NOTHING BUT FRIENDSHIP

Azerbaijan launches a new stage of tax reforms based on closer cooperation with entrepreneurs, stable legislation, effective inspections, and equal treatment of all taxpayers.

Frankly, the tax sphere has always been one of the most actively reformed areas of business administration. It also remained one of the problem areas, which, apparently, made it necessary to change the leadership of the Ministry of Taxes. Mikail Jabbarov was recently appointed the new minister. Accordingly, all taxpayers are waiting for rapid changes trying to predict to what extent these changes will be tangible.

It did not take long until the new fiscal plans were announced. The newly appointed minister told us about them in person at the traditionally conference “Taxes, Transparency, Development.”

Expand the base of taxpayers

The main piece of information shared with entrepreneurs was that there were no plans to increase the tax burden. One of the main tasks of the ministry in the short term is increasing fees by expanding the tax base, or in other words, the number of taxpayers. After all, there are unused resources in different sectors of economy.

Economists believe it is necessary to restore tax accounting in a significant sector of the national economy, in particular, in the construction sector. “Economically active population is growing every year in Azerbaijan with new jobs opening. But a significant portion of taxpayers is not growing, which is a serious problem, and we need to solve it. It is necessary to improve labour relations, especially in construction. Taxes make up a total of 8-9% of GDP, which is a very low indicator, so we must improve transparency in this area,” said the chairman of the Parliamentary Committee on Economic Policy, Industry and Entrepreneurship, Ziya Samedzadeh. According to Samedzadeh, the ministry should also consider profitability in certain sectors of the economy. Indeed, some entrepreneurs argue that the low level of tax payment is due to insufficient profitability of the business, which is 3-4%, and sometimes only 2%. While abroad, profits in similar industries reach 18% and higher, noted Z. Samedzadeh.

As to the urgency of changing tax rates, they are logical and realistic today, experts here primarily focus on the value-added tax (VAT). They believe that it is necessary to adjust the VAT rate (18% for all industries) depending on state priorities. “Why is VAT the same for all goods, when in other countries it varies from 30% to 5% for some goods? It makes sense to revise the tax policy in this regard and introduce a differentiated VAT,” said MP Vahid Ahmadov, member of the Parliamentary Committee on Economic Policy, Industry and Entrepreneurship.

He believes that it is necessary to increase the turnover base for the simplified tax considering the significant devaluation of manat. “Today, under the simplified taxation system, there are entrepreneurs, whose business turnover does not exceed ₼200,000 per year. But taking into account the devaluation of manat, it is necessary to increase this threshold to ₼300-400 thousand,” said Ahmadov.

Equal conditions for all

Meanwhile, the new Minister of Taxes, M. Jabbarov, considers it necessary to focus attention on solving other negative aspects of the fiscal system. He noted that until now there was a practice of dividing entrepreneurs into “friends” and “foes”. “From now on all cases of patronage will be under special control. We will start cleansing our own ranks first and no one will be indulged. The Ministry [of Taxes] will act based on the principle of creating common conditions for business,” said M. Jabbarov.

Obviously, it would be a mistake not to acknowledge the progress of the ministry in recent years. The main achievement was the establishment of a “single window”, through which the citizens can register their business. In addition, as the incumbent minister pointed out, much has been done to simplify many processes such as automated processing of documents, introduction of electronic tax return forms, electronic tax services to the population as part of the e-Government system.

Yet the issues of shadow economy and tax evasions by the business community are still relevant.

The minister believes that not only the ministry officials should fight the entrepreneurs who fail to pay taxes in a timely manner or provide distorted information. “Market actors should ensure that each manat operates in the real, rather than in the shadow sector. Even when buying bread, a buyer should demand a check, even if the seller is his or her neighbour, to prevent tax evasion. Therefore, every citizen should remember that the collected taxes are used for the army, which is to liberate the occupied lands, for teachers teaching our children, street lighting and other expenses,” said Mr. Jabbarov.

At the same time, the minister appealed to entrepreneurs and urged them to start withdrawing businesses from the shadow economy and pay taxes in time, adding that all legal and economic levers should be used to fully legalize business activities. “I appeal to businessmen: even an experienced accountant can make mistakes, and they need to be corrected. But all the strictness of the law will be directed to those who deliberately represent inaccurate information in declarations. Accountants need to remember that they are materially responsible persons,” said M. Jabbarov.

Regrouping of resources

The focus of tax reforms will be on developing information technology, conducting analytical work, and expanding the tax base by increasing the number of taxpayers. “The number of business inspections will be reduced, but efficiency from inspections of business entities will significantly increase,” emphasized M. Jabbarov. That is, the inspections will be conducted precisely based upon preliminary analytical work. The ministry officials will not interfere in business activities of entrepreneurs who comply with tax legislation.

“The main goal of the ministry will be to improve the principles of working with taxpayers, expand relations between taxpayers and the ministry, conduct tax supervision through information exchange,” stressed the minister.

But transparency in the tax system should be mutual.

As for whether it is worth waiting for serious changes in the Tax Code, according to M. Jabbarov, a total of 680 articles and 1548 clauses of the code have been changed from the moment of its adoption. “However, the business likes stability, and it is necessary to ensure the stability of the legislation and use it to support the development of entrepreneurship. Therefore, it is no longer relevant to adopt a new tax code,” said M. Jabbarov.

However, the tax legislation will be monitored in order to assess the current system of tax benefits and the prospects for reforming the tax system.

Thus, we can say that the preparation of a new generation of tax officials has been started. They will regard the taxpayers as partners who, apart from their obligations, also have rights. But the question is: are entrepreneurs ready for a new turn of events, to step out of the shadows and pay taxes in full and timely manner? Either way, business and taxes are two spheres that are “doomed” to friendship. The entire economic and social components of the state depends on the strength of this friendship.