Burdens on business

19.11.201011.07.2013 photo

Maka Ghaniashvili

According to “Doing Business” 2011 report Georgia is the leading country in the aspect of reforms.

As it is written in the report of the World Bank Georgia has made huge progress in easing doing business and is on the 12-th position among 183 countries. In the ranking Georgia has outstripped such countries as: Sweden, Estonia, Germany, Latvia, France, Switzerland, Austria, Belgium and others. Our government often reminds us that it is too easy to start business in Georgia and we are on leading positions in different ratings. This is good reason to hail, but must be mentioned that this fact is one of the important thing to help business development and not a quite enough condition. It is very important to create conditions that ensure vitality of the started business. Nowadays everybody agrees that no governments solve problems. Business creates jobs and material wealth, business creates conditions of social security and guarantees.
It is very easy to register a company in Georgia. According to National Agency of Public Registry 4157 business subjects were registered in October 2010, among them the absolute majority – 98% is entrepreneur. However, registered enterprise does not mean active enterprise. Only 1/5 are tax-payers from the business subjects registered in Georgia. There are many serious problems. Administrative part of the tax Code is very strict and difficult. Companies waste of time during relationship with tax departments, it is necessary to prepare many documents, and number of fines and sealing are very high.
The executive Director of the Association of Small and Medium Enterprises Levan kalandadze: “Nowadays the government of Georgia does many attempts to create additional jobs using artificial mechanisms, for example, to do business, to execute infrastructural projects and so on. The fact of executing infrastructural projects and creating additional jobs is not bad, but all these must be done on natural way. If the job is creating in artificial way it will be disappeared in the next year.”
What will be the result of the new Tax Code?
While discussing the business environment, it is impossible to avoid examining such important issue as tax procedures and its administrative part is in the country. Business Ombudsman George Pertaia says: “Legislative base of Georgia creates very good environment. According to the World Bank researches and reports do not exist the problems that business had 5-6 years ago. From my opinion, the legislation is very liberal and oriented on business. However, there are some undefined gaps and they need further improvements: double standards in the Tax Code that become the first step in aspect of corruption in some cases, so we do active works on sub-paragraphs of the Code, they have to reflect rules of tax payment and rights and obligations of tax payers and tax officials. For example, people often say that fiscal pressure has increased in Georgia. Why did it happen? If legislation is clear government has no chance to increase or decrease fiscal pressure. In the past according to the tax Code for breaking a rule penalty was defined from 500 Gel to 5 000 Gel, in the case tax department could increase tax pressure, if there is exact definition of breaking rules, for example 3 000 Gel no tax official can increase it. We should try to diminish obscure paragraphs to minimum level in administrative part and eradicate reasons of sayings that budget parameters are executed because government has increased fiscal pressure for business.
The executive Director of the Association of Small and Medium Enterprises Levan kalandadze: “The government has made many good changes in the tax Code but it does not mean that there are no gaps there. For example, the government says their priority is to develop small and medium business, but this priority has reflected in the new tax Code only with the statuses of simple regime fo 2010 (11) Next
Cover Story [Decrease Font Size] [Increase Font Size] Print Article Send E-mail Save Article
burdens on business
Maka ghaniashvili

According to “Doing Business” 2011 report Georgia is the leading country in the aspect of reforms. As it is written in the report of the World Bank Georgia has made huge progress in easing doing business and is on the 12-th position among 183 countries. In the ranking Georgia has outstripped such countries as: Sweden, Estonia, Germany, Latvia, France, Switzerland, Austria, Belgium and others. Our government often reminds us that it is too easy to start business in Georgia and we are on leading positions in different ratings. This is good reason to hail, but must be mentioned that this fact is one of the important thing to help business development and not a quite enough condition. It is very important to create conditions that ensure vitality of the started business. Nowadays everybody agrees that no governments solve problems. Business creates jobs and material wealth, business creates conditions of social security and guarantees.
It is very easy to register a company in Georgia. According to National Agency of Public Registry 4157 business subjects were registered in October 2010, among them the absolute majority – 98% is entrepreneur. However, registered enterprise does not mean active enterprise. Only 1/5 are tax-payers from the business subjects registered in Georgia. There are many serious problems. Administrative part of the tax Code is very strict and difficult. Companies waste of time during relationship with tax departments, it is necessary to prepare many documents, and number of fines and sealing are very high.
