1001 nights and 1001 amendments

Sophico Sichinava

MME is interviewing expert Mr. Gela Khanishvili about new amendments in the Tax Code.

Unfortunately, after the enactment of Tax Code in Georgia, there have been more and more amendments, which, certainly, would not do any good. Of course, all the amendments are motivated by a noble purpose – to lighten taxpayers’ situation and mobilize scheme of funds in the budget. But there has hardly been any amendment that would fulfill one of these functions. Though, there are some that were dictated by life. It would be impossible to realize well this or that article in the Code. Unfortunately, we have to speak about it in the past tense because there was time when all this was really occurring, there were people who saw the Code as one single document, understood its essence. That is why, any amendment that was made in the initial stage promoted the preservation of this unity. As a result of changes in life and state structures, people moved to other places; they were substituted by those who viewed the Code as separate parts covering this or that sphere, this or that tax. This was the beginning of break-up in the Code. As a result of it, we received a deteriorated variant of the Code. I do not want the reader to think that we imply people and ourselves who were with us in the retired government. It is not so. Unfortunately, as soon as amendments are made, succession gets broken – we need a specialist in such a case. New model, new team, and new people serve to break succession. As a result of it, friends and acquaintances, but not professionals, come to the system. They do not have necessary knowledge. Therefore, we have a Code that no one needs because there are no tax collectors nowadays, there are only money collectors. Today, article 273 is the only article that is currently in force. It turned into an article of amendments, but not into a transition one. Nowadays, the term “tax collection” came in disuse. Now people say “execution of plan”. No one needs either taxpayers or tax-collectors nowadays. The only thing required is article 273. These served to destroy this integral document that envisaged for the different interrelationships of national economy with all branches, relationships between taxpayers and tax collectors.
-What can you say both about the amendments that were ratified by the Parliament and about the ones that have lately been prepared?
-As far as taxes are concerned, we have some problematic subjects. The subject of markets is the most actual one. People see everything. This issue bears populist features and at the same time, it has a real economic sense. The second unsolved problem is the complexity of taxes. In fact, from the economic point of view, it is one and the same problem. Why does the problem of market exist? Does somebody find pleasure in wallowing in mud? Does this result from the economic policy of the country? Of course the reason of it is concealed in the latter. I remember the time when we did not have a Code, but instructions, decrees, laws that reflected the Georgian reality. These laws covered taxation area. They made it possible for the hide economy to develop, but in the frames determined by the businessman. He determined his share for his business. One decided how much he was going to steal and how much he was going to pay to a state official to pass it over in silence. In this situation, there was a simple way out. It was cheaper for businessman to pay in a legal way. We could always punish an entrepreneur so that not to involve him into the common chain and to prevent him from having relationships with other entrepreneurs. If an entrepreneur broke the law, he bore responsibility for it.
-Now when we changed the economic model, approach, created an uninterrupted chain where a legal or natural person, but not state became a control agency, one crime is enough to turn an ultimate consumer into a lawbreaker. In each chain there must be someone who would pay the tax stolen by everybody. There is no such thing in the nature. The development of this model enabled us to revive markets that were called unorganized and were to be closed and taken from close trade organizations because it is difficult to conceal unregistered production in the close trade organizations. All this bears chaotic features in the streets. The subject of markets was one of the most difficult ones so that we made appropriate amendments to the Tax Code. The problem does not consist in our wish to bring markets to order. The problem is that we take decisions that generate still more dilemmas.
These amendments may lead to much worse economic model in the markets. The new model of the Code is worse than the old one. Its separate articles do not only promote corruption, but they “imply” it. The law of temporary closing-down is currently in force in our country. According to this law, a whole number of enterprises is regarded as temporary closing-down. They are not supposed to work, but, in reality, many of them work. The amendments in the Code provide for temporary closing-down of counters and stalls. A theoretic model on paper shows as if everything is done, but it is a self-delusion. Do you know what it is explained by? Neither the amendments that have already been made nor the ones that are planned imply economic calculation. He who makes these amendments can not but understand that there is no sense in it. We can talk about it six months later. The dates of the enactment of the law are unbelievable, too. During the enactment of the Tax Code, the transition period of two, three, six months was given for the society to adopt to the new model. Does someone really think that the law will come in force from the first day of its enactment when there are no normative acts to bring relationships with taxpayers to the instructional level and to put the system of registration in order. Moreover, there are many moot points here concerning square of counters – 1 sq. meter, taxation, etc. The law is doomed from the very first day of coming in force. The law is more backward than forward looking. All this is also due to our economists. Instead of teaching some illiterate people to read and write, we explain them problems and say that you do not need to do it at all. This simplified fixed tax served to isolate the Code. What do we mean by simplified tax? Only one thing – no one fixes anything. On the one hand, it is not a problem, too, because the legislators have not taken into consideration the fact that if a taxpayer objectively pays taxes, turnover tax is 7% more than VAT and 20% more than all other taxes. As far as larceny is concerned, it does not matter whether one will steal in the conditions of 20% or 7% tax. The things are even worse with fixed taxes. When we speak about the development of small business and creation of conditions for its existence, we must take into account the fact that we must not suppress legal business. The clear example of it is non-payment of VAT off 100 000 thousands worth turnover and, therefore, non-issue of invoice, which means 20% tax charge off turnover. I have to make serious purchases in the place where I work now. I have problems with taking this paper to an accountant and having the tax registered. As I can not pay the tax, in fact, I have to pay it twice. In case the law comes in force, garages and workshops will give up paying legal taxes. They will not be able to give me a document. In fact, I will pay them and I will also have to pay 20% turnover tax for them for the service provided. Many crimes are committed here on account of the fact that we do not have one area, our borders are not defended and we changed the main essence of the Code. Besides, we did not care to create a new model. Instead, we created a criminal document of dividing economy into separate contradictory parts. Unfortunately, these problems make serious companies abandon legal business and come over to illegal segment. Let us give an example of our budget. We will see that the tax crisis began as soon as the Tax Code was enacted. It is not due to the fact that this document is special, but it is due to the fact that its model distributed the power among taxpayers, i.e. it made it possible for one taxpayer to control another.
We have completely forgotten macroeconomics and turned to political economy. If this or that slogan is acceptable for one of the political groups, it must be realized irrespective of its economic relevancy. The future amendments do not provide for even a single economic figure. Why? Because they know from the very start that these amendments will have no economic effect.
-What are all these amendments for?
-They are designed to satisfy the emotions and ambitions of different people. They empirically repeat – there will be result. If you make an elementary analysis you will understand that there will be no result. You probably remember how many codes were written once. It was a real boom of codes. I have read them all. In reality, not a single page of code was written. It concerned only one tax. Simplification of taxes does not imply imposition of one tax. A state can not exist at the expense of one tax only. What do you think is the percentage of wholesale trade?
-One, two, three. Do you know what is written here? 7% tax. Wholesale trade is expected to work for 10% extra charge.
It is no more an economy. There are many absurd moments here. There is no sense in going deep into details. The results for the agriculture, construction, other branches could have been foreseen.
It even came to it that we started talking about concessions. We established benefits on indirect taxes. This is absurd, of course. In fact, I can count investments that the government made in a private sector last year. After all, the budget does not finance private sector. But I say that it does. Given the fact that each documentary stamp equals 1 Lari, we can say that state makes 10 million investment in a private sector when it sells more than ten million documentary stamps to vodka. Economy does not admit such concessions. Stimulation of small business is one thing, separation of economy is another. Nothing will help us until we create a mechanism that would enable us to pass from money collection to tax collection.