profits are taxed where earned at full rates. While this kind of planning is not classic base erosion, it is a domestic loophole exploitation created by the agreement’s structure.
Importantly, the audit exemption could hamstring anti-money laundering detection. Typically, if a company suddenly receives large infusions of cash or has atypical transactions, an audit or investigation might be triggered. Under Fiscal Peace, if such a company is a participant, the tax authority might refrain from digging deeper, even if there are red flags, because the law explicitly limits their intervention to only desk review. Unless there is already a criminal case opened (which would be external to routine auditing), the hands-off approach might allow illicit money flows to be laundered under cover of compliance. This is precisely why FATF’s guidance on tax amnesties stresses that no blanket immunity from AML/CFT measures should be given[56]. If in practice the tax authority and other agencies treat agreement participants as “clean,” then FATF Recommendations 3 and 26 (on investigation and supervision) are effectively sidestepped. In summary, the audit holiday is a boon for cooperative taxpayers but also a potential cloak for continued tax evasion or laundering, unless accompanied by very vigilant monitoring by the FIU and inter-agency data sharing (which the law does not detail).
Re-declaration of Financials: Compliance Tool or Laundering Vehicle?
The mechanism allowing re-statement of past financial items could reduce future tax evasion, but it is also susceptible to exploitation for money laundering and fraud. On one hand, this mechanism is a compliance reset: companies correct their records, presumably pay some tax on previously concealed profits, and thereafter can be more transparent. By clearing out fictitious entries and recognizing true asset values, companies emerge with accurate balance sheets, which aids proper taxation and financial reporting going forward. There is also a benefit that companies can normalize their capital structure – for example, by declaring cash that was kept off-books, they can use it openly for investments or loans. In principle, this contributes to financial transparency and removes distortions in the economy caused by hidden assets.
On the other hand, the lack of oversight on the re-declaration process is a glaring vulnerability. The law does not require companies to prove the provenance of newly declared assets or cash. For instance, a company could claim to “have had” €1 million in undeclared cash reserves and simply pays 5% (€50,000) to legalize it[50]. If that €1 million actually came from drug trafficking or corruption, the law provides a convenient cover story (“it was business income all along, just not reported”). Since the tax authority forgoes audits and treats the adjustment as non-taxable income in the books[54], there is no further inquiry, and the money is effectively laundered into the company’s official funds. This undermines FATF Recommendation 10 and 24, which expect due diligence on significant cash transactions and transparency of beneficial ownership. A criminal could be the ultimate beneficial owner of a company that uses the scheme, and yet neither the tax authority nor banks would be alerted to question the sudden appearance of assets, because the law grants de facto amnesty for those funds.
Another risk is that the 30% discrepancy threshold for re-statements might be manipulated. The law allows up to a 30% increase in assets or equity to be taxed at 5%[57], implying that if the “real” numbers deviate more than 30% from current books, perhaps the scheme isn’t meant to cover it (or those cases might be disqualified). A savvy bad actor might split illicit assets across multiple companies or years to stay within the 30% limit for each and avoid drawing attention. For example, rather than injecting a huge illicit sum into one company (which might exceed 30% of its book assets), they could distribute it into several companies or in phases, each just under the threshold. Without strict enforcement, the 30% rule becomes a minor speed bump rather than a roadblock to laundering large amounts over time.
Additionally, the fact that no penalties apply to these corrections[42] means there is little downside for someone who had falsified statements. In a normal scenario, significant discrepancies might lead to fines or even prosecution for false accounting. Here, the worst-case for the actor is paying a small tax. This leniency might encourage future misstatement with the expectation of similar forgiveness. It could also allow tax avoidance through balance sheet engineering: companies might deliberately overstate liabilities or understate assets in current years, then later “correct” them under an amnesty to keep effective taxes low. While the draft law is supposedly the “final” such opportunity, the precedent is set.
In summary, while the re-declaration mechanism can correct past tax avoidance (a positive), it can equally be exploited to launder illicit money by blending it into corrected financial statements. Without robust cross-checks (for example, involving the FIU to vet large cash declarations, or requiring declarations to be reported for AML scrutiny), this tool tilts more toward enabling financial crime than reducing it. FATF Recommendation 24 on transparency of legal persons could be at risk: Albania’s beneficial ownership register (in place since 2021)[58][59] might show who ultimately owns these companies, but if those individuals are criminal actors, the law provides no mechanism to detect or prevent them from abusing the fiscal peace process to sanitize dirty assets.