The executive Director of the Association of Small and Medium Enterprises Levan kalandadze: “Nowadays the government of Georgia does many attempts to create additional jobs using artificial mechanisms, for example, to do business, to execute infrastructural projects and so on. The fact of executing infrastructural projects and creating additional jobs is not bad, but all these must be done on natural way. If the job is creating in artificial way it will be disappeared in the next year.”
What will be the result of the new Tax Code?
While discussing the business environment, it is impossible to avoid examining such important issue as tax procedures and its administrative part is in the country. Business Ombudsman George Pertaia says: “Legislative base of Georgia creates very good environment. According to the World Bank researches and reports do not exist the problems that business had 5-6 years ago. From my opinion, the legislation is very liberal and oriented on business. However, there are some undefined gaps and they need further improvements: double standards in the Tax Code that become the first step in aspect of corruption in some cases, so we do active works on sub-paragraphs of the Code, they have to reflect rules of tax payment and rights and obligations of tax payers and tax officials. For example, people often say that fiscal pressure has increased in Georgia. Why did it happen? If legislation is clear government has no chance to increase or decrease fiscal pressure. In the past according to the tax Code for breaking a rule penalty was defined from 500 Gel to 5 000 Gel, in the case tax department could increase tax pressure, if there is exact definition of breaking rules, for example 3 000 Gel no tax official can increase it. We should try to diminish obscure paragraphs to minimum level in administrative part and eradicate reasons of sayings that budget parameters are executed because government has increased fiscal pressure for business.
The executive Director of the Association of Small and Medium Enterprises Levan kalandadze: “The government has made many good changes in the tax Code but it does not mean that there are no gaps there. For example, the government says their priority is to develop small and medium business, but this priority has reflected in the new tax Code only with the statuses of simple regime for taxation of micro and medium enterprises. However, the definition and simple regime was spread only to physical persons and not to real sector of small and medium business. I would like to say that we have declared right directions but the implementation of them are incomplete.
It is clear that helping the development of small and medium business is our priority but the very important thing is government who has to fulfill it. Since 2008 in European Union works so called Chertier of SME – Small and Medium Enterprises that foresees a very simple SME Test. Each institutional, infrastructural or legislative changes being planned in the member states should pass the test. If coming change has negative result or makes some obstacles for development small and medium business is blocked in automatic regime. SME Test is one of the criterion of appreciation of the politic declared by EU.
One more gap – tax unit has right to carry out sanctions against all kind of business not only against hotels and restaurants as it was according to the old Tax Code. Unfortunately, in the new Tax Code there are many moments of subjectivism, or ability of making decision by person. That is because of undefined paragraphs and there are difficulties in discussing arguments between sides.”
George Pertaia does not agree with Levan kalandadze, George Pertaia is one of the member of the Council of Tax Appeals under the Ministry of Finance of Georgia: “There are exact definitions when and how business argument discussion must be. As to subjectivism it is excluded as the members of the council are not from the Finance Ministry, there also are MP-ies and official from other Ministries, I am from administrative office and each member has right of voting”.
Council of Tax Appeals under the Ministry of Finance of Georgia VS Court
Council of Tax Appeals under the Ministry of Finance of Georgia was based in 2005 and its service is used by entrepreneurs often especially in recent years. In the first half of the year its positive decision was for 224 complaint, negative was 349 and 85 are still un-discussed. The taxes for complaints and sanctions reached 238.126.524 gels and the council considered 129.573.912 gels partially or unfair charges. For comparison: in 2006, general amount of arguments was 65.574.708 gels.
What is the case when entrepreneur can go to the Council of Tax Appeals under the Ministry of Finance of Georgia and when they have to go to the court? Lawyer Paata Salia :
– What is the case when entrepreneurs can go to the court and when they have to go to the council?
