MEETING WITH BUSINESS ASSOCIATIONS ON CIT REFORM

პოლიტიკა - 19:14, 28 Mar, 2016

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Economic growth and job creation is one of the key directions within the Four Point Reform Agenda of the Government of Georgia. Novelties to the tax legislation are aimed at the stimulation of economic growth and development. Referred initiative envisages the Corporate Income Tax (CIT) reform and simplification of tax administration.

Ministry of Finance of Georgia continues active consultations with businesses in relation with the anticipated amendments to the Tax Code. H.E. Nodar Khaduri, Minister of Finance of Georgia met with various Business Association members on March 22, 2016.

Significance of the reform was once again explained at the meeting for the accelerated economic growth, more business opportunities and additional job creation in the country.

Business Association members thanked the Minister of Finance for the consistent communication and interaction with businesses on the amendments to tax legislation. In addition, they requested the enforcement of the CIT reform from the following year.

As Minister of Finance noted, authorities in general and MOF in particular strongly believe that ideas and suggestions of businesses should always be taken into account. It is equally important that businesses face no difficulties in the transition phase. That is why, Government of Georgia in general and MOF in particular express their readiness to consider the requests and ideas of businesses and to enforce the CIT reform from January 1, 2017.

Launch of the reform in the indicated period will enable the private sector to get better prepared for the new model of corporate taxation, minimize the potential risks and faults, which may have been observed if the new model of corporate income taxation were to be enforced from July 2016.

By the explanation of the Minister of Finance, Draft Law on Amendments to the Tax Code of Georgia will be enforced in three phases upon its adoption:

Initially, reform will cover the value added tax (VAT), which will no longer be levied from the import of fixed assets. It implies the simplification of tax administration. This fragment of the legislative amendments will come into force upon the adoption of the Draft Law.
At the second phase CIT will get applied to distributed earnings only. This fragment of the legislative amendments will come into force from January 1, 2017.
At the third phase CIT will cover the financial intermediation sector. This fragment of the legislative amendments will come into force from January 1, 2019.

It is worth noting that CIT reform will have a number of positive impacts on the economy of Georgia:
o It will accelerate the economic growth of the country;
o It will lead to the reduction of the current account deficit in the country;
o It will facilitate the increased access to finance by businesses, especially by SMEs;
o It will increase the effectiveness of economy;
o It will increase the liquidity of assets kept by businesses;
o It will increase the size of equity;
o It will reduce the restrictions on external funding;
o It will offer more opportunities to businesses;
o It will create the attractive climate for start-ups and doing business, thus increasing the interest of new and potential investors towards Georgia. It will thus increase investments, including the foreign direct ones (FDI);
o It will increase the resistance of business towards crisis;
o It will simplify the tax accounting and administration.

It is important to note that CIT reform also envisages the simplification of tax administration. Provisions towards this end will be applied from the adoption of the Draft Law on Amendments to the Tax Code of Georgia by the Parliament and namely:

• Bank account of the disputing taxpayer will be garnished only with a consent of the Court of Law within the period of the tax dispute;
• Tax audits will be performed only by the Georgian Revenue Service (GRS);
• Taxpayer, applying fixed assets in transactions subject to VAT, will no longer pay such VAT upon the import of such fixed assets;
• Taxpayers, who do not operate will have their tax arrears written off in the following cases:
 Tax arrears originating prior to January 1, 2011 that have been kept unpaid since then;
 Sanctions accrued to tax arrears originating prior to January 1, 2013 provided the taxpayer commits to pay the principal tax liability.

In addition, further discussions will be held with businesses on the decriminalization of economic offences.

Ministry of Finance has held over 10 meetings with Business Associations and organizations within the scope of the present tax reform. Businesses were thus exposed to the intentions of the authorities towards amending the tax legislation. Businesses have been outright positive on the reform agenda of the Government of Georgia during the public disclosure and dialogue.
Set of amendments to the tax legislation of Georgia initiated by the Government will soon be submitted to the Parliament for approval.