“Nogaideli is making a principal mistake in relation to liberalism”

Prepared by Nino Arveladze

The two years’ practice of the Tax Code’s work has revealed serious flaws in it that inhibit the development of business.

The issue of introduction of a large number of amendments in it was put on the agenda, which has become a subject for polemics between the government on the one part, and the parliament and experts on the other. What is bad in the Code, and what is being changed now?
The Chairman of the Georgian Business Federation, one of the initiators of the amendments to the Code, Giorgi Isakadze
Mr. Giorgi, what concrete amendments were introduced in the Tax Code and what is expected from them?
There were concrete requirements on the part of businessmen, legislative corrections were necessary, since without them we would have been left with the accounting book only, which we could hardly manage to cancel. After balancing of everything it became clear that administration, by its authority, excessively oppresses business and its truth. From my point of view, the later resembles a strange hybrid – the concept of complicated disputes in the vertical of the Ministry of Finance, non-existent arbitration court, which was cancelled this time and postponed till 2008, and ,as far as I can see, no one is going to pay attention to the last initiative of the President, since some people in the parliament and the government have their own principles. No attention is paid to the preferences related to investments either, the President emphasized it too. All this was considered with Mrs. Nino Burjanadze at the Business-Council. Then the conversation was continued with her deputies – Mikheil Machavariani and Jemal Inaishvili. When this concept was put before the Finance and Budget Committee, in which experts from the Federation were involved, its presentation at high level became necessary. At the session of the Finance and Budget Committee we believed that the government would not follow the taken decisions.
– These are rather important amendments, but to what extent will the government follow them, and what will remain of them in fact?
– We believe that something will come of it.
– Don’t you think that today Zurab Nogaideli is again the head of the tax and customs authorities and in a habitual manner takes a merciless attitude towards business? We have the result – we solemnly increased the excise on cigarettes, the level of contraband rose and we now we reduced it again. We increased the excise on gasoline considerably, got ridiculous 320 000 tons a year, gasoline rose in price, and no one is thinking of the way out, Georgia is not an oil producing country. What should we do in this situation? It is clear that the Ministry of Economy does not make forecasts, but, in your opinion, will Zurab Nogaideli accept these amendments?
– In my opinion, at this stage Zurab Nogaideli is a real leader of the economic team. It’s quite another matter how correctly this vertical is distributed “at the bottom” to take an independent decision in his absence. I think that this kind of possibility is smaller. I believe that Nogaideli makes a principal mistake in relation to liberalism. After the International Monetary Fund cancelled the monitoring of incomes, I thought that the tension that is felt not only in business (scared customs officers and tax inspectors) will be eliminated. We do not have decision-makers at the concrete local level. This creates problems for businessmen. Unfortunately, I do not see the direction replenishing the GDP.
– Then what does the National Bank’s 6% optimism based on? And the 8.6% one of the Statistics Department?
– To tell the truth, I do not consider 6% as a gladdening figure. I do not know whether it was calculated before the Russian crisis or after it, but I, personally, have no hope for this growth. The GDP was deprived of very serious components – Baku-Jeikhan oil pipeline, which is already operating, a rapid increase of tax incomes and the customs tariffs that threaten the agriculture.
– The subject related to the customs tariffs is interesting. Georgia will not become Hong Kong. Fair is the President’s criticism of the fact that, though Georgia is an agrarian country, agricultural products – potatoes, cucumbers, tomatoes, etc – are imported. At that moment the author of this idea – the Minister of Economy was sitting next to the President and kept silent.
– I shall tell you more. Two days later lobbying of all this started in the parliament. We are far from thinking that we do not support its main provisions, but there are a lot of disputable aspects. It is not clear why new technologies are still being taxed (according to the draft law adopted in the second reading, it is not liable to taxation any more), that is the moments of liberalism are not seen.
– We took part in elaboration of the new Tax Code, in which a lot has been changed. However, let us remember what the government was “crying” about when the social tax was reduced from 32 to 20. It is not clear what trebled this budget (i.e. lightening of the tax burden has, to all appearances, had a positive effect on business and the turnover increased, which, in its turn, raised budget revenues. It is an axiom.). We reduced the number of taxes to six ones, the rates were seriously reduced as well, and budget revenues increased, i.e. liberalism seriously increases incomes in conditions of real administration. But why do they have such a tragic attitude to liberalism?
– Georgian history does not remember this kind of level of employment legalization as it today. Is it also the result of reduction of taxes?