– There was some obscures because of the Code, entrepreneurs thought it was necessary for them to go first to revenue service and then to the court. It was because of the obscure paragraph in the Code that became clearer. However, each argument first goes to the system of Finance Ministry as state excises have not to be paid there, in the case of appealing in court entrepreneur has to pay 3% of argument value. And the main thing is that entrepreneurs are often winners in council. In addition, the problem is the lack of qualified judges who is well aware in tax specification. Of course, there are exclusions who have appropriate education and experience, but it is not a surprise that the Georgian court is often under the influence of the government and from my point of view the court often make decisions that are against the legislation. There is one more very serious gap, after changes in the legislation the tax department can execute the sentence of the court of first instance immediately. If an entrepreneur looses an argument in the court of first instance his property will be sold by auction at once, he may win the case in appellate or in supreme court, but he will be without any asset and of course, he would not be able proceed with his business. In the best case, an entrepreneur has to wait for years to receive back his money from budget that was confiscated by the sentence of the court of the first instance. It must be mentioned that there is no change toward this problem in the new Tax Code.
Expensive Kindnesses
On the base of the changes done in the tax Code institute of private agent has come in force in Georgia. The officials of the revenue Service of Georgia say the new service will help tax payers to execute their obligations. Private tax agent should to give full information about tax and custom legislation to tax payers, and helps them to fill declaration and accounts in the right way. Hiring private tax agent is voluntary for business however, there is the other side of the issue, the service is requiring payment. Six-month contract costs 2 000 Gels, and filling declaration in the right way can each professional accountant. Medium and big business can afford themselves service of professional accountants, this is the small and medium business that is in need of help in this way and 2 000 Gels is very high price for such companies. Paata Salia: “Generally, it is a positive change in the aspect of saving time but it is too expensive, but tax consultancies are expensive services in each country”.
There is difference of opinions with the one more change that came in force on the 1-st of August. The rule is “edition of preliminary decision” according to the rule explanations required by companies from the Finance ministry will have force of law and while having arguments companies can use the letter received by the Finance Ministry as evidence. The service is requiring price from the companies with turnover 5 mln Gels and preliminary decision will be cost 5 thousand gels, for bigger companies it will 30 thousand Gels.
Levan Kalandadze: “I welcome the change but I think that it is too expensive kindness, only few companies will use the service that are able to pay thousands of gels for determining their adequate taxation preliminary. For small and medium businesses can not afford themselves such luxury. It will work for big companies which have not problems of hiring qualified audit, now the service is just under the institutional frames of Tax Service. Paata Salia: “There was attempt to make better conditions for entrepreneurs, but from my point of view we will get opposite results in 2011 when the new Tax Code comes in force. There are some regulations on the new Tax Code that will make serious obstacles. For instance, according to the new rule of “edition of preliminary decision”, the tax department can give answer to an entrepreneur and it can be different from the Code. But the preliminary decision will be compulsory for a concrete tax-payer, or if revenue service writes the exact amount of the tax for one operation tax officer will have no right to give you different tax amount. The worse in the paragraph is confidentiality of decision and two persons may have different answers for the one question. It is very bad when tax Code gives different standards for entrepreneurs as it can be considered discrimination aspect to entrepreneurs when they pay different taxes for one operation. The issue of confidentiality gives reasons to doubt as information must be open, in other way it gives chances for differential approaches that can be the first step to corruption. There is agreement in the Code that preliminary decision will not spread to the tax-payer when some information is incomplete or wrong. But the notion of incomplete information is a very obscure explanation because tax department can make decision and then say that the information was incomplete and the decision has not force of low and tax the tax-payer in different way, or charge with fines”.
According to the decision of the Premier-Minister”s new institute of business-ombudsman created in May in Georgia. It means that the government recognizes existing problems of business and tries to form new style of relationship with business which will be based on partnership and confidence. According to the new Tax Code business-ombudsman has to monitor rights of tax-payers in the territories of Georgia, give evidence of facts of breaking their rights and provide renovation of their rights.
however, the question is how active will be the institute as Ministry of Economic Development and business associations have had the function but they could not provide to assemble problems being in the sector of small and medium business.
