Revenue service encourages transit
12 May, 2011
Revenue service encourages transit

Double interpretation of tax code that scares maritime and freight shipping companies off Georgia seems to be solved.

The transit image of the country is saved, freight forwarding companies say. 
The upcoming exemption of maritime transport and related service as well as empty containers transportation from the Value Added Tax (VAT) makes hopeful the m

aritime and freight shipping companies that Georgian government is really interested to encourage transit through Georgia.


The transit image of Georgia somewhat shattered early this year by practicing a so called Zebra policy [rhetoric dispute whether zebra is white with black stripes, or it is black with white stripes] affecting international maritime and freight shipping companies operating in Georgia through double-interpretation of Georgian tax code seems to be restored soon.
The year started by litigation processes against the state sued by several freight forwarding companies for unfairly imposed penalties the Revenue Service imposed on them for alleged six-year VAT-elusion. The Revenue Service argued that freight shipping companies have been eluding VAT on service provided to empty [railway] containers on their way back after delivering the cargo at the place of destination.
Companies along with legal experts assured the empty-container transportation has always been exempted from VAT based on international freight shipping convention that charges by VAT the entire service chain of cargo transportation from its start point to the place of its destination and this service chain includes transportation of empty containers on their way-back. Georgian tax administration also acquiesced and observed this agreement for many years although this exemption was not built in the old tax law through a clearly stipulated paragraph leading to double interpretation and government took an advantage out of it finally. In January of 2011 the Revenue Service accused freight shipping companies in VAT elusion and imposed huge penalties accruing to several millions. 
As Bondo Bolkvadze, customs legal expert, explained to Georgian Journal, charging empty containers by VAT was not in line with the international practice, it pegged prices up, and all these was affecting Georgian transit image. He advised Georgian government to put Georgian legislation in compliance with the international one.
On the other hand, under the pretext of security and safety, Revenue Service imposed a monopoly on customs clearance of motor cars and starting January of 2011 forced international maritime companies to implement customs clearance of car-cargos only through the state-owned Customs Clearance Zone in Poti Port. Maritime companies [40% cargos of which are made up by cars] having implemented customs clearance through their contracted terminals for up to 20 years claimed it affected their established prices and increased costs by 60%. On the other hand they reported on outrageous crack-down on business to the EU structures and some even made up mind to quit Georgia.
However, political will of Georgian government changed at last and after dismissing strong-handed Girogi Tskhakaia in this past March, former head of Revenue Service, and assigning liberally-disposed Jaba Ebanoidze at the post, things changed in a right direction. 
Crack-down on maritime companies stopped and they go ahead with their usual practice of cars customs clearance. Moreover, in this past fortnight the Revenue Service made changes to the tax code clearly stipulating that the empty containers-related service like loading, unloading and storage  are exempted from VAT. The currently active tax code exempts from VAT only services related to transportation of empty transporting means [containers and wagons] beyond Georgian borders and their way-back.
Another concession made by government to maritime business is exemption of  the ship-container-related service at ports from double VAT charge. The point is that according to the active law, services performed to ships at ports were taxed twice: when a ship purchased a service for cargo during entering the port it was charged by 18% of VAT but could not register it for it was ranked as non-VAT payer by law. On the other hand the service performed by ships including the already paid VAT was included in the tariffs of goods and the service faced double VAT taxation.
According to Zurab Shengelia, Chairman of Association of Georgian Freight Forwarding Companies, the concerted cooperation of business with business ombudsman and revenue service led to positive results.
“Double-interpretation creating a lot of problems is removed and all VAT exemption details are clearly elaborated and written in the tax code. I think that business ombudsman institute creation of which was under suspicion  initially justifies itself,” he told Georgian Journal.


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