ეკონომიკური პროფილი (Dec 2022)
INDIRECT TAXES IN GEORGIA: PROBLEMS AND OPPORTUNITIES
Abstract
The current tax systems in the world are quite substantially differ from each other in many parameters, including the role and ratio of direct and indirect taxes - both in terms of the implementation of the regulatory and fiscal functions. In the tax system of Georgia, indirect taxes have assumed an important role, especially in terms of the implementation of the fiscal function. Currently, the value added tax and the excise tax account for around 60% of consolidated budget revenues, and this percentage mostly keeps getting bigger. The article discusses the factors responsible for this, including the introduction of the new, so-called Estonian profit tax model, resulting in rapid decline in the percentage of the profit tax in the overall budget incomes; the inflationary processes have become more active, the results of which were directly reflected in the increase of mobilized indirect taxes; relative simplicity of administration of indirect taxes, as well as a sharp increase in excise rates (which, unlike other taxes, is allowed even without a referendum). The article discusses also legislative changes, as a result of which the topic of value added tax has been completely changed in the Tax Code. This necessity was caused by the association agreement signed with the European Union, through which Georgia has committed to obligation regarding gradual convergence between the tax legislation and the relevant legal standards of the European Union. These changes are also important in terms of improving the business environment and liberalizing tax conditions. However, along with undoubtedly positive results, certain problems, risks and threats have also been identified.. The simplification of the rules for return of tax surplus, which was mostly carried out within the framework of the reform of the main added tax, proved to be associated with particularly significant risks. The VAT excess refund system has become fully automated. This made it easier for taxpayers to claim back the excess, but resulted in increased burdens in term of tax control. Recent years, have seen a significant increase in the excise rates, especially on tobacco products. This, on the one hand, was due to the country's international obligations, as we are connected to the World Health Organization's Framework Convention on Tobacco Control, and we also have an association agreement with the European Union. In both cases, we undertook excise policies to reduce tobacco consumption and increase the burden of taxation. However, fiscal motivation is also an important factor - over the years, in order to balance the growing state expenses, excise rates have been systematically increased, which is allowed by Georgian legislation even without a referendum. We noted that an abrupt increase in excise rates and substantial increase in the burden of taxation on tobacco consumption caused a number of problems, including the risks of smuggling and illegal circulation of tobacco products have increased substantially. Given that indirect taxes play a crucial role in the financial provision of state revenues, the possible fiscal consequences of any new change must be calculated in detail and taking into account all possible causal relationships.
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