The Business-Ombudsman George Pertaia: ” It is easy for big business to reach to us, but it takes time for small and medium business to communicate with the government, we have made three steps to make this time shorter:
– The hot-line, everyone can give anonymous call if they desire to;
– The special section existing on our web-site, by which entrepreneurs can write to us about any problem, anonymity is guaranteed in this case too;
– Intensive meeting with entrepreneurs. Since getting the information we are checking it up, learn if an entrepreneur”s rights are abused and if it is so we address to the premier-Minister, it takes about two days.
The main advantage of our service is operativeness.
To make conclusion we have to return to the issue that we were discussing in the beginning of the article – rating of the World Bank and the statuses of Georgia “number one reformer”. Discussing the issue, everyone agrees (even analytics from international organizations) that the thing is simplicity of starting business. However, liquidation of business still remains Achilles Heel.
Paata Salia: “Tax department has begun active work in this aspect. There is very big gap in legislation and in tax Code with this issue. Liquidation of enterprise needed ages to complete, now this process does not take so long period of time but it needs more detailed regulations”.
Making conclusion about business environment of Georgia the executive director of Association of Small and Medium Enterprises Levan kalandadze talked about investments: “We often hear that the government works to attract investments and it is good, but there is evident of artificial elements. The best way to attract investments is making comfortable investment environment. Level of investment flow is the measure of right social and economic policy in the country chosen by the government. If Georgia needs so big attempts in attracting investments that means that business environment is not comfortable in the country”.
While counting the index of” “Doing Business” analytics do not learn each aspect of business environment. The World Bank analytics foresee such index as starting business, licenses for construction, registration of property, tax payment and so on but beyond them are business safety, macro-economical stability, corruption, level of stability of workers and weaknesses of financial system. In one word, “Doing Business” index gives information about simplicity of starting business and not making it. r taxation of micro and medium enterprises. However, the definition and simple regime was spread only to physical persons and not to real sector of small and medium business. I would like to say that we have declared right directions but the implementation of them are incomplete.
It is clear that helping the development of small and medium business is our priority but the very important thing is government who has to fulfill it. Since 2008 in European Union works so called Chertier of SME – Small and Medium Enterprises that foresees a very simple SME Test. Each institutional, infrastructural or legislative changes being planned in the member states should pass the test. If coming change has negative result or makes some obstacles for development small and medium business is blocked in automatic regime. SME Test is one of the criterion of appreciation of the politic declared by EU.
One more gap – tax unit has right to carry out sanctions against all kind of business not only against hotels and restaurants as it was according to the old Tax Code. Unfortunately, in the new Tax Code there are many moments of subjectivism, or ability of making decision by person. That is because of undefined paragraphs and there are difficulties in discussing arguments between sides.”
George Pertaia does not agree with Levan kalandadze, George Pertaia is one of the member of the Council of Tax Appeals under the Ministry of Finance of Georgia: “There are exact definitions when and how business argument discussion must be. As to subjectivism it is excluded as the members of the council are not from the Finance Ministry, there also are MP-ies and official from other Ministries, I am from administrative office and each member has right of voting”.
Council of Tax Appeals under the Ministry of Finance of Georgia VS Court
Council of Tax Appeals under the Ministry of Finance of Georgia was based in 2005 and its service is used by entrepreneurs often especially in recent years. In the first half of the year its positive decision was for 224 complaint, negative was 349 and 85 are still un-discussed. The taxes for co 2010 (11) Next
Cover Story [Decrease Font Size] [Increase Font Size] Print Article Send E-mail Save Article
burdens on business
Maka ghaniashvili

According to “Doing Business” 2011 report Georgia is the leading country in the aspect of reforms. As it is written in the report of the World Bank Georgia has made huge progress in easing doing business and is on the 12-th position among 183 countries. In the ranking Georgia has outstripped such countries as: Sweden, Estonia, Germany, Latvia, France, Switzerland, Austria, Belgium and others. Our government often reminds us that it is too easy to start business in Georgia and we are on leading positions in different ratings. This is good reason to hail, but must be mentioned that this fact is one of the important thing to help business development and not a quite enough condition. It is very important to create conditions that ensure vitality of the started business. Nowadays everybody agrees that no governments solve problems. Business creates jobs and material wealth, business creates conditions of social security and guarantees.
