Will Georgia See the Emergence of Differentiated Tax Zones?
30 April, 2015
Will Georgia See the Emergence of Differentiated Tax Zones?
Today’s Georgia is rife with problems. The list is quite impressive, and not in a good way: An import-oriented economy, unemployment, overcrowded cities, a near-empty countryside, the migration of able-bodied citizens from the country, etc. Bpn.ge visited Temur Maisuradze, vice chairman of the Parliamentary Committee on Branch Economics and Economic policy, and asked him a simple question: What is the way out of this situation? He replied that introduction of differentiated tax zones is the panacea the country needs.

should pay taxes depending not on where they are based, but where they produce their goods. If Tbilisi is to become the zone of highest tax percentage, Kutaisi’s taxes should be 2-3 percent less and so on”

– What exactly do you mean by “differentiated tax zones”?

– I think that the regions, which are slowly becoming more and more abandoned, should be completely relieved of taxes. More or less loosely populated zones should have a 2-3 percent tax, densely populated ones – 4 percent and so on. Tbilisi should be the highest taxed zone, which will essentially leave it the way it is now. I doubt it will be hard to determine the regions that require nullification of taxes. Companies, however, should pay taxes depending not on where they are based, but where they produce their goods. If Tbilisi is to become the zone of highest tax percentage, Kutaisi’s taxes should begeotv.ge 2-3 percent less and so on.

“Businesses who begin their operation in so-called null zones should also receive more lenient loans”

– Do you really think that businesses that had their production established years ago in places such as Tbilisi, Batumi or any other big city, will transfer the process to some nearly deserted region?

– Allow me to counter with a question of my own: Why would company such as Coca-Cola remain in Tbilisi and pay high taxes if it can go to the village of Utsera, for example, or any other place where it can operate almost or completely tax-free – especially if local water is cleaner, landscape is better and the conditions for running a business more convenient? Naturally, businesses who begin their operation in so-called null zones should also receive more lenient loans. Georgia does not suffer from transportation and communication problems, so one potential impediment is already out of the way. I think that after such a law is implemented, a lot of business activity will move out of Tbilisi and equally distribute its workload and resources across the regions. Tbilisi will remain an administrative center.
I think that such a law will give a great boost to economic activity in the country, since it will make the entirety of Georgia attractive to investors. This, in turn, will increase the amount of investment. This claim can be backed up by the cheapness of resources and labor in the regions. We should also do our best to make loans more available to businessmen operating there. All these measures, if taken together, will serve as a massive stimulating factor for transference of business beyond the big cities. If goods produced in low-tax zones will manage to successfully compete with, for example, Tbilisi-produced goods, businesses will become even further stimulated to move.

geotv.ge“At the moment Racha is almost completely deserted, yet its potential is immense. Its woods are brimming with apples and pears, and yet nobody picks and sells them”

– Let me remind you that Georgia’s regions suffer from massive unemployment and are the main source of labor migration.

– Unfortunately, you are right. I don’t know any other small country where this issue is so acute. The regions are getting slowly depleted of people, while the two largest cities – Tbilisi and Batumi – are becoming crowded beyond measure. Differentiated tax zones and movement of business activity that will almost immediately follow their implementation will trigger a reflux of labor migrants to their home towns and villages. People will come to fill the emerging workplaces. When you have a student from a countryside studying engineering or any other technical profession in Tbilisi, returning to his home village is the last thing he wants because he knows there is no work to be found in that place. However, if he knows that he will be able to get himself a decent, high-paying job there, he will be stimulated to both complete his education and return. What I am offering is a systemic approach, not artificial creation of a farm here and a factory there; such things bring no tangible results.

– Have you given any thought to what business fields will be most promising if the scenario you describe comes true?

– Heavily forested areas are excellent for producing furniture. Such areas include Utsera, Borjomi, Akhaldaba and many others. Or take the region of Racha, for example: At the moment it is almost completely deserted, yet its potential is immense. Its woods are brimming with apples and pears, and yet nobody picks and sells them. Tons of fruit simply rot away every year because nobody cares. Such a place is the most fertile ground for a juice-producing factory. If a company capable of recycling this fruit into juice and competing with Kula [a popular Georgian juice producer] appears, why shouldn’t we lend it a hand? People will flock there in hundreds, picking fruit and turning them in for monetary rewards. Packaging factories will emerge next, all in dire need of workers. And voila, a once-empty area is now bustling with activity.
This is what I am offering – a way to quickly revive Georgia’s economy. People will gladly return to places they were born and raised if there is work to do there.

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