Georgian Business Pays for Transparent Taxation
22 December, 2011
Georgian Business Pays for Transparent Taxation

To ensure fair and transparent taxation Georgian business has to pay for services that Revenue Service is obliged to provide free of charge. 

Georgian Revenue Service (RS) in quest of effective ways to increase law-obedience in Georgian business and make taxation transparent, introduced payable tools and services this year that ease tax administration but increase cost burden.

On the one hand RS delegated its authority on reputable audit companies that can implement alternative audit of a business instead of RS. The key

lure of the alternative audit is that unlike RS audit it exempts business from fines and will be paying only key liabilities. Moreover, RS cannot audit the company again in the period inspected and approved by private audit. High risk group business cannot enjoy this service but those in middle and low risk groups have a choice: either to be audited by RS officers and pay full liabilities plus penalties or hire expensive private audit company but be exempted from penalties as well as make paper-work streamlined that ease things in future.

But alternative audit average cost stands at GEL 10-30 thousand and goes higher while it does not exempt from fines fixed on overdue liabilities that are much more important to reach million sometime while penalties that stand at approximately GEL 300 are less significant in fact.

To increase transparency and trust RS also adopted payable private tax agent service for GEL 2 thousand in six months [approximately GEL 333 per month] that enables business to hire RS officer as long as it would like to handle with tax-related paper-work and problematic issues thus insuring smooth operation of business. Moreover, RS enables taxpayers to inquire of some questionable taxation cases at RS before audit and RS will give them a preliminary notice, kind of an instruction paper explaining how to tax the questionable point that will have a legal mandate but that costs at least GEL 5 thousand. If a company wants to get such a preliminary notice in ten days they have to pay GEL 10-15 thousand based on the annual turnover.

RS standpoint is that introduction of payable alternative tools [specifically alternative audit] enabling business to streamline their paper-work will give impetus to legalize business and build trust toward tax service and state.

International statistics show that 97-98% of taxes are collected through voluntary compliance and only 2-3% through audit activities. But voluntary compliance is based on trust that can be gained if tax service acts within the law through professional and responsive staff not through introducing payable service that must be free of charge by essence.

Davit Narmania, Director Executive of Caucasian Institute for Economic and Social Research, doubts that alternative audit as well as other payable services focused on transparent taxation can build trust toward RS. He thinks that audit is the state function and the job of RS that is paid for this from the state budget and business should not pay for services that must be free of charge.

Lily Begiashvili, Deputy Head of Revenue Service of Georgia, acknowledges that many developed countries do not like delegating audit rights from the state to private companies but Georgian RS believes this model is apt to Georgian reality [where business prefers to have an affair with business rather than tax service] and alternative audit is expected to remove feeling of discrimination and unfair treatment in business since private auditor will be checking papers instead of RS that will increase transparency of taxation process and build trust toward the state tax administration and state itself.

“Many countries do not agree with this model but let’s assume it will be very beneficial to Georgian society and our reality as it will strengthen mutual trust and cooperation,” Begiashvili said on December 14, 2011 during meeting with media organized by the USAID supported Economic Prosperity Initiative.

Narmania presumes that introduction of new payable tools is related with lack of RS own resources to cover all audits rather than with the care for trust-building between taxpayers and tax service. He regrets state money is spent on doubtful reforming tools that may not justify expectations and recommends diverting those resources on improving RS service skills.

“It seems less persuasive that trust toward tax service will increase through alternative audit or any other payable services introduced by RS lately. Yes, they ease tax administration but increase costs to business as far as they should be paid, besides if there were trust toward tax service they would not need any alternative audit,” He told Georgian Journal.

Levan Kalandzde, an economic analyst, thinks payable services are discriminating.

“Yes, alternative audit for example is a choice to business that infringes tax law and expects penalties of RS, price for private audit may offset its liabilities, but honest business that has nothing to hide has to hire private audit to insure transparent taxation [for it does not trust RS] that is discriminating: they pay off fair taxation in fact,” he said.

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