Unintended Consequences, Loopholes and Weaknesses
Beyond the intended effects, the draft law presents unintended consequences and loopholes that could be exploited:
- Moral Hazard and Erosion of Compliance Culture: Perhaps the most significant unintended consequence is the message that paying taxes is optional until an amnesty comes along. This undermines the culture of voluntary compliance. Law-abiding firms feel penalized (as evaders get let off cheaply), and evaders may simply wait for the next round. The IMF and others highlight that these measures “risk significantly undermining the culture of voluntary tax compliance” and Albania’s progress in improving tax administration[60][23]. In the long run, this could reduce overall revenues and require even more drastic measures to enforce compliance, trapping the government in a cycle of leniency then crackdowns.
- Discrimination Against Honest Taxpayers: The law effectively rewards those who underreported income by letting them settle cheaply, which is seen as unfair by honest taxpayers. Compliant businesses receive no benefit, whereas their competitors who cheated get a tax write-off and audit holiday. This unequal treatment can distort markets – for example, a company that evaded taxes can reinvest its undeclared gains (now legalized) to undercut competitors or expand, while the honest competitor had less free capital (having paid taxes). Such outcomes could breed resentment and even motivate normally honest actors to consider underreporting in the future (“since the state forgives it anyway”). It also poses a legal equality issue: those who respected the law are in a worse position than those who violated it, potentially undermining the principle of equal enforcement.
- Possible Legal Loopholes in Definitions: There may be technical loopholes in how the law is written. For example, the wording around the 50% profit increase termination (“above 50%” triggers termination[46]) might encourage gaming – a company could target exactly 50% profit growth and still enjoy the 5% tax on that entire excess without voiding the deal. Also, if a company inadvertently exceeds 50% (due to, say, a genuine windfall), the punishment is severe (loss of agreement, full audit)[45], which could deter high-growth firms from participating at all. High-growth but legitimate businesses might be disincentivized, leaving mainly those with something to hide as participants – an unintended filtering that could concentrate risk in the program.
- Weak Enforcement Capacity and Monitoring: The law relies on the tax administration’s ability to monitor compliance through desk audits and to catch any breach (like not paying agreed tax or continuing evasion). If the tax authority lacks capacity or sophisticated analytics, companies might flout the terms with impunity. For instance, a participant could underpay the agreed tax and hope it’s not noticed until after the year, or they could continue engaging in VAT fraud (the audit ban is only for income tax, but could spill over). The success of this program demands strong back-end enforcement of the conditions, yet Albania’s institutions historically struggle with enforcement. Without investing in better monitoring tools, the “periodic monitoring from the office”[41] may be perfunctory. Bad actors could take advantage of this by formally being in the program but informally continuing illicit practices, betting that coordination between departments (tax police, FIU, etc.) is insufficient to detect them under the audit shield. This weakens overall enforcement and may let some violations slip through entirely.
- Potential Conflict with Other Laws: The Fiscal Peace law might inadvertently conflict with other legal obligations. For instance, Albania’s anti-money laundering law (Law 9917/2008, as amended) mandates reporting of suspicious transactions. If a company suddenly declares large cash holdings, the accountants or banks involved might be obligated to file Suspicious Activity Reports. The tax law, however, treats this as normal and protected from inquiry[42]. This could create confusion or a loophole: compliance officers might assume such transactions are government-approved and not report them, effectively creating a blind spot. Similarly, by exempting auditors from responsibility for past misstatements[19], the law could be seen as overriding standards in the auditing law and financial reporting standards – a slippery slope for legal accountability. There’s also a question of constitutional or EU-law challenges: aggrieved honest taxpayers might argue the law violates equality principles or state aid rules (by granting a selective advantage to certain companies), though as a general scheme it may be justified as a broad measure.