It is very easy to register a company in Georgia. According to National Agency of Public Registry 4157 business subjects were registered in October 2010, among them the absolute majority – 98% is entrepreneur. However, registered enterprise does not mean active enterprise. Only 1/5 are tax-payers from the business subjects registered in Georgia. There are many serious problems. Administrative part of the tax Code is very strict and difficult. Companies waste of time during relationship with tax departments, it is necessary to prepare many documents, and number of fines and sealing are very high.
The executive Director of the Association of Small and Medium Enterprises Levan kalandadze: “Nowadays the government of Georgia does many attempts to create additional jobs using artificial mechanisms, for example, to do business, to execute infrastructural projects and so on. The fact of executing infrastructural projects and creating additional jobs is not bad, but all these must be done on natural way. If the job is creating in artificial way it will be disappeared in the next year.”
What will be the result of the new Tax Code?
While discussing the business environment, it is impossible to avoid examining such important issue as tax procedures and its administrative part is in the country. Business Ombudsman George Pertaia says: “Legislative base of Georgia creates very good environment. According to the World Bank researches and reports do not exist the problems that business had 5-6 years ago. From my opinion, the legislation is very liberal and oriented on business. However, there are some undefined gaps and they need further improvements: double standards in the Tax Code that become the first step in aspect of corruption in some cases, so we do active works on sub-paragraphs of the Code, they have to reflect rules of tax payment and rights and obligations of tax payers and tax officials. For example, people often say that fiscal pressure has increased in Georgia. Why did it happen? If legislation is clear government has no chance to increase or decrease fiscal pressure. In the past according to the tax Code for breaking a rule penalty was defined from 500 Gel to 5 000 Gel, in the case tax department could increase tax pressure, if there is exact definition of breaking rules, for example 3 000 Gel no tax official can increase it. We should try to diminish obscure paragraphs to minimum level in administrative part and eradicate reasons of sayings that budget parameters are executed because government has increased fiscal pressure for business.
The executive Director of the Association of Small and Medium Enterprises Levan kalandadze: “The government has made many good changes in the tax Code but it does not mean that there are no gaps there. For example, the government says their priority is to develop small and medium business, but this priority has reflected in the new tax Code only with the statuses of simple regime for taxation of micro and medium enterprises. However, the definition and simple regime was spread only to physical persons and not to real sector of small and medium business. I would like to say that we have declared right directions but the implementation of them are incomplete.
It is clear that helping the development of small and medium business is our priority but the very important thing is government who has to fulfill it. Since 2008 in European Union works so called Chertier of SME – Small and Medium Enterprises that foresees a very simple SME Test. Each institutional, infrastructural or legislative changes being planned in the member states should pass the test. If coming change has negative result or makes some obstacles for development small and medium business is blocked in automatic regime. SME Test is one of the criterion of appreciation of the politic declared by EU.
One more gap – tax unit has right to carry out sanctions against all kind of business not only against hotels and restaurants as it was according to the old Tax Code. Unfortunately, in the new Tax Code there are many moments of subjectivism, or ability of making decision by person. That is because of undefined paragraphs and there are difficulties in discussing arguments between sides.”
George Pertaia does not agree with Levan kalandadze, George Pertaia is one of the member of the Council of Tax Appeals under the Ministry of Finance of Georgia: “There are exact definitions when and how business argument discussion must be. As to subjectivism it is excluded as the members of the council are not from the Finance Ministry, there also are MP-ies and official from other Ministries, I am from administrative office and each member has right of voting”.
Council of Tax Appeals under the Ministry of Finance of Georgia VS Court
Council of Tax Appeals under the Ministry of Finance of Georgia was based in 2005 and its service is used by entrepreneurs often especially in recent years. In the first half of the year its positive decision was for 224 complaint, negative was 349 and 85 are still un-discussed. The taxes for complaints and sanctions reached 238.126.524 gels and the council considered 129.573.912 gels partially or unfair charges. For comparison: in 2006, general amount of arguments was 65.574.708 gels.
What is the case when entrepreneur can go to the Council of Tax Appeals under the Ministry of Finance of Georgia and when they have to go to the court? Lawyer Paata Salia :
– What is the case when entrepreneurs can go to the court and when they have to go to the council?
