Georgian Business Craves Business-Friendly Tax Administration
18 April, 2015
Georgian Business Craves Business-Friendly Tax Administration
One of the Georgian business sector’s major complaints concerns tax inspections that became unusually frequent and troublesome this year. In addition, inspection timelines are extremely loose and last for several months. Besides, tax inspectors sometimes visit one and the same company several times within a short period. This hampers the flow of business operations and repels investors from the country.

The problem lies in the ambiguous content of Georgian tax law that leads to misinterpretation and allows the tax inspectors to
settle things to his/her personal taste.


According to Imeda Dvalidze, a legal expert, the tax law envisages 90 days of inspection period but tax inspectors need double or even triple that time to draw a final conclusion. Besides, some tax inspectors (to escape suspicion of corruption) act too diligently and fine people without reason. If a taxpayer does not agree with this decision, he/she starts a litigation process that also consists of indefinite timelines and may ultimately take up to three years. To avoid annoyingly indefinite procedures and a waste of time, which is equivalent to money in business, many give up seeking the truth and prefer to simply pay the fines. However, this creates a feeling of injustice in business that undermines the business climate in the long-term.
“Georgian administrative code envisages a two-month period for the litigation process that can be prolonged by another two months, not more. But I have yet to see a case when this timeline was met. Taking the matter to the appeal court takes another two months; this deadline is never met, either. Then we end up with the situation when entrepreneurs prefer to pay undeserved fines rather than go through all court instances, which takes three years on average,” Dvalidze elaborates.
Zurab Lalazashvili, Head of the Customs and Taxation Department at the Georgian Business Association, indicates that fundamental changes are necessary in the tax administration’s approach. The problem lies in the ambiguous content of Georgian tax law that leads to misinterpretation and allows the tax inspectors to settle things to his/her personal taste.
“The tax inspection period was reduced from six to five years this year. Very likely this is the reason the inspections became more frequent,” Lalazashvili told Georgian Journal. “But the problem is not about tax inspections as such. The core problem is the protracted process of the inspection and the litigation process (if a taxpayer does not agree with the decision) at all court instances. Business requires knowledge about how much and when to pay in taxes and fines. Have it any other way, and the business gets robbed of the ability to make plans and carry them out adequately.”
But this is just half of the problem. Fre­qu­ently, a year after the inspection, tax inspectors come back and double-check. This may be repeated up to five or six times. The explanation is invariably “some new information was revealed about the case.”
The Georgian tax controlling body denies that inspections are becoming more frequent, however.
“On the contrary, the statistics show that the amount of tax inspections was cut down from 7,800 in 2012 to 4,500 this year,” says Bakar Devdariani, head of the Revenue Service’s Audit Department.
He acknowledges that tax administration has some flaws, but claims they are minor in character. And quite often the blame lies on the taxpayers who are reluctant to provide due papers in time.
“There are some defects in tax administration and we work together with international experts on rectifying them. As a matter of fact, five months is a maximum allowed inspection period, but it can be protracted under certain circumstances defined by law. There are 1,300 inspections on at the moment and only 40 were launched five months ago, which is just 3 percent of the overall figure. The problem is that some companies are too big to be inspected within 5 months. Some do not have bookkeeping, some refuse to provide due information in time and then ask to prolong the inspection period,” says Devdariani.
Nevertheless, Georgian economic analysts ask the Georgian government to take a more liberal approach towards business. Most of all they ask for strict inspection timelines and clear outlining of when and how often tax officers can visit a company.
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