- “Cleansing” Criminal Wealth Without Criminal Accountability: One dangerous loophole is that individuals who have amassed wealth through crimes (drug trafficking, human trafficking, etc.) could incorporate a business or use an existing shell company to launder personal illicit wealth. For example, a crime boss could inject cash into a company he owns (directly or via proxies) and classify it as “prior years’ unreported revenue.” Paying 5% tax then converts that criminal cash into legitimate company funds, which can be paid out as “dividends” to the owner (also at 5%)[34]. After that, the money is ostensibly clean and can be used freely[53]. The criminal faces no charges for money laundering because, from the tax perspective, it’s treated as back taxes paid. This loophole is essentially an amnesty for the proceeds of crime, not just tax evasion. Albanian law enforcement would find it much harder to prosecute the individual later, because the paper trail now shows the funds as legal profit from a business (and the individual could even claim to have paid taxes on it, implying legitimacy). This scenario is exactly what international bodies fear – the Fiscal Peace becomes a “peace” for criminals to integrate their dirty money. The law does exclude those who are under criminal investigation or have prior convictions[14], but a cunning actor without prior record could easily take advantage. This unintended use of the law could severely undercut Albania’s fight against organized crime.
- Drain on Future Tax Revenues: By taxing certain gains at just 5% and forgiving interest/penalties, the government is trading away future revenue for present gains. If many companies re-declare large profits and pay only 5%, the effective tax rate on those past earnings is extremely low (15% normal CIT vs 5% paid). Over the long term, this could be seen as lost revenue that honestly should have been due. Furthermore, companies might use the legalized funds in ways that generate tax deductions in the future (for instance, if the newly declared cash is spent on assets, they’ll claim depreciation, etc.), meaning the budgetary impact could extend beyond the immediate year. While a one-time hit might be acceptable for the sake of compliance, if compliance does not markedly improve thereafter, the state finances may be worse off than if stricter enforcement had been pursued instead.
In essence, the draft law’s well-intentioned design has multiple cracks that sophisticated or unscrupulous actors can slip through. These range from exploitation of the low tax rate and audit shield, to broader issues of fairness and systemic integrity. Albania would need to address these weaknesses (through strict implementing regulations, inter-agency cooperation, and perhaps limiting the scope of the amnesty) to avoid the policy backfiring.
Alignment with International Standards and Comparables
The Fiscal Peace initiative does not exist in a vacuum – it must be evaluated against EU acquis requirements, FATF anti-money laundering standards, and OECD tax principles. Here’s how it measures up or deviates:
EU Anti-Tax Avoidance Directives and Tax Acquis
Albania, as an EU candidate country, is expected to progressively harmonize with EU tax standards, including the Anti-Tax Avoidance Directives (ATAD) and general principles of fair taxation. While ATAD focuses mainly on specific avoidance practices (interest deductibility limits, controlled foreign companies, GAAR, hybrid mismatches, etc.), the ethos of ATAD is to close loopholes and ensure consistency in tax enforcement. The Fiscal Peace law arguably works against this ethos by introducing a special regime that temporarily lowers tax burdens for certain taxpayers and forgives prior evasions. This could be seen as a selective tax advantage, potentially in conflict with EU State Aid rules if it’s not broad-based (though in this case, it is broadly available to all qualifying businesses, so it may not be state aid per se).
However, the European Commission has raised serious concerns, primarily about discouraging tax compliance and lacking alignment with EU standards in fighting money laundering[7][61]. The EU delegation in Tirana explicitly warned that any amnesty or voluntary compliance scheme must “be in line with relevant EU acquis and international standards… without prejudice to the fight against organised crime”[62]. The current draft, with its sweeping forgiveness and minimal AML safeguards, is not fully compliant with those expectations[61]. For example, under the EU’s tax administration best practices, tax amnesties should be exceptional and accompanied by measures to prevent abuse by criminals – something this law lacks. Additionally, EU directives on administrative cooperation in taxation (DAC) promote exchange of information and not letting tax evaders off the hook easily; a unilateral amnesty might be seen as Albania not upholding the spirit of those cooperative principles.
It is also instructive to compare with EU member states’ experiences. Many EU countries have had voluntary disclosure programs, but these usually require full payment of owed taxes (often just waiving penalties) and typically do not guarantee no future audit, especially not for money laundering concerns. For instance, Italy and Germany in the past offered voluntary disclosure schemes but coordinated closely with banks to ensure money repatriated was scrutinized (in line with AML laws)[63]. By contrast, Albania’s proposal offers a much deeper relief (only 5% tax on undeclared profits and an audit block). This puts it at odds with the direction of EU policy, which has moved toward tougher enforcement rather than leniency. Moreover, as an accession candidate, Albania must uphold commitments under its Stabilization and Association Agreement, including good governance in taxation – a massive tax write-off could be viewed as regression on that front. The EU’s reaction – hinting it could affect the membership process[64] – underscores that Brussels views this law as deviating from EU acquis norms on taxation and anti-fraud.
