Tax preference implies amnesty
07 November, 2013
Tax preference implies amnesty
The upcoming changes in Georgian tax law that halve the financial paperwork inspection period for businesses alone imply a latent amnesty for unpaid taxes, and is discriminatory. The changes also deprive the Ministry of Finance of interpretation rights that very likely will go to the Parliament.
But the Georgian Government goes ahead with its initiative to make Georgian tax legislation more humanized and business-friendly. According to Nodar Khaduri, Minister of Finance, two more changes will be made regarding tax reforms:
one takes the right of law interpretation from the Finance Minister to the legislative body, and the second reduces the obligatory six-year period of inspecting the financial papers of companies to three, beginning in 2017.
“It is absolute nonsense that one person [a minister] can interpret a law. More than that, tax organ inspects six-year long documentation as a rule. We think to cut this term to three,” Khaduri stated. Some businessmen greet both initiatives, as they reduce pressure on businesses. That longer periods of inspection by tax officers increased the risk of large fines was one of their key grievances. Fines for even trifling blunders can accrue to very high sums after six years. Business leaders prefer that they be detected earlier, so that lower fines can be paid at once, and corrections to prevent further penalties can be made.
As to the law interpretation right, entrepreneurs approve the initiative and some even want to involve business in the interpretation process. Demur Giorkhelidze, an economic analyst, believes the law must be interpreted either by the Ministry of Justice or Parliament, and approved by a governmental initiative.
But Lia Eliava, a financial market analyst, thinks the coin has two sides. She agrees that legislative issues should not be settled by one person, and granting the interpretation right to Parliament might be a correct move if Georgian tax law is very precise and clear. She fears, however, that in reality the tax law is full of ambiguous paragraphs. Thus completely depriving the Finance Minister of the interpretation right is not a good idea, and may lead to waste of time. “As far as the law is not free from double interpretation some cases require urgent decisions and waiting for parliamentary proceedings can create a legislative vacuum that is harmful to business, whereas the Minister may settle the matter quickly,” she said.
Economic analysts also wonder if halving the inspection period will be more beneficial to big businesses, since small fry normally pay their taxes more diligently, and Giorkhelidze believes big business will remain the favorite of government, as before. “When you say, ‘I will check only 3 years documentation,’ whereas the requirement was on 6 before, it implies that you close eyes on possible tax evasions,” he said.
Besides, this kind of amnesty is discriminating toward individuals. Taxation law should treat all tax payers equally, analysts believe, and if government provides an exemption of three years to business, it should exempt individuals from property taxes as well.
“This half-done amnesty makes me think that government gives a relief to business alone because there is an apparent economic crisis in the country and they want to boost entrepreneurship. But authority just has to say that openly and not come out by hidden amnesty,” Eliava concluded.
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