TAXES ARE NOT A BURDEN

The world financial and economic crisis has fundamentally changed the fiscal policy in many countries. For example, the European states are increasing the tax burden, resorting to the withdrawal of benefits in many areas and raising taxes. At the same time, they are trying to apply a targeted tax and create financial reserves for the period of any future crisis.

In Azerbaijan, moreover, in order to keep the internal market functioning actively, the volume of domestic investments has been increased; loans are continuing to be granted to the private sector and substantial amendments have been made to the legislation so that the tax burden is reduced.

Tax exemptions and reductions

Although the tax rates have not undergone any changes in 2014, the amendments and additions to the Tax Code that have come into force have been the most serious for the last three years and are aimed at reducing the tax burden.

The above-mentioned amendments are based on drawing up a draft bill to stimulate cash-free payments and restrict the use of cash in settling accounts, and this would offer tax concessions. The draft programme of tax concessions envisages the lowering of the tax rate (in particular VAT) over a period of three to five years or tax exemption. The specific spheres of activity that will be VAT-exempt are specified. In some cases, tax exemption is accompanied by the application of a tax on profits paid on the overall turnover.

These concessions will apply to the cash-free turnover of those paying tax on profits, VAT, simplified tax and other forms of tax in individual cases. The concessions will differ, depending on the operation and VAT turnover and simplified tax; thus, premises selling bread and furniture, community centres and small retail outlets will be able to apply for varying concessions. As these measures are so wide scale, agreement on them was not fully achieved last year. 

Besides, as mentioned above, sufficient amendments have made to the fiscal policy for this year. So now, the granting of tax concessions and exemptions will be based solely on the Tax Code. 

Moreover the list of individuals working in the diplomatic service abroad who can enjoy tax concessions and income tax exemptions has been extended.

In accordance with the amendments to the Tax Code, the application of income tax exemptions and concessions in relation to servicemen and security personnel at Azerbaijan's diplomatic missions and consulates abroad, has also be extended. Moreover, the incomes of these categories of individuals have been included in the list of incomes from which national insurance deductions are compulsory. 

From 2014 creches, nursery schools and orphanages are to be exempt from tax on profits and simplified tax for 10 years in an attempt to boost the number of pre-school institutions in the country. From this year the editing, publishing and printing operations involved in publishing sets of textbooks for general educational establishments (with the exception of exercise books) and children's literature will be VAT-exempt. Previously it was only secondary school textbooks that were exempt from tax. 

The government has not forgotten about the population's savings in the banks: yet again the interest on savings accounts will be tax-exempt for a year, which will have a positive effect on the sums of deposits. At the present time, the population has deposits of more than 6bn manats in the banks. It should be taken into account that the annual interest earned by these deposits is approximately 600m manats, so exempting natural persons from payment of tax allows them to have 50-60m more manats at their disposal. 

Checks are to entrepreneurs' advantage

In order to protect the interests of entrepreneurs, restrictions have been introduced into the Tax Code on conducting on-the-spot inspections when the business operations of a juridical or natural person are wound up. 

But, if the tax-payer does not agree with the results of the on-the-spot tax inspection and applies in writing for an extraordinary inspection to be carried out, the officials who were responsible for the previous inspection will not be able to be involved in the subsequent inspection.

In accordance with the amendments, entrepreneurs who have not committed any offences over a specified period of time, are transferred to a low-risk group. Scheduled checks on major entrepreneurs should not take more than 10 days, and unscheduled checks no more than five days. With regard to medium and small businessmen, scheduled checks should not take more than five days and unscheduled ones no more than three days.  

Checks on entrepreneurs belonging to the high-risk group cannot be carried out more than once a year, for those in the medium-risk group once every two years and once every three years for those in the low-risk group. Using e- auditing will also make it possible to cut down on-the-spot checks by 90 per cent. The problem is that, when using large-scale e-auditing on an equal footing with the auditors from the Ministry of Taxes, trained accountants and IT-specialists are needed at major enterprises to submit the e-data in time and in the required format.

E-auditing will primarily be used when dealing with foreign companies working in the oil sector, with local holdings and enterprises and companies which have branches and conduct major operations abroad; this also applies to large and medium-sized retail and service facilities that actively use electronic tills and POS [point of sale] terminals. Besides, companies in the banking, insurance, licensing and telecommunications spheres will use e-auditing, as well as those specialising in online retail business, processing centres and enterprises providing communal services. 

The transfer to the new system will not be all that simple; world statistics bear this out once again. Throughout the world no more than ten tax bodies are operating completely on a similar auditing platform.

Return to the patent

As regards future plans, the possibility of expanding the patent system and the application of a patent tax is being reviewed with regard to all categories of taxpayers subject to simplified tax.

The patent system of taxation in Azerbaijan was in operation until the Tax Code came into effect in 2001. The cost of a patent was determined, taking into account the types of business activity, and these were divided up into five groups, depending on the incomes and the location where the entrepreneur was practising his business. At the wish of the entrepreneur, the patent could be issued for a year or a month. From 2001, however, taxpayers who came under the simplified tax regime were divided up into two groups. The first group included those taxpayers who were involved in the extraction of the product and the second group those who were involved in economic operations (people involved in passenger and freight transfers and the building of housing), who were paying taxes, no matter what their turnover and the outcome of their activity was and proceeding from the type of activity.

The tax minister's adviser, Akif Musayev, has said the application of a distinguishing factor in the form of payment of simplified tax with regard to passenger and freight transportation may be regarded as one of the forms of patent tax.

At the present time, a review is being conducted into the manner in which patent tax is being applied and with regard to other categories of payers of simplified tax. 

Simplified tax is currently paid by natural persons on an annual turnover of more than 90,000 manats, and the simplified-tax threshhold for juridical persons is 150,000 manats per year. 

Besides this, the Ministry of Taxes is adhering to the position that tax evasion in Azerbaijan should be subjected to more rigorous penalties. 

Today the tax-enforcement measures envisaged for failing to comply with the tax legislation can be divided into two parts. Thus, the first group consists of financial sanctions and administrative penalties, which are set out in the Tax Code and in the Code on Administrative Offences imposed for failure to pay tax on time or in full. The second category consists of punishments for large and extremely large-scale tax evasion, as set out in the country's Criminal Code. These offences are the following: tax evasion or large-scale failure to pay the compulsory national insurance, for which the punishment is up to three years imprisonment. If this is being done on a particularly large scale or by an organised group, the maximum prison sentence can be up to seven years. According to the Criminal Code, an offender committing this crime for the first time can avoid a prison sentence by paying the damages in full. 

According to the head of the Ministry's preliminary tax inspections' department, Vidali Mammadov, in Russia the punishment for tax evasion is up to two years in prison, and for especially large-scale tax evasion up to six years in prison. In Azerbaijan first-time tax offenders can avoid a prison sentence by repaying the sum of tax evaded, but without payment of fines and the interest on them. Experience shows that, owing to the fact that fines and the interest on them are regulated by civil law, tax-payers frequently take a long time to pay them or do not pay them at all. In such cases, the Ministry of Taxes pursues the matter in line with the legislation in the given field, as well as dealing out harsher penalties for tax evasion offences.