OECD BEPS and Tax Transparency
The OECD’s Base Erosion and Profit Shifting (BEPS) initiative emphasizes transparency and that profits be taxed where economic activity occurs. While BEPS is more about international tax avoidance by multinationals, one can argue the Fiscal Peace law undercuts tax transparency domestically. By allowing anonymous injection of funds (no requirement to disclose source), it contravenes the spirit of BEPS Action 12 (which encourages disclosure of aggressive tax planning schemes) – here, aggressive evasion is being forgiven rather than disclosed and penalized. Also, BEPS Action 5 (on harmful tax practices) discourages preferential tax regimes. The 5% tax rate on amended profits and on excess profits could be seen as a preferential rate for certain circumstances. However, because it’s a temporary measure and not ring-fenced to specific industries, it may not qualify as “harmful tax competition” in the classic sense. Still, the OECD generally advises against repeated tax amnesties as they can undermine tax morale and future compliance, a stance echoed by the IMF.
The law does promote one aspect in line with global transparency: correcting financial statements will make corporate accounts more truthful, which is good for transparency (a key OECD goal). And writing off fictitious assets/liabilities is effectively an anti-fraud measure – albeit one that forgives the fraud after a token fee. There is no direct OECD guideline that forbids tax amnesties, but the OECD and IMF often recommend that if done, they should be last resort and coupled with strict improvements in enforcement thereafter. The Albanian government claims this indeed is the last round before stricter enforcement[6]. The risk, as OECD experiences show, is that without credible follow-up, such promises fall flat. Countries like Greece and Turkey have conducted multiple amnesties, which were criticized by the OECD for not being accompanied by real tax administration reforms, leading to cyclical avoidance. Albania will need to demonstrate that this measure is accompanied by robust reforms (e.g. digital invoicing, risk-based audits, prosecutions for those who don’t come clean) to satisfy international observers that it isn’t simply an appeasement of tax dodgers.
FATF Recommendations on AML/CFT (3, 8, 10, 24, 26)
The Financial Action Task Force (FATF) standards provide a clear framework on how voluntary tax compliance programs should avoid undermining anti-money laundering/counter-terrorist financing (AML/CFT) controls. FATF has explicitly stated that no tax amnesty program should grant immunity from AML laws or Suspicious Activity Reporting requirements[56]. Principle 1 of FATF’s guidance on tax amnesties says full application of AML preventative measures is a prerequisite[65]. Principle 2 says no partial exemptions from AML obligations are allowed – meaning participants of an amnesty must still be subject to customer due diligence, reporting of suspicious transactions, and so forth[56].
In the case of Albania’s Fiscal Peace law, there is no indication of special AML measures built into the program. It neither references the AML law nor imposes requirements like obtaining a certificate of clean funds. This raises potential compliance issues with:
– Recommendation 3 (Money laundering offense): If the law in practice allows criminals to avoid investigation or prosecution by camouflaging proceeds as tax-regularized funds, it could impede the application of Albania’s money laundering offense. The draft does not explicitly pardon any criminal liability for money laundering, but by not looking into source of funds, it indirectly makes it harder to apply AML laws. Ideally, authorities should still prosecute underlying crimes even if tax is paid, but this requires coordination (Principle 3 of FATF basic principles)[66] which the law does not address. FATF would expect Albania to coordinate its tax authority, FIU, and law enforcement to detect any abuse of the program[66], and to provide mutual legal assistance if foreign illicit funds try to enter (Principle 4)[67]. Without explicit frameworks, this compliance is questionable.
- Recommendation 8 (Non-profit organizations): This rec is likely not directly relevant here, as the law targets businesses (for-profit entities). However, a tangential risk is if any non-profits or shell NGOs tried to masquerade as businesses to use the scheme. The law’s eligibility (must be registered taxpayers doing economic activity)[68] largely excludes NGOs. Thus Rec 8 (which addresses misuse of NPOs for terrorist financing) isn’t immediately in play, except to note that the focus on businesses means NPOs are unaffected by the amnesty – which is appropriate, since allowing an NGO to “legalize” undeclared funds would be even more problematic. In compliance terms, Albania’s parallel progress (like the Beneficial Owners Register for NGOs and companies established in 2021)[58] remains important to ensure transparency outside this law.
