VAT preference to gross importers cancelled
20 March, 2014
VAT preference to gross  importers  cancelled
The Value Added Tax payment preferential regime which is valid for gross importers at this moment will be canceled soon. The Branch Economy Committee at the Parliament came out with the initiative recently to make the VAT preference void in order to put all market players, big and small alike, in equal conditions. Analysts disapprove of the change and say it would be much better to give similar preference to all market players rather than cancel it for all.
The
said VAT preference for gross importers works as follows: importers who paid more than GEL 200 000 VAT in 12 months [or during the previous fiscal year] may pay VAT, not immediately when the goods cross the border, but after supply of the product. As a consequence, gross importers enjoy a certain relief compared to petty fry at the moment because they have a time span in VAT payment. The fraction Entrepreneurs at the Parliament believes this kind of privilege for big players discriminates smaller competitors and puts them in unequal competitive conditions. To square the game rules, the Entrepreneurs fraction decided to cancel the privilege for everyone. Minister of Finance, Nodar Khaduri, hailed the change. He believes the change streamlines competition at the market for all importers despite their size, as well as for local entrepreneurs.
“This project should not cause any discontent once it puts all taxpayers in an equal position and enables them to compete with each other while in a competition fight the consumer always wins,” Khaduri stated. However, the change caused discontent not only with gross importers but with economic analysts too. Paata Sheshelidze, President of New Economic School, believes the best way-out could be to make the VAT payment preferential system available to all taxpayers instead of canceling it for all. He does not rule out that, once made void, the preference importers will have some extra costs related to tax administration and increase its prices.
Zurab Tkemaladze, Head of the Branch Economic Committee, says the adoption of the overall VAT payment preference would be a good idea, but in this case the budget might suffer a big loss. Sheshelidze believes the loss may occur in current budgetary inflows once the VAT payment will be implemented not immediately while crossing the border, but gradually at different times depending on the product supply schedule. Ultimately the budget will witness no losses because the VAT will be paid thoroughly by end of the year.
Irakli Lekvinadze, an economic analyst, also believes the tax administration should be simpler and making the VAT payment based on supply to all market players would have been the best option. He rules out any budgetary losses in this case. Lekvinadze thinks the change is initiated because it makes the VAT administration easier. It is much simpler to receive VAT immediately at the border rather than wait while entrepreneurs implement the supply and sales at different times. But tax administration must be tailored not only to the comfort of tax officers but ease the life of businesses as well.
“The budgetary incomes will be the same while the tax administration could become much fairer,” he said to Georgian Journal. “As a matter of fact, I think it is not fair that importers pay VAT immediately while crossing the border before the product is supplied and sold, and its value paid to the importer. Normally business should pay taxes after they sell the product and don’t witnesses the profit in advance. Maybe an importer will only sell the product several weeks or months after the border crossing date, why is he or she expected to make any prepayments?”

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