Desperate for Tax Leniency, Car Dealers Ask Government for Bailout
28 March, 2015
Desperate for Tax Leniency, Car Dealers Ask Government for Bailout
Car re-export, a field that dominated Georgian exports for almost a decade, dropped by almost 47 percent lately as a result of the double impact of the national currency’s devaluation and stiffening of car import rules at the major export market that is Azerbaijan.

“Long story short, the car business died. Sales dropped by 70 percent and the only winners are Armenian customers, who dictate their prices and want to get cars for almost nothing. The prices got halved. Cars
that cost nine thousand USD cost five thousand today… but to no avail. Nobody wants to buy them.” – Koba Gulikashvili, car dealer at the Rustavi car market

Georgian exports dropped by 26 percent overall in January-February of this year, while the car re-export, which comprised around 13 percent of the total export, fell by almost 47 percent in January-February of 2015. The drop was extremely steep: from 77 million USD of 2014 to what is estimated to be no more than 40.6 million USD in 2015. Current profits from car exports to Azerbaijan amount to 19 million USD, while this sum was 36.6 million a year ago.
That is an unprecedented drop since 2006, when Georgian car re-export skyrocketed thanks to the liberalized customs and tax regimes compared to those of the neighboring countries, especially Azerbaijan, Kazakhstan and Armenia, that represent key markets for Georgia in this field.
Within less than a decade, car re-export grew from 50 million US dollars annually in 2006 to 70 million in 2013. The only ex­ception was 2009, when the profits took an almost 44 percent nosedive as a result of the global financial crisis. Still, it continued growing in spite of the Kazakh market closure in 2011, when Kazakhstan adopted stricter customs regulations that prevented importing cars from Georgia.
But the heaviest blow to more than 20 thousand Georgian car dealers was dealt in the spring of 2014, when Azerbaijan introduced the Euro-4 ecological standard for cars. According to this standard, Azerbaijan does not admit cars that are produced in the EU before 2005. This time limit is different for different countries: 2004 is set for the cars produced in the US, 2011 for China and Japan, and 2006 and 2009 for cars produced in Korea and Turkey. Car dealers at Rustavi market near Tbilisi have been complaining of halved sales since this past spring. But the rampant economic crisis in the region and the plunge of both Georgian and Azeri currencies by around 30 and 34 percent respectively have doubled the negative impact.

The car dealers also complain about the deep corruption of Azeri customs officers that massively impedes the car imports. As reports go, they mainly target those importing Japanese cars.

According to Giorgi Supatashvili, Director of Caucasian AutoImport, the amount of cars re-exported from Georgia to Azerbaijan has decreased to five thousand cars per month. The average price of a car is 10,000 USD.
“The way it is now, the country loses about 50 million dollars every month. Half of that sum supposed to go to the state coffers through taxes,” he said.
Big car importers that deal in both brand new as well as second-hand cars cope with the crisis better than others, although they also complain of dwindling demand and lack of cash payments, especially in USD.
But low volume dealers are the main victims here. They cannot sell cars even if they half their prices. As a consequence, they can pay neither for the car-import related procedures such as the port terminal service, customs clearance, rent for car parking [at Rustavi market], nor the fines for overdue payments. The customs clearance deadline is 45 days and the fine for breaking it ranges from 1,000 to 1,500 GEL per day. At the moment, hundreds of cars rust at customs warehouses while car dealers are getting slowly bled out. To escape bankruptcy, 20 thousand small dealers ask the government for a bailout.
“Long story short, the car business died. Sales dropped by 70 percent and the only winners are Armenian customers, who dictate their prices and want to get cars for almost nothing,” complains Koba Gulikashvili, a car dealer at Rustavi car market. “The prices got halved. Cars that cost nine thousand USD cost five thousand today. Cars that cost 3,500 USD are offered for 1,800, but to no avail. Nobody wants to buy them.”
“Devaluation of the lari has simply ruined us,” says Tamaz Berishvili, another private car dealer. “We took out loans in dollars when the exchange rate of GEL against the dollar was 1.65, but now we are supposed to pay 2.20 per dollar. How are we supposed to profit?”
“We do not ask for any financial assistance, we seek taxation leniency,” explains Gocha Barbakadze, yet another car dealer.
According to Giorgi Supatashvili, the double impact of the Azeri regulations and currency devaluation was aggravated by the increased competition in Russia, where prices on cars dropped due to the economic crisis.
The car dealers also complain of about the corruption of Azeri customs officers that massively impedes the car imports. As reports go, they mainly target those importing Japanese cars. The Euro-4 ecological standard prohibits import of Japanese cars if they are produced after 2011 and imported from Japan as a country of origin. But the new law admits Japanese brands if they are produced in the U.S. and transported from there [since American cars produced after 2004 are in line with the Euro-4 standards], so Azeri customs officers still count them under the time limit of 2011 and use this as a premise for bribes.
In order to fix the whole situation and save the car re-export market, dealers ask the Georgian government for taxation leniency and the extension of customs clearance period. They also ask for the corruption scheme to be somehow negotiated with the Azerbaijani authority in order to restore the rule of law at the border.
“As a matter of fact, Georgian authorities appear willing to share our troubles and make concessions such as reducing and even completely slashing certain fines. We also notified the Revenue Service of pervasive corruption at Azeri border and they are likely to try and solve the problem in near future. I cannot disclose details of the governmental bailout scheme at the moment, but they will be revealed soon,” Supatashvili said.
If not relieved as soon as possible, the car re-export business will send a ripple through the service businesses related to the car trade such as car repair and service shops, spare parts trade outlets and ports – they all have already witnessed a significant drops in sales.