- Recommendation 10 (Customer Due Diligence): This law challenges Rec 10 because banks and other reporting entities might face situations where a client company suddenly has a large injection of funds or is transferring dividends that originated from the amnesty. Under Rec 10 and Albanian AML law, the bank should perform enhanced due diligence and possibly file a suspicious report if the transaction is unusual. The danger is that the amnesty creates a veneer of legitimacy that could cause less scrutiny. If banks assume that money labeled as “tax amnesty profit” is government-approved, they may not question it. This would be a breach of FATF standards if it leads to overlooking red flags. To align with Rec 10, Albania would need to instruct financial institutions that participation in Fiscal Peace does not exempt them from normal KYC/EDD – essentially reinforcing that they must “continue to apply all AML/CFT measures” as per FATF guidance[56]. There is no evidence in the draft law that such coordination with the banking sector is planned, which is a gap needing correction via regulations or guidance notes.
- Recommendation 24 (Transparency of legal persons / Beneficial ownership): Albania has a registry of beneficial owners, which is positive[58]. However, this law could be exploited by front companies or shell companies controlled by hidden beneficial owners. If criminals use proxies to own companies that then use the amnesty, it adds a layer of obscurity. Rec 24 calls for accurate BO information and timely access by authorities. The tax amnesty law doesn’t directly violate Rec 24, but it doesn’t leverage it either. One mitigation could be requiring companies to have up-to-date BO disclosures before being allowed to participate, and perhaps cross-checking those owners against criminal databases. Absent that, opaque ownership structures could launder money through the program. In terms of EU acquis, the 5th AML Directive (which Albania is aligning with) also mandates BO transparency – again, only effective if used. So far, nothing in the proposal indicates additional verification of beneficial owners of applicant companies, which could be seen as a weak point in meeting the effective transparency outcome that Rec 24 seeks.
- Recommendation 26 (Regulation and supervision of financial institutions): This rec ensures that financial institutions are supervised for AML compliance. Indirectly, if large sums flow due to the amnesty, Albania’s supervisors (e.g. the central bank and FIU) must be alert to potential spikes in suspicious activity and ensure banks aren’t relaxing controls under pressure to facilitate the amnesty. FATF basic principles stress that no exemption from AML should occur[56]. If the government informally tells banks “these funds are fine,” that would violate Rec 26 by impeding risk-based supervision. The EU delegation’s call for “strong AML measures within this proposal”[7] implies that international experts want Albania’s supervisors to actively oversee how the amnesty is implemented financially. To align with Rec 26, Albania should likely issue supervisory guidance on handling amnesty-related transactions (e.g. telling banks to apply normal or enhanced checks). As it stands, the law is silent on this, meaning extra work is needed to ensure supervisory alignment with FATF standards.
In summary, the Fiscal Peace law diverges from FATF best practices by not building AML protections into its design. It will require significant parallel efforts by Albania’s AML regime to avoid falling foul of Recommendations 3, 10, 24, 26 in practice. The EU and MONEYVAL have both signaled concern: MONEYVAL in 2022 “welcomed Albania’s commitment to uphold FATF principles should Albania introduce a tax amnesty”[69] – essentially cautioning Albania to follow those principles closely. Whether the final law meets that commitment will be a key point in evaluations.
Comparable International Examples
Looking at comparable laws, tax amnesties or “voluntary compliance programs” have been attempted in many countries, and their outcomes inform this analysis. For instance:
– Italy’s “Scudo Fiscale” (Tax Shield) in the 2000s allowed repatriation of undeclared foreign assets at about 5% tax. It drew in tens of billions of euros but was criticized for facilitating money laundering of mafia funds due to weak source-of-funds checks. The FATF and EU eventually pushed Italy to tighten its laws. Albania’s 5% rate for hidden domestic assets is eerily similar and could risk the same outcome if criminals participate.
– Indonesia’s 2016 Tax Amnesty achieved a high declaration of assets, with about a 2-5% penalty rate. It included a requirement to repatriate funds to Indonesian banks for a period, which gave some transparency. Even so, there were concerns it whitewashed corruption money. Albania’s law lacks any repatriation or investment requirement – participants can continue to hold assets anywhere after declaring. This could be seen as less beneficial economically (no guarantee funds will be used productively) and more lenient than Indonesia’s approach.
– Turkey’s periodic Wealth Peace (Varlık Barışı) programs (a similar name, interestingly “Peace” terminology) have repeatedly allowed individuals and companies to declare assets (even cash under the mattress) without scrutiny or tax (or very low tax). FATF has criticized Turkey for these schemes, as they explicitly prohibited investigating the source of funds, creating a major AML loophole[56]. Albania’s proposal is at risk of being lumped in that category unless it clarifies that AML laws still fully apply.