– There was some obscures because of the Code, entrepreneurs thought it was necessary for them to go first to revenue service and then to the court. It was because of the obscure paragraph in the Code that became clearer. However, each argument first goes to the system of Finance Ministry as state excises have not to be paid there, in the case of appealing in court entrepreneur has to pay 3% of argument value. And the main thing is that entrepreneurs are often winners in council. In addition, the problem is the lack of qualified judges who is well aware in tax specification. Of course, there are exclusions who have appropriate education and experience, but it is not a surprise that the Georgian court is often under the influence of the government and from my point of view the court often make decisions that are against the legislation. There is one more very serious gap, after changes in the legislation the tax department can execute the sentence of the court of first instance immediately. If an entrepreneur looses an argument in the court of first instance his property will be sold by auction at once, he may win the case in appellate or in supreme court, but he will be without any asset and of course, he would not be able proceed with his business. In the best case, an entrepreneur has to wait for years to receive back his money from budget that was confiscated by the sentence of the court of the first instance. It must be mentioned that there is no change toward this problem in the new Tax Code.
Expensive Kindnesses
On the base of the changes done in the tax Code institute of private agent has come in force in Georgia. The officials of the revenue Service of Georgia say the new service will help tax payers to execute their obligations. Private tax agent should to give full information about tax and custom legislation to tax payers, and helps them to fill declaration and accounts in the right way. Hiring private tax agent is voluntary for business however, there is the other side of the issue, the service is requiring payment. Six-month contract costs 2 000 Gels, and filling declaration in the right way can each professional accountant. Medium and big business can afford themselves service of professional accountants, this is the small and medium business that is in need of help in this way and 2 000 Gels is very high price for such companies. Paata Salia: “Generally, it is a positive change in the aspect of saving time but it is too expensive, but tax consultancies are expensive services in each country”.
There is difference of opinions with the one more change that came in force on the 1-st of August. The rule is “edition of preliminary decision” according to the rule explanations required by companies from the Finance ministry will have force of law and while having arguments companies can use the letter received by the Finance Ministry as evidence. The service is requiring price from the companies with turnover 5 mln Gels and preliminary decision will be cost 5 thousand gels, for bigger companies it will 30 thousand Gels.
Levan Kalandadze: “I welcome the change but I think that it is too expensive kindness, only few companies will use the service that are able to pay thousands of gels for determining their adequate taxation preliminary. For small and medium businesses can not afford themselves such luxury. It will work for big companies which have not problems of hiring qualified audit, now the service is just under the institutional frames of Tax Service. Paata Salia: “There was attempt to make better conditions for entrepreneurs, but from my point of view we will get opposite results in 2011 when the new Tax Code comes in force. There are some regulations on the new Tax Code that will make serious obstacles. For instance, according to the new rule of “edition of preliminary decision”, the tax department can give answer to an entrepreneur and it can be different from the Code. But the preliminary decision will be compulsory for a concrete tax-payer, or if revenue service writes the exact amount of the tax for one operation tax officer will have no right to give you different tax amount. The worse in the paragraph is confidentiality of decision and two persons may have different answers for the one question. It is very bad when tax Code gives different standards for entrepreneurs as it can be considered discrimination aspect to entrepreneurs when they pay different taxes for one operation. The issue of confidentiality gives reasons to doubt as information must be open, in other way it gives chances for differential approaches that can be the first step to corruption. There is agreement in the Code that preliminary decision will not spread to the tax-payer when some information is incomplete or wrong. But the notion of incomplete information is a very obscure explanation because tax department can make decision and then say that the information was incomplete and the decision has not force of low and tax the tax-payer in different way, or charge with fines”.
According to the decision of the Premier-Minister”s new institute of business-ombudsman created in May in Georgia. It means that the government recognizes existing problems of business and tries to form new style of relationship with business which will be based on partnership and confidence. According to the new Tax Code business-ombudsman has to monitor rights of tax-payers in the territories of Georgia, give evidence of facts of breaking their rights and provide renovation of their rights.
however, the question is how active will be the institute as Ministry of Economic Development and business associations have had the function but they could not provide to assemble problems being in the sector of small and medium business.
