Written by: ILIR CIKO
The increase in the price of oil on international markets as a result of the war in Iran has brought a direct additional burden on all Albanian consumers. But beyond this completely expected effect during an energy crisis, there is also a silent beneficiary: the state budget. From an average of around 165 lek/liter during the past year, the price of oil in the country has reached 215–218 lek/liter. Due to the VAT applied to the final price, under unchanged consumption conditions, any increase in the price on the market automatically brings an increase in the budget revenues collected from the VAT on oil.
With a very simple estimate, the price change from 165 to 215 lek/liter brings over 70 million euros in additional annual revenue to the state budget (8.3 lek/liter additional VAT for the price from 165 to 215 lek/liter x 740.000 tons of imported fuel during 2025 ~ 7.3 billion lek). Without carrying out any fiscal reform, without any policy changes, without any public debate. Albania is among the countries with the highest level in the world in terms of the fiscal burden imposed on fuel consumed in the country. But the debate on this extremely important issue for the consumer and public finances belongs to a normal period, not a crisis situation, which we have to face today.
Today, the essential question that is being asked for a solution is whether, in conditions where the price of imported oil, on which – not at all unfortunately, but maliciously and sadly – we are completely dependent, is increasing, and the chances seem to be that it will continue to increase – should citizens, in addition to the price increase, also bear the additional burden on the state budget? In any normal country, this would open a wide public discussion: is it right for the state to benefit financially from a crisis that is hitting its citizens? The additional revenues for the budget as a result of the increase in oil prices do not come from economic growth or from improved fiscal administration. On the contrary, they stem from an external crisis, which today weighs heavily on Albanian families.
Precisely for this reason, should the state maintain these revenues, further increasing the effect of the change in oil prices, or should it set a limit in order to ease the burden on the economy? The budget for 2026 was drafted and approved based on the budgetary revenues that would be generated from the average oil price during the past year and not on expectations – which no one knew before – of an increase in oil prices this year. A reasonable solution starting from this perspective, which I also proposed during the 2022 crisis, is to maintain fiscal neutrality. In practice, this requires that any increase in fiscal revenues from VAT, as a result of the higher price, be compensated through a temporary reduction in the excise duty or turnover tax on oil, while maintaining the budgetary revenues from taxes on this product unchanged.
Technically, the solution is easily feasible, if there is the political will to understand the situation and evaluate efficient solutions to alleviate it. Illustratively, fiscal neutrality requires, for example, that at a price of 218 lek, the excise tax (or turnover tax) should be reduced by 7.4 lek, the consumer would pay 209.2 lek instead of 218 (saving 8.8 ALL/liter). At a price of 230 lek, the excise tax (or turnover tax) should be reduced by 9 lek, the consumer would pay 219.2 lek instead of 230 (saving 10.8 ALL/liter). At a price of 240 lek, the excise tax (or turnover tax) should be reduced by 10.4 lek, the consumer would pay 227.5 lek instead of 240 (saving 12.5 ALL/liter). And so on, but in all cases, budget revenues are not affected. The essence of this solution is simple: the increase in oil prices should not be accompanied by an increase in the fiscal burden.
Such a mechanism would maintain budget revenues at planned levels and at the same time alleviate the pressure on Albanian businesses and families. This model also avoids the spread of the inflationary effect to other parts of the economy, through the increase in transportation and production costs in the country. On the contrary, the effect is double: the consumer faces the increase in international prices and at the same time the automatic increase in taxes. The current system of fiscal burden on oil is complex, burdensome, but also for this discussion, it is not neutral, it amplifies the effects of the crisis. The argument for collecting additional revenues is related to budgetary expenditures. There are countless new state agencies and institutions that continue to be added every month and require additional financing. There are endless tenders that increasingly consume public funds. State works are like seawater, the people say.
On the other hand, official customs data show a budget shortfall of around 30 million euros during the first two months of this year, before the war in Iran even started. But relying on additional revenues generated by international price fluctuations makes fiscal policy less predictable and less transparent, while consumers face additional costs when, paradoxically, they should be helped. Moreover, in an economy where consumption remains a main pillar of development, the unnecessary increase in energy costs harms economic activity and, in the medium term, the very revenues that are intended to be protected. The current situation places state institutions in a conflict of interest due to the increase in budget revenues from the increase in oil prices.
But international experience shows us that in similar situations, some countries like Portugal have recently intervened to mitigate the effects of oil prices, avoiding unforeseen fiscal benefits. The issue is not whether oil prices will increase, this is completely beyond our control. The issue is whether fiscal policy should reinforce this price increase, or mitigate it. Of course, the implementation of such a model cannot function in isolation from other measures that should be taken simultaneously. Market monitoring, combating smuggling, abusing dominant market positions, etc. are measures that the state should continue to pursue with priority, but this applies at all times, not only to crisis situations. Fiscal neutrality in a time of crisis may not be the ideal solution. But it is the most reasonable solution, at least, in support of Albanian families and businesses.
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