– Within the region, North Macedonia and Serbia have also debated amnesties. Some have pulled back due to EU pressure. Albania itself attempted a form of fiscal amnesty law in recent years but delayed it after international pushback. The current draft splits it into an old liabilities forgiveness and this forward-looking agreement, perhaps to make it more palatable. Nonetheless, as we see, the international stance (EU, IMF) remains wary or negative[23][70].
The general lesson from comparable cases is: amnesties can bring short-term gains, but if not accompanied by strict safeguards and one-time nature, they can harm a country’s financial reputation and rule of law. Many countries ended up doing one amnesty after another, each with diminishing returns and increasing cynicism. Albania’s law, if enacted, should be a one-off with clear communication that future non-compliance will be met with zero tolerance – and that message must be credible.
Short-Term vs Long-Term Effects
It is important to differentiate the short-term versus long-term impacts of the Fiscal Peace Agreement on Albania’s macroeconomic situation and regulatory environment:
Short-Term Effects: In the immediate term (the next 1–2 years), the law is likely to yield positive fiscal and economic outcomes:
– Revenue Windfall: The government will receive lump-sum payments from the 5% taxes on re-declared assets and the pre-paid corporate taxes for agreement year. Old uncollectible debts written off won’t bring money, but the conditions for partial debt payment (2015–2019 and 2020–2024 debts)[71][72] may result in some tax collection (albeit reduced). This injection can improve budget metrics and possibly fund public investments or reduce deficits in the short run.
– Boost in Reported Profits: Corporate financial statements for participating firms will show higher profits (due to the required +18% and any newly declared income). This could improve Albania’s GDP statistics and make the economy look like it grew as more income is captured officially. It may also temporarily improve tax compliance statistics, since participants will be fully paid up for the year and cleared of past dues.
– Business Confidence (for some): Companies burdened by tax disputes or fear of back audits may feel relief and gain confidence to invest or spend cash reserves once they’ve settled via the agreement. The clearing of the slate can improve credit access – banks prefer borrowers with no tax liens or uncertainties. So we might see an uptick in lending or investment from those firms that participated.
– Market Liquidity: If previously hidden cash is brought into banks (to pay the taxes or just as now-declared capital), this increases liquidity in the financial system. Some owners might repatriate money held abroad to inject into their Albanian company and then declare it under the scheme, which in the short term could bring foreign exchange into the country and bolster reserves or investment.
– Regulatory Reset: Tax authorities can refocus resources away from old audits and disputes (which are moot after forgiveness) and towards future compliance. In the short run, having many businesses on an agreement simplifies oversight – they just need to check they pay the agreed amount. This can free up capacity to design the promised “tighter controls” post-2026.
Long-Term Effects: Over a longer horizon (3+ years), the picture is more cautionary:
– Tax Morale and Compliance Trajectory: The law’s long-term effect on compliance is likely negative. As discussed, it erodes tax morale – businesses may assume that non-compliance is eventually forgiven. Once the 2-year renewal window passes, some firms might relapse into evasion if they believe enforcement is still weak or another “fiscal peace” will come. If the government does follow through with intensive audits and prosecutions after 2026, it will have to overcome the precedent it set. There’s a risk of a compliance rollercoaster: initial improvement followed by backslide.
– Dependency on Concessions: Albania might inadvertently develop a reputation for periodically resorting to tax amnesties or special deals. This could encourage a dependency of the fiscal system on one-off measures rather than sustainable revenue collection. Rating agencies and international lenders might view that unfavorably, affecting country risk ratings.
– Institutional Integrity: Long-term, the norms of rule of law and equal treatment may suffer. This has implications beyond tax: if citizens see the government as willing to bend rules for expediency, trust in institutions can decline. In a country working to strengthen governance (for EU accession), this could slow reforms or breed cynicism among the public and civil servants alike. On the flip side, if the amnesty is executed cleanly and followed by real reforms (like digital tax systems, better audits, etc.), and no more amnesties are given, it could mark a turning point. But history suggests political pressure might re-emerge for new concessions down the road, especially if this one is seen as successful.
