Georgian highlands to go tax-free
01 May, 2014
Georgian highlands to go tax-free
Woing business in the Georgian highland regions will become tax free for 5 years. The due draft bill on the said change is already underway and slated for discussions.
The Georgian government launches a protectionist policy in the highland regions of Georgia. According to sector pundits, mountain regional policy will be a priority to Georgia at last. They underline that aside of the economic input of mountains, where the ample water resources of Georgia originate and where the most potential
hydro power plants are situated, also include coal and manganese deposits and are a driving force for tourism thanks to their breathtaking landscapes, spa-and-ski-resorts. They are also of primary political and strategic importance. As a matter of fact, a significant part of Georgia’s border line is stretching through the mountains. While the west border of the country is guarded by the Black Sea, the north frontier line with Russia goes on to the Caucasian highlands, and the south line bordering with Turkey trails through the mountain range across the regions of Samtske-Javakheti and Achara.
As Koba Arabuli, Vice Governor of the mountainous Mtskheta-Mtianeti region and one of the authors of the bill on mountain regions taxation preferences, said in his interview to the Kviris Palitra newspaper, in previous years Russia encroached Khevsureti [a border region in the east of Georgia] by eight kilometers and also significantly slid its frontier posts down into Racha [a highland border region in west Georgia]. One of the major factors that allowed Russia to act in this way is because a large part of the population in the said regions left their homes in search of a job. Some went abroad and others resettled in urban areas, mainly in the capital Tbilisi.
According to analysts, it is high time for the State to work out a proper policy regarding the mountain regions which will stop the incessant migration and spare the highlands from full devastation which can deprive the country of its natural front guards. “Let me say, without being pathetic, to save the mountains is to save the country,” Arabuli is quoted.
There have been some attempts to create a special preferential policy for the mountain regions before but all failed. This time, the underway draft bill was elaborated in cooperation with the government, the Demographic Development Fund and the local population, Arabuli said. Details of the project including the criteria according to which villages should get the status of highlands are being discussed. What is already clear is that people who permanently abode in the highlands for a full year will get the status of constant mountain dwellers and enjoy all preferences cited in the law. Those who live a so-called nomadic life and live in the mountains for five months will make up a second category of mountain population.
The taxation preference will cover enterprises in the villages with a highland status: every business, no matter run by a local or a foreigner, which will process a locally produced product and employs the local population will be exempted from all taxes for five years. Arabuli believes this period is sufficient for investors to get their money back. This idea is expected to lure investors to the mountains and revive the economic activity there. Economic analysts approve of the five-year tax exemption, but ask for a clear elaboration on the term of highland status and proper control from the State’s side.
“It is impossible to help only villages situated 1500 meters above the sea level (as a previous law envisaged), Georgia is largely a mountainous country and all regions that are relatively mountainous and far from the capital should get an impetus,” Soso Archvadze, an economic analyst said.
Giorgi Abashishvili, an economic analyst, fears that the five-year tax exemption may tempt businesses to use the highlands as front-figures and only register enterprises there, but set them up for operation in lower villages.
“This kind of temptation will exist and the State must implement very strong and clear regulation of the issue to avoid the risk of false registration,” he concluded.
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