The Business-Ombudsman George Pertaia: ” It is easy for big business to reach to us, but it takes time for small and medium business to communicate with the government, we have made three steps to make this time shorter:
– The hot-line, everyone can give anonymous call if they desire to;
– The special section existing on our web-site, by which entrepreneurs can write to us about any problem, anonymity is guaranteed in this case too;
– Intensive meeting with entrepreneurs. Since getting the information we are checking it up, learn if an entrepreneur”s rights are abused and if it is so we address to the premier-Minister, it takes about two days.
The main advantage of our service is operativeness.
To make conclusion we have to return to the issue that we were discussing in the beginning of the article – rating of the World Bank and the statuses of Georgia “number one reformer”. Discussing the issue, everyone agrees (even analytics from international organizations) that the thing is simplicity of starting business. However, liquidation of business still remains Achilles Heel.
Paata Salia: “Tax department has begun active work in this aspect. There is very big gap in legislation and in tax Code with this issue. Liquidation of enterprise needed ages to complete, now this process does not take so long period of time but it needs more detailed regulations”.
Making conclusion about business environment of Georgia the executive director of Association of Small and Medium Enterprises Levan kalandadze talked about investments: “We often hear that the government works to attract investments and it is good, but there is evident of artificial elements. The best way to attract investments is making comfortable investment environment. Level of investment flow is the measure of right social and economic policy in the country chosen by the government. If Georgia needs so big attempts in attracting investments that means that business environment is not comfortable in the country”.
While counting the index of” “Doing Business” analytics do not learn each aspect of business environment. The World Bank analytics foresee such index as starting business, licenses for construction, registration of property, tax payment and so on but beyond them are business safety, macro-economical stability, corruption, level of stability of workers and weaknesses of financial system. In one word, “Doing Business” index gives information about simplicity of starting business and not making it. mplaints and sanctions reached 238.126.524 gels and the council considered 129.573.912 gels partially or unfair charges. For comparison: in 2006, general amount of arguments was 65.574.708 gels.
What is the case when entrepreneur can go to the Council of Tax Appeals under the Ministry of Finance of Georgia and when they have to go to the court? Lawyer Paata Salia :
– What is the case when entrepreneurs can go to the court and when they have to go to the council?
– There was some obscures because of the Code, entrepreneurs thought it was necessary for them to go first to revenue service and then to the court. It was because of the obscure paragraph in the Code that became clearer. However, each argument first goes to the system of Finance Ministry as state excises have not to be paid there, in the case of appealing in court entrepreneur has to pay 3% of argument value. And the main thing is that entrepreneurs are often winners in council. In addition, the problem is the lack of qualified judges who is well aware in tax specification. Of course, there are exclusions who have appropriate education and experience, but it is not a surprise that the Georgian court is often under the influence of the government and from my point of view the court often make decisions that are against the legislation. There is one more very serious gap, after changes in the legislation the tax department can execute the sentence of the court of first instance immediately. If an entrepreneur looses an argument in the court of first instance his property will be sold by auction at once, he may win the case in appellate or in supreme court, but he will be without any asset and of course, he would not be able proceed with his business. In the best case, an entrepreneur has to wait for years to receive back his money from budget that was confiscated by the sentence of the court of the first instance. It must be mentioned that there is no change toward this problem in the new Tax Code.
Expensive Kindnesses
On the base of the changes done in the tax Code institute of private agent has come in force in Georgia. The officials of the revenue Service of Georgia say the new service will help tax payers to execute their obligations. Private tax agent should to give full information about tax and custom legislation to tax payers, and helps them to fill declaration and accounts in the right way. Hiring private tax agent is voluntary for business however, there is the other side of the issue, the service is requiring payment. Six-month contract costs 2 000 Gels, and filling declaration in the right way can each professional accountant. Medium and big business can afford themselves service of professional accountants, this is the small and medium business that is in need of help in this way and 2 000 Gels is very high price for such companies. Paata Salia: “Generally, it is a positive change in the aspect of saving time but it is too expensive, but tax consultancies are expensive services in each country”.
