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

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