Fixed Tax Will Cover More Business Gradually
08 March, 2012


Fixed tax rate exempting business from bookkeeping and Value Added Tax will cover more businesses gradually by the end of this year as the list of targeted businesses will be clarified.   Fixed tax is already defined for Georgian traditional bread bakery ovens called Tone [a round-shaped clay oven heated by wood] and beauty salons but which other business can enjoy the fixed rate is still under vision and supposed to be cleared gradually, Dika Chubinidze, Head of Legal Department at

Revenue Service of Georgia (RS) said.

What is known for today is that fixed tax will be an alternative taxation form to small entrepreneurs who may choose between ordinary taxation and preferential fixed tax that creates an opportunity to exempt business from bookkeeping, profit tax and Value Added Tax (VAT). It will work through two models but both cover only businesses that perform service to individuals alone and not corporation.

One model will cover service businesses [like bakeries, repair workshops and beauty salons] and its representatives will pay fixed rates monthly or quarterly and be exempted from cash-registers and bookkeeping obligations alike. RS has already charged each Tone-oven by GEL 100 per month. GEL 100-50 is defined tentatively per hair-dresser chair at beauty salons. Charges for a salon chair in the center makes GEL 70 and GEL 50 in the outskirts.  GEL 50 and GEL 30 very likely will be fixed for each pedicure specialist in the center and outskirts respectively.

Entrepreneurs who will opt for fixed tax and become exempted from the recently introduced electronic GPRS cash registers costing about GEL 290 apiece can return the cash-machines to the RS and get its cost back. RS will calculate their exploitation period and deduct it from the cost. RS obliged businesses to supplant old cash-registers by the state-of-the-art GPRS machines reporting payment information to the RS immediately on-line by the end of 2011. This requirement caused much ado for the cost for new machines was quite expensive and experts believed state had to pay for it. Ultimately state paid for part of petty businesses and the remainder covered costs themselves. Interest-free payments in installments were also available. And thus complicatedly acquired machines are supposed to return in a month. The return procedures look quite confusing too.

As to another fixed rate model charging trade sector entrepreneurs by 3% of annual turnover, it is still under vision, Chubinidze said. Trade businesses that will be taxed by 3% of their turnover are not exempted from cash-registers for based on registered payments the 3% of turnover should be outlined.

The reason government decided to offer fixed tax is that preferences given to micro business early in 2011triggered business splitting. Micro business with turnover under GEL 30 thousand became  exempted from cash registers and all taxes except income tax. So beauty salons for example that generally used to be LTd split into chairs: each hear-dresser registered themselves as a micro business and pay only income taxes while the owner of the saloon enjoys usual income without paying taxes.  This deprived business of motivation to improve service and expand.  Now government expects of the fixed tax to give an incentive to businesses get bigger.

Economic analysts do not share this expectation.

“At any rate it requires very diligent calculation where business can gain and where lose. For example whether or not it is worth to be taxed by 3% of annual turnover or be charged per chair by GEL 50 rather than pay 15% of profit,” Davit Narmania, Director Executive of Caucasian Institute for Economic and Social Research, said. He thinks entrepreneurs will not harry on fixed tax for the information on its amenities is very scanty and not clear.

Irakli Lekvinadze, an economic analyst, finds the first fixed tax model discriminating.

“That’s not fair,” He said. “You charge by GEL 100 two ovens while both have different turnover. It a priori means that the one with smaller turnover will be discriminated.  The percent-based fixed tax seems better but requires very precise calculation. Those with big turnover most probably will not choose it, businesses with smaller turnover may prefer such taxation but it needs in-depth claulaiton.”


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