Economic Amnesty: Trick or Cure?
24 January, 2013
Economic Amnesty: Trick or Cure?
Economic amnesty and decriminalization of economic crimes, suggested by President of Georgia, seems to be aimed more at saving the once protected businesses, than curing the Georgian economy. The first legislative initiatives of Mikheil Saakashvili, President of Georgia, that suggests to the new government to implement economic amnesty exempting tax arrears accumulated until 2013, on the one hand, and forgive economic crimes on the other hand in order to avoid preventive detentions of economic criminals seem to fall flat. New
government believes it has already implemented sufficient liberal changes in the tax law and neither economic amnesty nor decriminalization is necessary at the moment.
Georgian President based on regular information provided by National Bank of Georgia (NBG) reported media on January 17, 2013, that Georgian economy faces alarming slow down as investments shrank, forecast of economic growth for coming three years dropped from 8 to 6% and business activity became sluggish. Earlier, on January 15, Vano Merabishvili, the ex-premier and now General Secretary of the ex-ruling political party National Movement, expressed his fears that a budgetary crisis launched in Georgia due to same economic slow-down. Trade reduced and debt figures increased to businesses.
“And the key problem is that government has no clear action plan,” Merabishvili stated.
Saakashvili, appalled by the situation, prescribed so called economic amnesty and decriminalization to aid Georgian business to rally as his government did after Rose Revolution of 2003.
“We need not go far for the recipes, in 2004 after Rose Revolution my government declared an economic amnesty and I suggest now taking into account the emergency case in the economy to amnesty all tax and economic arrears that entrepreneurs accrued until 2013. In parallel to implement decriminalization of economic crimes lest use detention sanctions on economic crime and preventive detentions first of all. This is my first legislative initiative,” His Excellency stated on January 17.
Government responded that neither economic amnesty nor decriminalization is planned as they are redundant against the backdrop of the already implemented liberal changes in tax law specifically from point of view of tax administration and arrears as well as improvements in the Tax Dispute Council mechanism. Besides, budget of December of 2012 was fulfilled by 102% of excess and no planned state projects are suspended or halted.
According to the latest available statistics, economy slowed down since October of 2012 in fact: Real economic growth reduced to 5.5% from 8.8%, 6.5% and 7% of July, August and September of 2012 respectively. However, economic analysts ascribe it to traditional election effect connected with the Parliamentary election of October 1st, 2012 when Georgian Dream political coalition won power to National Movement. Uncertainty related with the power change always affects economic activity, sector pundits say. Besides, January traditionally is a passive month from economic activity point of view.
According to Giorgi Kadagidze, President of the NBG, the preliminary data shows a drop in demand on economic activity however as January is a passive month generally, the final conclusion whether or not this is a fundamental macroeconomic tendency or a seasonal factor will be made after monitoring of coming three months.
“Business environment in the country is much better today than it was before October 1st,” Soso Archvadze, an economic analyst, said. “And there is no need for any extra remedy like amnesty.”
As a matter of fact, new government that took its office term by end of past October, has already implemented around 16 changes in the tax law to make administration of tax arrears and tax-related disputes more liberal. Some penalties were more than halved, and some cut down by four-fold. Besides, the tax arrears payment deadline was postponed by 3 years instead of the currently active one-year. Government pledges to go ahead with more liberal steps that make amnesty completely unnecessary.
“Amnesty may have only negative impact and lead to budgetary crisis if all tax arrears will be exempted. As to alleged economic blunders and crimes they should be settled through courts,” Archvadze recommends.
Demur Giorkhelidze, an economic analyst cooperating with Georgian Dream, thinks an economic amnesty and decriminalization have a sense if the target beneficiaries will be classified.
“Crackdown on business was so big during the previous government that some business had just no other way out than to go on some economic blunders that cannot be assessed as economic crimes. They should be excused. But the monopolist groups who enjoyed ex-governmental support and have been taking super-profit should not be exempted,” He said.
Ditrikh Muller, a co-founder of Georgian Investment Group, categorically discards any kinds of amnesty and decriminalization idea. He believes this sort of taxation preferences falls only in interest of the business protected by ex-ruling National Movement as only protected companies managed to accrue tax liabilities. According to him, classification of who was a real criminal and who just committed an economic blunder will take a lot of time and the dispute is better to be settled via court rather than through tax preferences. Besides, frequent amnesties like once per 8 years plus exclusive tax-exemptions erasing millions from national TV channels in 2010 including GEL 36 million of Rustavi 2 and Imedi both National-favorites, will boost the impunity syndrome in the country that unpaid taxes can be excused. By the way Rustavi 2 and Imedi accrued GEL 5.5 million and GEL 13.9 million since 2010 to 2013 again. The so called opposition TV channels such as Kavkasia and Maestro meantime owe no taxes and enjoyed no amnesty but only pressure, their owners assure.
“Another amnesty means that Saakashvili’s government was so bad during 8 years that the economy got so much criminalized that it needs an amnesty now. There was such a big pressure on unprotected business during National’s authority that I doubt whether anyone but protected companies eluded taxes. All unprotected ones were law-obedient tax-payers and that’s pretty unfair now to exempt those who did not pay. President just tries to save the businesses that were under protection of Nationals before,” Muller said
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