Narrow door of Georgian micro and small business paradise
24 February, 2011
Narrow door of Georgian micro and small business paradise

Georgian government started delivery of certificates for micro and small business status to make available the taxation preferences introduced by the new tax code. But apparently 80% of eligible candidates remain out of the coverage area of privileged.
The new tax code that entered into effect starting January of this year introduces simpler taxation regulations for micro and small business.
Any physical entity [or individual entrepreneur] who does not use employees’ labor and whose annual turnover does not exceed GEL

30 thousand is exempted from taxes. Business is small if annual turnover of individual entrepreneur stands under GEL 100 thousand. Small business is exempted from the Value Added Tax (VAT) and can choose taxation terms: if it presents financial paper proving that either 5% of the business annual turnover or 60% of its total incomes go on financial expenses their income will be taxed by 3%. Otherwise it will be taxed by 5%.
According to Giorgi Tskhakaia, Head of Revenue Service, the financial documentation in question  does not require hiring of an accountant or any extra expenses. Entrepreneurs can handle with it pretty well and be taxed by just 3%.
To enjoy the preferences eligible candidates are required to submit due applications at the revenue service for granting certificates either on micro or small business status. About 3444 applications are already registered at the revenue service and 2500 out of them requires micro business status. 
Revenue Service of the Ministry of Finances of Georgia has already undertaken delivery of certification starting February 18, 2011.
What makes business people as well as economic analysts worry is that the list of eligible beneficiaries of the much trumpeted taxation preferences is cut down next to nothing. The fact that only physical entities can enjoy the proposed privileges leaves legal entities like small beauty salons and bakeries [with annual turnover under GEL 30 thousand] that make bigger part of small and medium sector in uncompetitive condition. They will be taxed similarly to big enterprises with annual turnover exceeding several millions. This is discriminating and discourages business, economic analysts say. Government does not elaborate the problem. 
According to Levan Kalandadze, Executive Director of Georgian Small and Medium Business Association, the reason is that the bigger part of Georgian enterprises is made by small Ltd companies actually and if government makes taxation privileges available to them tax administration of about 80% of business will become simpler. It means that taxation crackdown on business laying ground to fulfillment of the revenue-based budgetary incomes will be difficult.
“It is not handy to government at the moment,” he said.
But this is a part of the problem. Another confusing thing is that individual entrepreneurs who were supposed to benefit out of taxation privileges can scarcely enjoy them. The list of eligibility criteria for micro business status states that the status of micro business cannot be granted to individual entrepreneurs if they perform a service in a sector that requires licenses and permits, implement currency exchange operations, are involved in medical, architectural, advocacy and notary, audit, consultancy [including tax consultancy] service or  gambling business. Moreover the micro business status door is closed to trade people, people involved in communal activity like repair of the consumer equipment/technical appliances, hairdressing and other related activities.  
“I really cannot understand who [if anybody ever] is the target group for the proposed micro business status. The list of eligible candidates is reduced to minimum.  Individual entrepreneurs were made by petty traders in fact, hairdressers, and people involved in communal activity sector but they are refused,” Nodar Khaduri, economic analyst, says. 
He fears that the tighter inflation pressure this year may aggravate the puzzle  who can sneak through the narrow passage of Georgian micro and small business paradise.
“Nobody provides with an explanation whether or not the 12% inflation pressure will be taken into account during estimation of annual turnover of business to grant either micro or small business status to it. The problem is that if  annual turnover equaled GEL 30 thousand and GEL 100 thousand past year now this figure is  increased to GEL 33 thousand and GEL 112 thousand respectively due to inflation, and what such businesses are supposed to do? Can they apply for micro/small business status or not? This is a really huge question,” Khaduri told Georgian Journal.

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