– Yes, it is, but if we calculate it taking into account fiscal losses, there is the modern history created during his being the Prime Minister and under his leadership, which turned out to be effective for the country, there appeared money in the country, which are directed for construction of the infrastructure. It is impossible not to get an additional effect with changing of these rates. Thanks to their work we got the threefold budget, which is their merit. Conditionally speaking, not a single businessman said anything about tobacco, but it was changed a year later. Let us see what will happen at the end of the year, but it is not done in workmanlike manner either – the rates on imported and local products have been almost equalized, that is why neither importers nor local producers are satisfied. If any sensible idea is given from the Federation of Businessmen and it turns out unacceptable for somebody for political or some similar reasons, then let them do everything themselves, the main thing is to implement the matter.
– I have seen a rather interesting research of one of Stockholm security centers, in accordance with which Georgia is the most rapidly arming country in the world. This is one of our faces, for some people it may be a positive fact, but, from my point view, it is a very negative tendency. As to Russia, they said that it remains !1 exporter of arms. If a person reading the budget sees it, he will understand that it is oriented for neither development nor social issues, it is oriented for military expenditure. O.K. let it be so, but in accordance with a sensible scheme. It is not clear whether it is worth to believe Havier Solana, in whose opinion there is no place in the European Union for Ukraine and Georgia for the time being. As to NATO, we are taking certain steps in this direction, but there are still a lot of questions. How can we speak of the development plan when any day an importer can face changed instructions at the Red Bridge. It is clear that on the whole we got a good publicity from Russia, but at the end of the year we shall reap the negative results of what is called “Russia’s economic embargo”. I am pleased at the meeting between the Georgian and Russian presidents, but concrete results of this meeting are necessary.
– I think the problems that impede the growth of the GDP are clear…
– I see some other things, “Millennium” is 300 million that will be spent on the infrastructure, it is another matter what goes independently for “Ltd Georgia”, by what do we interest the funds, companies and physical persons having huge resources? How do we present ourselves when with the interest in the port and without “Millennium’s” infrastructure our activity attracts investors. In Georgia there is no circulation of independent and free money, there is a circulation of the privatization sum related to purchasing of property.
– The national origin of capitals does not represent a problem, but why does Kazakh and Russian business take interest in Georgia and what is the reason for the fact that we could not attract western investors?
– As to Kazakhstan, I think they are creating additional and alternative routs. Otherwise, it is very difficult to explain their interest in ports, tourism and communications. We shall not gain anything, if we do not create competition between investors.
– How can we arouse western investors’ interest towards us?
– By showing of good “packing” and normal priorities. They should see that it is possible to make money in this country. Unlike the Kazakhs and Russians, as far as the expected profits are concerned, they have more far-reaching plans, and a large capital gives them an opportunity of waiting for profits for 5-7 years. There are many questions, to which there are no answers. The matter concerns presentation of the product “Georgia” to the world.
– From this point of view, what positive changes can be expected from the new amendments that will be introduced to the Tax Code?
– I think that the preferences mentioned by the President would be acceptable. Here I imply certain privileges. From my point of view, we have a lack of original ideas.
– Don’t you think that the government team is not united? We often hear rather liberal requirements from the government, which are buried later on.
– The people from who this liberal approach comes have both power and authority, but they almost never finalize this issue.
– What is the reason for the fact that the government does not do what the President says? They won’t listen to the parliament either.
– The President of the National Bank is one of the key figures and there should not be the kind of relations with the economic team that exist now. I think, if his appraisals are correct, they should have been followed by certain explanations.
– In your opinion, why this did not happen?
– I do not know. But I know that the team is united.
– The indicator of our development is not known for me, except for the IMF’s program “Memo”. In our country the Minister of Economy makes a statement that they do not recognize the statistics, especial the last year’s one. But it remains unclear why they rest upon this year’s one.
– Do you think that introduction of amendments in the tax package will bring any positive changes? Are you sure that the government will not fail this project?
– We should go through everything together. The President spoke on this issue in May 26, but if he does not have a person that should implement this issue, here I imply encouragement of investment, simplification of the Code, and facilitation of control, then we shall be a country oriented for 3 billion that will not have any prospect for development.
– Hotel operators are very interested. In relation to increasing of import, I can say that business is growing white but it is not an exciting news. It is the same if we say in relation to privatization that large investments are coming to the countries. This is not a direct investment. But we do not see the result in the end – no new enterprises are opened, there are no new bank or insurance products. A certain progress can be seen, but one cannot limit oneself to construction only. If everything is directed to construction, other spheres of the economy will not develop.