Zebra policy puzzles freight forwarding business
24 February, 2011
Zebra policy puzzles freight forwarding business

Double interpretation of tax code leads freight shipping companies operating in Georgia to penalties and court disputes. Experts say taxation puzzles may affect Georgia’s transit image.
Double-interpretation of tax code that was supposed to be eliminated by new tax code that was enforced starting this year, still makes Georgian entrepreneurs scratch heads. This so called Zebra policy [rhetoric dispute whether zebra is white with black stripes, or it is white with black stripes] completely works in favor of the taxation

body [that enjoys a privilege of accusation and execution alike] and discriminates interests of business people.
Georgian tax code lacks the concept of the presumption of innocence of entrepreneurs thanks to which tax officers always accuse and business – defends. That leads to legal disputes between the entrepreneurs and state ultimately but court rarely settles for business and the latter frequently is a scapegoat supposed to fork out for the state budget.
Several freight forwarding companies sue the state at the moment due to penalties the Revenue Service imposed on them for alleged six-year tax-elusion. The Revenue Service argues that freight shipping companies have been eluding the Value Added Tax (VAT) by 18% charging service provided to empty [railway] containers on their way back after delivering the cargo at the place of destination.
So called empty containers transportation cost makes roughly GEL 1. 7 million and its 18% totals about GEL 306 thousand that multiplied on number of transportation rounds during six years makes impressive figure totaling  millions of allegedly hidden taxes. To reimburse this loss the taxation body had been scrutinizing financial papers of freight shipping companies operating in Georgia for about 8 months through auditor companies and imposed penalties on them starting January this year.
Companies [that asked Georgia  Journal not to be named] claim the empty-container transportation is exempted from VAT based on international freight shipping convention that charges by VAT  the entire service chain of cargo transportation from one point to the place of its destination and this service chain includes transportation of empty containers on their way-back. 
Unfortunately, this exemption was not built in the old tax law in due manner leaving room for double interpretation and government took an advantage out of it.
“Based on international law transportation of empty containers is free of VAT and they [Revenue Service] has not been charging companies by VAT for years but now they imposed penalties on several companies and they have full legal right for that in fact but this is a political decision actually and a bad practice based on unclear stipulation of tax law,” Bondo Bolkvadze, a customs expert, told Georgian Journal.
According to Bolkvadze, tax service raises taxes based on Georgian not international law but the country’s law must be streamlined with the international one. And here we have a collision leading to legal disputes and price hike on transit that affects Georgian image of a transit country.
Audit companies implementing audit of the questioned companies say they cannot accuse companies decidedly for tax elusion because Georgian tax law leaves room for double interpretation.
The fined freight shipping companies raised lawsuits against the state at court to avoid penalties.
Government meanwhile agreed to build in the tax law a paragraph exempting so called empty containers way-back from VAT but it still lacks clear classification which services exactly are exempted, freight forwarding experts say. The Revenue Service seems reluctant to give up a guaranteed tool of legal fulfillment of the state budget - 80% of the budgetary revenues are tax-based and meeting this target is unrealistic [taken into account sluggish economic activity of Georgia] without well-probated double interpretation of tax code that translates as “a crackdown on business” in folks, economic analysts say.

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