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A draft of a new Tax Code of Georgia, aimed at radically reforming the existing tax system, is being developed by a group of independent experts led by the Georgian Institute for Economic Development (www.gedi.ge). The members of the group were chosen on the basis of their expertise and experience.
Work on the draft law commenced in January 2002 and the authors recently submitted it for public discussion. The draft with an enclosed package of suggestions has been submitted to the State Chancellery, which in turn is supposed to submit it to the Parliament for consideration.
The existing tax system of Georgia is being amended by the Tax Code adopted in 1997.
According to the majority of views, the current code has a number of shortcomings which effectively impedes the start up and progress of new enterprises in Georgia.
Experts, who are working on the new code, consider one of the main shortcomings of the present code to be the lack of provisions for the long-term planning of entrepreneurial activity. Occasionally, its provisions appear to be variously changed, according to the business interests lobbied by some civil servants.
The code’s principal provisions are also not clear, which enables the same provision to have multiple interpretations. Such freedom of interpretation of the code’s provisions represents one of the main sources of corruption. For instance, according to the present code, a tax inspector only has rights but no obligations. This provision enables tax inspectors to strike deals with taxpayers.
The present code also requires interpretation and definition by numerous ministries. These numerous re-definitions and the resulting instructions, make the code utterly inflexible. The interpretation and re-definitions are generally inaccessible to taxpayers and, in frequent cases, actually contradict the code itself. However, most of the existing code’s chapters contradict one another anyway.
One of the major shortcomings of the existing code is the fact that one taxpayer is responsible for the failure of another taxpayer’s obligations, which is a particularly possible within the existing tax invoicing system.
The current tax code has a number of shortcomings and the draft code developed by the independent experts will make it possible to eliminate these.
The new Tax Code will be the basis of radical reform of the country’s tax, however, it is expected that considerable barriers will have to be overcome in enable the reform of the tax system.
The experts working on the draft consider the new tax code’s incompatibility, with the interests of governmental and business clans, to be the main factor blocking its adoption and enactment, which is oriented towards the average entrepreneur, who is not backed by such clans.
Besides the clan interests, there may be other barriers to the adoption and enactment of the code. The most considerable among these is the Georgian civil servants’ negative attitude towards taxpayers – the existing tax code makes a taxpayer (the citizen) servile to the governmental bodies, but not the other way around.
Another considerable barrier is the lack of competence, among the employees of the executive power, with regard to the complexity of business problems.
The list of obstacles is so large that one publication is not enough to include them all.
We intend only to attract your attention to the concept of this radical reform of the existing tax system, which is being developed into a new tax code by this independent group of experts.
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