– Economic Distortion and Investment Climate: Long term, the competitive distortions could accumulate – efficient, law-abiding businesses might invest less or even exit the market if they feel continually disadvantaged. Honest foreign investors might be dissuaded, fearing an uneven playing field or a governance gap that favors insiders who benefitted from past informality. Conversely, some businesses might actually become more competitive globally after cleaning up, as they can scale without the hidden inefficiencies of informality. The net effect on Albania’s productivity and investment is uncertain, but the risk is that any short-term growth spurt fizzles out if underlying governance doesn’t improve. The American Chamber of Commerce’s opposition indicates concern that this harms the investment climate transparency[24].
– Financial System Risks: If large amounts of previously illicit funds enter the system without proper checks, Albania could face long-term reputational risks in the financial sector. Correspondent banks and international financial institutions could view Albanian banks as higher risk if it appears that dirty money was legitimized. This can lead to de-risking (foreign banks pulling out) or enhanced due diligence on all Albanian transactions, raising costs for the economy. It might even threaten Albania’s progress in getting off any grey lists in AML evaluations. These are latent effects that would unfold over years, undermining financial stability and integration.
In a regulatory sense, the short-term effect is regulatory relaxation, followed (ideally) by a long-term tightening. The success of the policy will hinge on whether Albania indeed tightens the screws after the amnesty. If it does, the negative long-term effects can be mitigated; if it doesn’t, the country could see a worsening cycle of evasion and occasional amnesties, with diminishing returns each time.
Conclusion and Recommendations
Risk-Benefit Assessment: The Fiscal Peace Agreement draft law presents a classic policy dilemma. The benefits – improved short-term revenues, a one-time boost in declared income, and relief to businesses – are tangible and politically attractive. It offers a path to draw in hidden wealth and potentially jump-start a more compliant economy. However, the risks and costs are profound: it may legitimize illicit money, weaken the rule of law, and undermine the tax system’s credibility. By trading strict enforcement for a temporary truce, Albania risks incentivizing future non-compliance and money laundering, which could far outweigh the immediate gains. International stakeholders (EU, IMF, FATF) see this as potentially undermining Albania’s financial integrity and EU accession commitments[73][23]. The law in its current form leans too much toward leniency without sufficient safeguards.
On balance, the policy is high-risk. If executed flawlessly as a one-time measure alongside strong reforms, it could clear the decks and usher in a new era of compliance. But the conditions for that success are stringent and the margin for error is small. More likely, unless amended, the law will yield modest short-term fiscal relief at the expense of long-term governance and financial transparency. It has been called a “capitulation to informality”[15] – a description that rings true given how much it forgives past evasion.
Policy Recommendations: To maximize the benefits and mitigate the risks, the following steps are recommended for Albanian policymakers and international partners:
- Incorporate Robust AML Safeguards: Amend or complement the law with clear provisions that no exemption from AML/CFT obligations is granted. Require participants to disclose the source of newly declared assets in a sworn statement, and have the FIU review large declarations. Explicitly mandate that banks and professionals must continue to report suspicious activity related to amnesty funds (consistent with FATF Principle 2)[56]. This could involve a joint instruction from the Ministry of Finance and central bank to the banking sector. International partners (e.g. EU, MONEYVAL) should assist Albania in designing these safeguards.
- Strengthen Eligibility Vetting: Augment the eligibility criteria to filter out risky applicants. For example, perform an integrity due diligence on beneficial owners of companies applying – if a company is owned by persons with known criminal associations or appearing on sanctions lists, deny them access to the scheme. Cooperation with law enforcement and even international databases (with EU or INTERPOL help) could be used. The aim is to prevent known bad actors from exploiting the agreement, reinforcing FATF Rec 3 compliance.
- Limit and Monitor the Re-Declaration Process: Impose additional limits on the financial statement revisions. Perhaps cap the absolute amount that can be re-declared under 5% tax, or require independent audit of the adjustments. One idea is to involve independent auditors or an oversight committee to review large adjustments before they are accepted. This adds a layer of accountability and might deter blatant laundering. Alternatively, require that any single asset or cash declaration above a threshold (say €100,000) gets reported to tax police/FIU for review (not for denial, but for intelligence purposes).
