Tax Code Draft Debated
Experts and businesspeople say that a draft of the new tax code is not as business-friendly as the authorities described it. The draft is still undergoing adjustments and is pending final approval by the Parliament, which is expected to come in December. If passed, the law will be enforced starting in January, 2005. Opponents also say that the tax code draft contains many provisions which may be interpreted in various ways which will lead to disputes between tax officials and entrepreneurs. “According to the previous agreement with the authorities disputes should be solved in favor of an entrepreneur. However, no such provisions are envisages in this draft so far,” MP Zurab Tkemaladze said. Another disputable provision envisages the full accountability of a physical entity to the tax inspection at the request of the tax department. “I think citizens should not declare their expenses,” MP Roman Gotsiridze said.
According to the new tax code, only 8 out of 22 taxes will remain in force. The rates of some of the taxes will also be reduced as well. In particular, the social tax will be reduced to 20% from the current 33%; income tax – from 20% to 12%, value added tax – from 20% to 18%. The profit tax, however, will remain at 20%.
These provisions in the code have been widely welcomed; however, opponents say that the authorities intend to increase taxes on gambling business and excise, through which the government plans to counter a loss of revenue from the lowering other tax rates.
“It is a positive tendency that the number of taxes and their rates will be reduced. However, it is noteworthy that basically the rates are reduced at the expanse of other taxes. For example, the tax on polluting the environment has been abolished; however the burden of this tax is reflected in the excise on oil-products,” MP Zurab Tkemaladze, who is one of the leaders of the Rightist Opposition parliamentary faction, told Civil Georgia.
But the authorities seem to be open to discussions. The government has already compromised over the property tax. Initially the draft obliged those persons who own more than 100 square meters of property to pay 1% of its market price. Thus, the current property tax would have increased almost ten times. But now the property tax will be defined according to incomes. However, the criteria to define the low-income and high-income citizens are still unclear.
“We agreed to change the provision over the property tax, as a result of which the budget will lose approximately 450-500 million Lari per year – this is the price we pay for reduced property tax…the government does not claim that this version [of the draft] is ideal. Therefore, we are ready to take into account all acceptable and rational remarks,” Georgian Prime Minister Zurab Zhvania said.
“The Prime Minister has appeared the most-prepared among the members of the government to make compromises. He understands well all those mistakes which were made by officials during the elaboration of the tax code,” Chairman of the Parliamentary Committee for Finances and Budget MP Roman Gotsiridze told Civil Georgia.
According to the draft, in cases of non-payment of taxes the government will confiscate all of an entrepreneur’s property instead of that property which is equivalent to the amount of unpaid taxes. “For instance, the government may confiscate a 5-million lari piece of property owned by this or that businessman, regardless of the amount of debt, which may only amount to 5 thousand Lari. This will lead to entrepreneur’s bankruptcy,” Tkemaladze added.
The opposition is also expressing protest regarding the increased rights of tax officials. Until now, officials from the tax department could only inspect an enterprise once a year; now tax officials can do this any time.
Businesspeople, experts and officials, including Prime Minister Zurab Zhvania will meet on October 22-24 to once again discuss the proposed document. “This draft code is better than the current taxation system, however the final version, to be approved in December, will be much better compared to this suggested draft,” MP Roman Gotsiridze says.
