BUSINESS
New economic course - reminder of old blemishes
16 December, 2010

Georgian government acknowledges defects in communication policy of government with the private sector and pledges to become a partner to business henceforth.
Much trumpeted “new economic course” of Georgian government aimed at creation of fair, simple and trustful taxation system looks to business like a guilt confession rather than a new strategy. 
On December 3, 2010 during the opening ceremony of a new Customs Clearance Zone (CCZ) in Lilo, outskirts of Tbilisi, Mikheil Saakashvili, President of Georgia, acknowledged that Georgian

business has been suffering of unfair treatment on the part of tax administration [who frequently misused its power] and pledged that government undertakes a new business-oriented economic course insuring business-friendly environment to private sector from this time forth.
Three key components including new tax code, state-of-the-art infrastructure of CCZ [introducing one-step-window supposed to be deployed across the country  so as to spare importers of week-long demurrages at customs terminals by minimizing customs-clearance related expenses and timelines], and retrained personnel of taxation body is supposed to ease life  to business.
Georgia, put among top-leaders of Ease of Doing Business rating of World Bank for the last 3-4 years [thanks to liberal economic reforms undertaken by government] is of notorious fame among investors by a tax-administration crack-down on business. Transparency International Georgia (TI Georgia), a non-governmental watchdog, having researched Georgian taxation system this spring came to conclusion that Georgian taxation system is one of the key perils creating setbacks to economic development of the country once the imperfections of the existing tax system lay ground to tax terror and scared investors off.
Georgian business together with economic analysts have been hailing government for years that not the tax rates are the problem but the administration of taxes, that the currently active tax code is hardly understandable, includes dubious paragraphs leading to double interpretation and crack-down on business , but to no avail. Their voice was like the voice in the wilderness as Government strongly believed that the tax administration was smooth and fine. The ice melted this summer when Georgian authority acknowledged at last the tax code problems and rewrote it into a new one. The new code [that enters into effect next year] introduces an institute of business Ombudsman to protect  private sector  from the state crack-down although still ignores the key demand of private sector – presumption of innocence of business [built in all possible tax codes globe over]. It means that tax administration still is empowered to accuse business based on bare presumptions and business has to prove its innocence. Moreover, penalty rates increased, the taxation base got enhanced, and double-interpretation problem remained.
In October Revenue Service staged a real witch-haunt on petty traders, arrested hundreds of trades-people at Bazroba under pretext of tax-felony and imposed unreasonable penalties. Economic analysts argued that the inadequate punishment policy undertaken by revenue service might kill out petty business completely.
Now out of sudden government trumpeted the launch of “new economic course” that must settle all business-problems in 4-5 months after the new tax code enters into effect starting January of 2011 as Kakha Baindurashvili, Minister of Finances, said while advertising the new course through the whole  past week.
On December 13, 2010, Baindurashvili introduced the new course to MPs behind closed doors, and once more reiterated that the upcoming tax code insures establishment of partnership between the business and tax bodies. He underlined that the new code distinguishes so called “honest principle” that forgives an inadvertent tax-felony to innocent infringers. Moreover entrepreneurs paying at least GEL 200 thousand of Value Add Tax (VAT) in the state budget are exempted from VAT on import. Moreover tax-payers are empowered to ask tax-officers to implement a taxation check in the period most convenient to businessmen.
Economic analysts say the new economic course is nothing new in fact but a reminder of old problems. Davit Narmania, Executive Director of the Institute of Caucasus Economic and Social Research, thinks the recent much-ado is a PR campaign rather than a breakthrough in governmental mentality.
“I have no idea why do they need this PR campaign now but there is definitely nothing new in this economic course, government just acknowledges the tax administration problem we have been hailing for the last 3-4 years and that government has been refuting so obstinately,” He said.
“Where’s the novelty?” Levan Kalandadze, Director Executive of Georgian Association of Small and Medium Business, asked Georgian journal. “We have been accentuating on the tax administration problems starting the day old tax code was entered into effect but government persistently used to deny it. Government lacked due communication with business because it talked only with big business ignoring SME sector meantime. As per newly re-equipped CCZ government is obliged to develop a modern customs clearance zone infrastructure after all. The single new thing is authority confessed its mistakes and acknowledged that tax administration must be simpler and milder, that makes me hopeful that maybe things really can get better array.”

Print