Business Association Organizing the Review of New Draft Tax Code

2 Jun '10

The Minister of Finance provided the businessmen with the presentation on the new draft tax code at the meeting organized by the Business Association of Georgia at Courtyard Marriott Hotel on June 2.

The meeting attended by the representatives of over one hundred private companies was opened by the President of the Association George Chirakadze; he stated that the Business Association, through its Tax and Customs Committee has been actively cooperating with MoF for several months already and regularly supplying with the businessmen's comments and suggestions regarding the existing tax legislation.

The Minister of Finance of Georgia Kakha Baindurashvili thanked the businessmen for their proactive involvement and added that similar extensive changes could not have been implemented without mutual cooperation.

Tax Code is actually redrafted because almost 90% of the articles of the existing Code are being modified. World Bank and international experts were involved in the drafting.

The new code is promising numerous revolutionary amendments for businessmen; it is in compliance with OECD standards and will encourage development of Georgian business to the maximum.

According to the Minister, the new tax code to be comprised of about 285 articles will presumably come into effect from January 2011; during this period relevant changes will be drafted and whole range of bylaw normative acts will be brought into compliance with the new Code.

Following are the major novelties foreseen by the new Code:

a) The notion of small business is being introduced to the tax code and the persons whose annual turnover is less than 30 000 GEL shall be exempted from tax;

b) Entrepreneurs employing less than 10 employees and with turnover of not more than the VAT limit (200 000 GEL), will be subject to turnover tax and thus significantly reduce the costs incurred for complying with the tax legislation;

c) The new Code provides for a novelty such as incentive norms, e.g. turnover tax will be halved for those small entrepreneurs who will have relevant documentation for at least 60% of the goods.

d) Separate chapter in the Code will be dedicated to the protection of taxpayer rights and a new institution tax ombudsman in charge of protection of taxpayer rights is foreseen to be introduced.

e) As per the Tax Code, it is planned to establish risk management system (as is in customs) and all taxpayers will have the right to know the grounds of his audit.

f) Important novelty is the so-called "Advance Tax Ruling (ATR)" aiming against ambiguity and double interpretation of tax norms.

ATR provides for taxpayer's right to apply to the Tax Administration and ask for interpretation of any norm in the tax legislation; in such case, the tax authority will have the duty to interpret this norm to the taxpayer and this interpretation will be given a mandatory force in the relation between the taxpayer and tax authority.

g) A novelty which provides for quarterly filing system instead of a monthly one (except for the income tax) will give significant financial benefit to the business;

h) Refund mechanism is changing and unless otherwise required by the entrepreneur, refund will be done automatically (at the initial stage this change will apply only to companies using electronic filing system);

i) Appeals procedures on tax disputes will significantly simplify.

j) For small entrepreneurs working on "Bazroba" markets, the new code introduces the notion of a special trade zone where Bazroba administration will appear as a tax agent. This will free the traders from the burden of dealing with tax authority.

In addition to the above, the new tax code will not have vague articles anymore and thus prevent the problem of double interpretation; the "Reasonable Administration" system is being introduced and to this end the notion of honest taxpayer in the Code will be introduced; Tax inspectorates will enjoy high discretion towards some companies in order to give certain exemptions (in terms of deadlines).

The Minister of Finance proposed the businessmen to jointly review the draft code in detail and to this end it has been decided at the meeting to set up a working group within the BAG Tax and Customs Committee through which all interested businessmen will be allowed to express their comments and suggestions regarding the new code.