19 March 2024

Tuesday, 08:34

FREELANCERS ARE WELCOME

Demand for piecework workers in Azerbaijan is growing

Author:

01.02.2017

A new trend is emerging in the labor market of Azerbaijan amidst the reforms associated with the transition to post-oil economic model in recent years. The demand for piecework workers is growing. This was reported to R+ at one of the consulting companies in Baku. Such jobs include mainly various housework jobs, simple courier services, working as a waiter, small construction and repair services. The main advantage here is quick money, and any additional orders increases the income of employees.

The demand for one-time works and self-employment as a whole is increasing also because the number of jobs has decreased due to difficult economic situation in certain sectors. Ads in social media help to find the master of any profile: a hairdresser, tutor and builder for a day or even a few hours. "You do not need to have specific skills. It is important that you take up the work that others do not like", says the company management.

 

Interdependence and complementarity between the taxes and public services

An important factor in the growing popularity of private services is the creation of relatively favorable tax conditions. Until now, many of the activities that we are used to refer to as “freelance jobs” were not taxable. Now, however, they will be imposed simple fixed monthly tax rates for individuals.

According to amendments to the Tax Code effective since 2017, musicians, singers and dancers performing at wedding parties have to pay a fixed rate of ₼30 per month. The photographers and cameramen (this includes not only wedding photography but also any photo- and video production, photosessions, etc. with the exception of photographic studios). Shoemakers and repair shops will pay a monthly fee of only ₼5; repairmen of household appliances, office equipment, watchmakers, nannies, nurses, private chauffeurs, cleaners, gardeners, cooks and security guards will be taxed - ₼10, and engravers - ₼20 per month.

In addition, a zonal coefficient will be applied to the above fee when calculating the tax rate: Baku and surrounding villages - ₼2, Sumgayit, Ganja and Khirdalan - ₼1.5, in the villages of Absheron, Nakhchivan, Shirvan, Mingachevir, Yevlakh, Sheki and Naftalan - ₼1, other districts, cities, settlements - ₼0.5. This means that the amount of tax shall be multiplied by this coefficient. That is, singers performing at weddings in Baku will pay a monthly fee of ₼60, in Sumgait - ₼45, in Shaki - ₼30, and other areas - ₼15. Tutors teaching at homes or schools will also have to pay simplified tax expected to be ₼30.

According to the national tax system, if you earn you must be registered with the Ministry of Taxes, which takes 1 day. If a person receives income and is not registered, he will be fined. But due to absence of any declaration system of the Ministry of Taxes, it is often difficult to prove the presence of illegal income. The objective of these measures is to somehow legalize undocumented income. For example, it was difficult for the Ministry of Taxes to tax singers with incomes of thousands of manats and not paying taxes. From now on, it is not obligatory to declare the amount of earnings – you can pay ₼30 (₼60 in Baku) per month or ₼360 per year and earn as much as you can. Most experts believe this transition to "legality" is fair. "Instead of paying to the school prinicpal, the teacher will pay to the budget, which ultimately have a positive impact on the school as a whole", says education expert Malahat Murshudlu.

"In fact, the introduction of a flat tax is a positive factor. This is better than the absence of any differentiation at all. Previously, both the owner of business providing housekeeping services and a self-employed house cleaner had to pay a simplified tax, if they earned less than ₼200 thousand per year. This is wrong since the initial conditions are different. Now the businesses will continue pay this amount while the self-employed house cleaners only a certain fee on a monthly basis", commented the economist Togrul Mashalli.

 

Pay hardly earned money easily?

Due to difficulties in the labor market, many people have to literally struggle for their jobs. The demand falls and costs rise. "I am an unskilled worker earning for living in the markets or doing repairs. I have unstable working conditions. If I work a few days a month but still have to pay this tax, what can I earn?" says Samaddin Aliyev.

"I fix five irons a month and earn fifty manats for this job. If I have to pay twenty of them in taxes, how can I feed my family? " says repairman Ahmed.

A hairdresser Yagut arrived to Baku from one of the districts. She lives with her son and and rents an apartment in the city. "I have no money to open my own barber shop, I have to pay half of earned to the owner. We are located in an area far from the city center and not even close to the metro. My income is also very low: a haircut costs three manats only. I also need to rent an apartment. How will I pay the tax? " she asks.

The problem of employment concerns not only employees but also employers in transition period. Now, all employers strive to reduce costs, which are already risen. Most of them conclude contracts or are looking for outsourcing (i.e prefer to enter into individual service contracts with third parties without formalizing them as full-time employees).

What are the prospects of the labor market and how can the situation be improved? According to our experts, due to recent changes in tax law, many local companies have to legalize salaries. Previously, the officially registered salary was ₼150, and ₼400-500 was paid unofficially but now the companies will be required to formally indicate the amount paid or indicate higher amounts. Therefore, it is likely that the companies will do more outsourcing, i.e. will no longer hire workers but conclude individual labor contracts, when the employees will have to pay their own taxes, social benefits, etc. In other words, the number of freelancers will increase. 

The government, in principle, have proposed projects to raise the retirement period (which can somewhat complicate the employment problem for young professionals but will have positive impact on corporate business), redistribution of social security burden (currently 22% of the Social Fund deductions is paid by the employer and 3% by the employee. It is planned to change these figures respectively, 17 and 8%), and more. But to make this work, it is of utmost importance to increase economic activity. According to economists, apart from improving the tax environment and other measures listed, liberalization of the currency market will also contribute to this.


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