Courtesy of ISET

Other Stories
Georgian citizens are granted the right to work in France
The French Embassy in Georgia made remarks on granting Georgian citizens the right to work in France
The New York Times: Bitcoin declines but Georgia still bet on it
The New York Times has recently published an article about reasons, challenges and causes of generating Bitcoin in the former Soviet country Georgia.
EU to allocate € 13 billion for Eastern Partnership countries, including Georgia
The European Union together with the World Bank plans to allocate investment worth € 13 billion for infrastructure projects in the Eastern Partnership countries.
Anaklia Port and its importance for Georgia
In 2016, Anaklia Development Consortium was authorized to launch the construction of Anaklia Port.
Cryptocurrency mining threatens electrical network in Abkhazia
In the breakaway region of Akbhazia rampant cryptocurrency mining is threatening the shaky electrical network, reports an article of the news portal EuroNet.
Caucasus Wine University to be opened in Gurjaani
In the Kakheti region a new viticulture campus of the Caucasus University is in the process of planning.
Photos describing life of the poorest in Georgia
Fight with poverty should be among top priorities of every government in every country.
Training farmers to rescue the organic hazelnut production in Georgia
Even drizzling rain and unpleasant gusts of wind can’t prevent the farmers from coming and participating in the agricultural training.
Bleak times for organic farmers in Georgia – but there is hope
Organic hazelnut production is a delicate plant in Georgia that has emerged just a couple of years ago. Various pests, among them the Asian stink bug Parosana, trouble hazelnut farmers and menace their livelihood – even before their businesses could really take off.
Hybrid car imports are going through the roof in Georgia
Thanks to their fuel economy, the popularity of hybrid cars is increasing in Georgia, where fuel affordability is low and prices for fuel are unstable.
The New Year offer from MAQRO Construction - Apartments with unbelievable discounts and the parking spaces for FREE!
Location, green yard, spaces for various needs, experience of the construction company and parking space are the main important criteria for potential buyers of apartments.
Interview with the co-founder of Kiwi Vegan Café – the first vegan place in Tbilisi
Behind the Kiwi Vegan Café stands a group of activists who wants to raise Georgian’s awareness for animal rights and welfare.
Biblusi opens first shop for tourists - Georgian
The largest book shop in Georgia Biblusi opens the first shop specially designated to the needs and interests of tourists and named it Georgian.
Georgia improves by five ranks in the Prosperity Index
In the overall Prosperity Index rankings, Georgia has climbed by 5 positions from 85 to 80 when compared to last year. As such, Georgia is the best performing country in the CIS zone.
The future is bright for electric cars in Georgia
The numerous hybrid cars in the streets of Tbilisi cannot be overlooked. Entrepreneur Sulkhan Gvalia calls them “pagers”, referring to the predecessor of mobile phones.
Georgia’s fight against the big tiny enemy – Asian Parosana
It’s a tiny creature, but the harm it did to the Georgian agriculture sector was and still is immense.
New cable route: from Kobi to Gudauri in 15 minutes
On the 15th of December, cable transport is scheduled to be opened connecting Kobi and Gudauri.
Tourist boom in Gudauri – majority of hotels are booked by foreigners
Gudauri is among the most popular winter resorts in Georgia.
Medical tourism increases in Georgia
In the last 9 months, Georgia was visited by 19 500 foreigners for medical and recovery purposes.
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
GEL Exchange Rate
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
February 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28