- Increase the Tax Rate for Certain Adjustments: To align better with EU/OECD norms, consider raising the 5% rate for very large discrepancies or sensitive items. For instance, retained earnings/dividend disclosures could perhaps be taxed at a higher rate (maybe midway to normal CIT) to reduce the reward for past evasion. A graduated approach (5% up to 30% discrepancy, higher beyond that) could be introduced. This would also generate more revenue and act as a deterrent for those with massive hidden profits (they might then face normal taxation if over a limit, which is fair). The EU Anti-Tax Avoidance framework doesn’t directly dictate rates, but a symbolic increase would show Albania isn’t undercutting its own tax base too far.
- Enforce Post-Amnesty Compliance Rigorously: Commit, in law or accompanying strategy, that after the amnesty period, tax authorities will intensify audits and apply full penalties for new violations. Essentially, make it clear this is “last chance – after this, zero tolerance.” To give this teeth, Albania could seek technical assistance from the EU/IMF to bolster its audit capacities starting 2026. Also, consider enshrining a clause that no similar amnesty will be offered for at least e.g. 10 years – to manage expectations. International partners could monitor this as part of EU accession benchmarks (for instance, the EU could make continued accession talks contingent on not doing a repeat amnesty).
- Enhance Transparency and Consultation: Address the criticism about lack of transparency by publishing clear guidelines and perhaps anonymized data on the outcomes. Engage independent observers (e.g. a panel including business associations, auditors, perhaps EU advisors) to oversee the implementation. This can build trust that the law is not being applied arbitrarily or used to favor political allies. It also reassures honest taxpayers that this is a controlled process aimed at a healthier system, not a free-for-all. Greater transparency can mitigate perceptions of corruption in the implementation.
- Align with EU Acquis Incrementally: Work closely with the European Commission to adjust the law to meet key acquis requirements. This might mean tightening the exclusion of persons involved in serious offenses, ensuring it doesn’t conflict with EU AML directives, and demonstrating compatibility with state aid rules. The EU’s input should be treated seriously – their statement indicates issues to fix[62][61]. If Albania can revise the draft to satisfy EU concerns (perhaps through formal opinion of an EU expert mission), it will both improve the law and ensure the accession process isn’t derailed.
- Public Communication and Guidance: Conduct a public awareness campaign about the proper use of the Fiscal Peace program. Clarify that it is meant for legitimate businesses to correct tax errors, not for criminals to wash money. Sometimes simply stating this and warning that criminal misuse will be prosecuted can dissuade some bad actors. Additionally, provide guidance to companies and accountants on how to participate lawfully – this can increase uptake by genuine taxpayers and reduce reliance on shady “tax fixers” that might otherwise emerge.
- Monitor and Evaluate Outcomes: Set up metrics and a timeline to evaluate the impact of the law. For instance, track how much undeclared income was brought to light, how many participants met their 18% increase, any cases of termination (and why), and effects on tax revenue trend in subsequent years. Share these findings with international stakeholders. If signs show negative trends (e.g. compliance dipping again), be prepared to adjust policies (maybe through stricter enforcement or follow-up legislation). Essentially, treat this as an experiment under close observation, ready to intervene if it goes off course.
In conclusion, the Fiscal Peace draft law is a bold and controversial step. Policymakers should proceed with caution, tightening the legal framework to prevent abuse and committing to strong follow-up enforcement. International partners, for their part, should remain constructively engaged – offering support to implement safeguards and reforms, while holding Albania accountable to its commitments on financial integrity. With careful adjustments and vigilant implementation, some benefits of the law can be realized without succumbing to its dangers. But without those improvements, the prudent course might even be to reconsider or delay the initiative. The goal of increased compliance is laudable, yet it must be achieved in a way that fortifies, rather than undermines, the rule of law and financial transparency in Albania.
Sources:
- Official Draft Law “Për Marrëveshjen e Paqes Fiskale”, Articles 1–13[74][13][1][36].
- Eurofast Tax & Legal News – Guide to Albania’s Tax Amnesty and Fiscal Peace Agreement, Dec 17, 2025[2][3].
- Telegrafi News – EU expresses serious concerns over ‘Fiscal Peace’, Dec 2025[7][70].
- Telegrafi News – Fiscal Peace provides review of previous income tax returns for last 5 years… paying a 5% profit tax[4].
- FATF Guidance – Basic Principles on Voluntary Tax Compliance Programs (2010)[56][75].
- Albanian Opposition and Expert Commentary[11][15].
- IMF Article IV Statement 2025 (via media reports) – Fiscal Peace undermines recent progress in tax compliance[23].
- Law No. 112/2020 (Albania) – Register of Beneficial Owners (context for transparency)[58][59].
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