SME may become victim of private tax audit
28 April, 2011

Soon Georgian business may have to choose between tax officer and private tax audit. According to Georgian government’s new initiative, companies are supposed to choose who will be implementing audit of their financial papers. Those who prefer private tax audit will be allowed to write part of penalties off.  What alarms business and economic analysts is that the expensive private tax audit is scarcely affordable for small business. It poses the risk that the taxation service crackdown may affect small and

medium business to the full.
The initiative falls in line with the new economic policy that was undertaken by the government this year and which focused on easing life for the business.   According to Nika Gilauri, Prime Minister of Georgia, the idea of the initiative is that the Revenue Service gives licenses to audit companies that empower them to put into practice tax audit and allows the companies to apply to the licensed companies to implement tax audit instead of tax service. The protocol made by private audit will be equalized with the tax service protocol, and the tax service will check companies that use private audit only once in three years.  Moreover, companies can write off part of penalties if they appeal to private audit service. By this government thinks to create incentives to private sector to appeal to auditor companies and boost development of this business ultimately.
The pilot project will be implemented in the coming 3-6 months and then all audit companies may implement tax audit. During a year audit companies will be working based on their own methodology and a standing commission staffed by representatives of the revenue service, audit companies and invited experts to work out a new methodology guidelines. 
Big business seems pleased by the initiative. According to Giorgi Chirakadze, President of Georgian Business Association, this here initiative may restore the “broken bridge” between business and government as far as the mistrust between business and taxation body will be zeroed thanks to this initiative.
But the initiative may affect Small and Medium Enterprises (SME), economic analysts fear.
Davit Narmania, Executive Director of the Center for Economic Problems Research, thinks the private tax audit initiative is calculated on big business in fact, for government trumpets that only very reputable audit companies like Big Four [Deloitte Touche,  PricewaterhouseCoopers, Ernst & Young, and KPMG] acknowledged worldwide will be trusted to implement such audits that cost no less than USD 100 thousand. 
“Only big business can afford such an expensive audit service, which they do without any other incentives because they need it themselves and it is not an extra cost to them. But I fear that the administrative resources of the tax service freed thanks to this initiative will be completely focused on SME that can scarcely enjoy private audit option and the tax service crackdown will increase on smaller business,” he told Georgian Journal adding that the single positive thing of this tax audit is that penalties can be deducted. 
Levan Kalandadze, economic analyst, thinks big business will be in green house conditions on expense of petty fry ultimately. Besides he finds the concept of private tax audit initiative controversial.
“The private audit and tax audit have different goals. Private audit is focused on checking financial stability and sustainability of business, while the tax service goal is to check whether or not taxes paid in the state budget is correct. This initiative may end up by diverting private audits on tax audit completely and I ask what the tax service does exist for?” Kalandadze wonders.
He dislikes the recent trend of tax service to introduce payable services like private tax officer [who costs GEL 30 thousand per month], drawing preliminary taxation decision, as well as charging official tax-related paper if you take it in accelerated way etc. Kalandadze worries SME cannot enjoy such payable privileges and all is done to poise big companies in preferential position. 
“The problem is that the tax code is tailored to 100-120 companies in fact. We pay money in the state budget to finance the tax service that is responsible to implement taxation and if it avoids this task why do we need and pay them?”
Giorgi Pertaia, Business Ombudsman, greets the governmental initiative only if the tax service crack-down will not be diverted on SME. Moreover he believes that the money paid to audit companies will be intellectual investment that will boost audit sector in Georgia.
Lavrenti Chumburidze, Director Executive of Federation of Accountants and Auditors of Georgia, assures the Big Four will not be involved in the pilot project but later they are supposed to enter Georgian market.
“The market is too big and only Georgian audit companies [embracing 21 companies] cannot utilize it completely,” he elaborated.

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