There is difference of opinions with the one more change that came in force on the 1-st of August. The rule is “edition of preliminary decision” according to the rule explanations required by companies from the Finance ministry will have force of law and while having arguments companies can use the letter received by the Finance Ministry as evidence. The service is requiring price from the companies with turnover 5 mln Gels and preliminary decision will be cost 5 thousand gels, for bigger companies it will 30 thousand Gels.
Levan Kalandadze: “I welcome the change but I think that it is too expensive kindness, only few companies will use the service that are able to pay thousands of gels for determining their adequate taxation preliminary. For small and medium businesses can not afford themselves such luxury. It will work for big companies which have not problems of hiring qualified audit, now the service is just under the institutional frames of Tax Service. Paata Salia: “There was attempt to make better conditions for entrepreneurs, but from my point of view we will get opposite results in 2011 when the new Tax Code comes in force. There are some regulations on the new Tax Code that will make serious obstacles. For instance, according to the new rule of “edition of preliminary decision”, the tax department can give answer to an entrepreneur and it can be different from the Code. But the preliminary decision will be compulsory for a concrete tax-payer, or if revenue service writes the exact amount of the tax for one operation tax officer will have no right to give you different tax amount. The worse in the paragraph is confidentiality of decision and two persons may have different answers for the one question. It is very bad when tax Code gives different standards for entrepreneurs as it can be considered discrimination aspect to entrepreneurs when they pay different taxes for one operation. The issue of confidentiality gives reasons to doubt as information must be open, in other way it gives chances for differential approaches that can be the first step to corruption. There is agreement in the Code that preliminary decision will not spread to the tax-payer when some information is incomplete or wrong. But the notion of incomplete information is a very obscure explanation because tax department can make decision and then say that the information was incomplete and the decision has not force of low and tax the tax-payer in different way, or charge with fines”.
According to the decision of the Premier-Minister”s new institute of business-ombudsman created in May in Georgia. It means that the government recognizes existing problems of business and tries to form new style of relationship with business which will be based on partnership and confidence. According to the new Tax Code business-ombudsman has to monitor rights of tax-payers in the territories of Georgia, give evidence of facts of breaking their rights and provide renovation of their rights.
however, the question is how active will be the institute as Ministry of Economic Development and business associations have had the function but they could not provide to assemble problems being in the sector of small and medium business.
The Business-Ombudsman George Pertaia: ” It is easy for big business to reach to us, but it takes time for small and medium business to communicate with the government, we have made three steps to make this time shorter:
– The hot-line, everyone can give anonymous call if they desire to;
– The special section existing on our web-site, by which entrepreneurs can write to us about any problem, anonymity is guaranteed in this case too;
– Intensive meeting with entrepreneurs. Since getting the information we are checking it up, learn if an entrepreneur”s rights are abused and if it is so we address to the premier-Minister, it takes about two days.
The main advantage of our service is operativeness.
To make conclusion we have to return to the issue that we were discussing in the beginning of the article – rating of the World Bank and the statuses of Georgia “number one reformer”. Discussing the issue, everyone agrees (even analytics from international organizations) that the thing is simplicity of starting business. However, liquidation of business still remains Achilles Heel.
Paata Salia: “Tax department has begun active work in this aspect. There is very big gap in legislation and in tax Code with this issue. Liquidation of enterprise needed ages to complete, now this process does not take so long period of time but it needs more detailed regulations”.
Making conclusion about business environment of Georgia the executive director of Association of Small and Medium Enterprises Levan kalandadze talked about investments: “We often hear that the government works to attract investments and it is good, but there is evident of artificial elements. The best way to attract investments is making comfortable investment environment. Level of investment flow is the measure of right social and economic policy in the country chosen by the government. If Georgia needs so big attempts in attracting investments that means that business environment is not comfortable in the country”.
While counting the index of” “Doing Business” analytics do not learn each aspect of business environment. The World Bank analytics foresee such index as starting business, licenses for construction, registration of property, tax payment and so on but beyond them are business safety, macro-economical stability, corruption, level of stability of workers and weaknesses of financial system. In one word, “Doing Business” index gives information about simplicity of starting business and not making it.