Penalty exemption discourages law-obedience
06 March, 2014
Penalty exemption discourages law-obedience
All investors who own or manage assets after the privatization along with the state are exempted from penalties for unfulfilled investment obligations. However, this will never exempt investors from penalties if they still lag behind their investment timetables from 2014 on. Sector analysts disapprove of this amnesty and believe it discriminates law-obedient investors and discourages law-obedience in business. If some investors think the blame for their unfulfilled obligations lays with the state, the only justified way to find out the
truth will be in court.
After the selective exempting of penalties past fall for unfulfilled investment obligations to investors who acquired state assets after the privatization or got them under temporary management, the authorities decided to adopt a fairer approach and only exempt all investors who broke the investment agreement terms before 2014. Ministry of Economic and Sustainable Development of Georgia informed Georgian Journal of this on 25 February. However, the investors are not exempt from assumed investments obligations as such and are again liable if they neglect their obligations from 1 January 2014.
The statement also underlines that the amnesty will not be repeated, but economic analysts fear that this kind of amnesties, preceded by different sorts of tax and property rights amnesty laws by the previous government, will discourage law obedience among businessmen. They cherish hopes that some kind of amnesty will be possible after each shift of authority. The previous authorities stated that amnesty was necessary to eliminate defects of illegal activity of its predecessors. This time the incumbent power justified the penalty exemption to alleviate the stagnated investment projects put on hooks since 2008 when the double impact of the global financial crisis, and the short-lived war with Russia broke down investment projects in Georgia.
On the other hand, analysts approve that this time the government exempts all unsuccessful investors alike without short-listing certain 40 companies as in 2013. This selective approach laid ground for speculations that the amnesty aimed at exempting around USD 15-16 million of penalties to Arsenal Development, a developer company owned by incumbent Minister of Energy Kakhi Kaladze who started this business in 2008 as a private investor but failed to fulfill the investments obligations due to the August war and financial crisis. He asked the previous government to restructure his liabilities, but without success and went into the opposition later.
Giorgi Abashishvili, an associate professor of economy at Ilia State University, approves the overall amnesty once it treats all failed investors alike but believes it discriminates law abiding ones. “As a matter of fact it is good that, instead of paying fines, investors may use their resources in re-investment and enhance investment projects. But on the other hand, those who have implemented their obligations faithfully might feel resentment towards them,” He said to Georgian Journal, indicating that the only fair way to solve all disputes goes via the court.
Ditrikh Muller, co-founder of the Georgian Investment Group+, believes such frequent amnesties as in Georgia may encourage the impunity syndrome which discourages more competent businessmen to participate in upcoming tenders for it seems possible that the less competent competitors [who make higher but less realistic offers in expectation of amnesties] may win the realistic and reasonable offers. To establish justice once and for all, the state should pursue the contracts and penalize all investors who did not meet the contract terms.
“If some investor feels discriminated and thinks that the fault lies with the state for their unfulfilled obligations, they have to settle the matter in court. Preferences bypassing the court, will send a negative signal to investors that their rights might be violated here in this way or another,” Muller elaborated.
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