ELECTRONIC TRANSPARENCY

The tax system is currently one of the most dynamic areas of reform in Azerbaijan. Authoritative international organizations note significant progress in the fiscal sector in their reports and happily declare their readiness to help the Ministry of Taxes to support the pace of development and make progress in important rankings. In any case, the fiscal authorities of Azerbaijan themselves have a list of suggestions to maximize the prevention of tax evasion and increase tax revenues to the treasury. Plans for this year were announced during the second forum "The tax system in Azerbaijan: Realities and Prospects", which was held in Baku.

Fiscal technology

The main goal of all fiscal reforms was articulated by Minister of Taxes Fazil Mammadov in his speech at the forum: the Azerbaijani tax system should be as user-friendly and conducive to business as possible. "We want to establish a constructive dialogue with taxpayers and apply partnership in the state - business format," Mammadov said. The ministry, he said, intends to ensure the expansion of the tax base and increase revenues to the state budget by encouraging non-cash payments and through restrictions on cash payments and the legalization of labour relations.

It should be recognized that a lot has already been done in order to ease the process of registration and payments in the tax system. Today, all the processes between the tax authorities and taxpayers are automated, and operations can be carried out without any direct contact with tax authorities. That is to say the human factor and manifestations of subjectivity in relation to entrepreneurs have been nullified in the implementation of their tax obligations. On the other hand, it has led to a serious reduction in the cost of tax administration both on the part of the tax authorities and taxpayers. The Ministry of Taxes is a state agency that provides the largest number of e-services among government agencies in Azerbaijan. The number of such services has reached 57, and 46 of them are actually used, and work on the remaining 11 is in its final stage. In the near future, it is planned to introduce the practice of mobile payments, reports and mobile correspondence with taxpayers. "It is an integral part of the transition to the e-government," Mammadov said. However, today, taxpayers in Azerbaijan annually spend 214 hours to fill tax declarations and pay taxes, which is 4.7 times less than in 2007. The number of annual payments over this period, according to the World Bank's recent Doing Business 2013 report, has halved - to 18.

Amendments to the Tax Code of Azerbaijan, which came into effect on 1 January this year, also suggest new regulations related to gradual transition to electronic audit. The pilot testing of this innovation has already begun and, according to Asaf Asadov, an adviser to the tax minister, the results suggest that Azerbaijan is successfully creating a system based on modern technologies of electronic audit. "The transition to this system is not so simple. The amount of tax authorities fully working on the basis of the same audit platform in the world does not exceed 10," Asadov said, adding that the use of e-audit reveals the risks of tax evasion with a probability of 90-95 per cent and reduces the number of on-site inspections by 90 per cent.

International recognition and contribution to the development of electronic services are, of course, indicators of performance, but do all these innovations help to achieve the main objectives of the tax authorities - to increase the revenues of the state treasury? "Yes, definitely," they say, citing as evidence the fact that in 2012, as compared to 2000, the amount of tax payments to the state budget increased by 12 times. "Such an impressive growth is evidence that tax administration in our country is not appropriate for the existing economic system," Mammadov himself considers.

Filling in the gaps

Meanwhile, despite the really impressive results of "general tax electronization", taxmen still continue to worry about the identification of entrepreneurs who do not want to share their profits with the budget. Yes, a lot of measures are being taken in this direction, but there are gaps, the removal of which could help us to make even more progress, for example, the promotion of non-cash payments in the country, which has been repeatedly mentioned even by President Ilham Aliyev, who urged the government to intensify its efforts in this regard. We cannot say that things have not changed in this matter and nothing has been done in the last two years - on the contrary, certain progress is quite obvious and does not even need to be confirmed by statistical indicators. It is the turn of credit cards from different banks that promise favourable terms of repayment for goods bought on credit, various bonus systems, etc. - all this, though recently, can be seen at least in Baku and large cities. However, these measures are not sufficient, and effective steps are needed to involve in the process not only major businesses, which are usually more or less meticulous taxpayers.

According to Minister Mammadov, by the end of February, the Ministry of Taxes will submit proposals to stimulate non-cash payments in the country to the presidential administration. Earlier, it was planned to include steps in this direction in a package of proposals on amendments to the tax legislation, which came into force in 2013. However, due to the need to complete work on them, it was decided to postpone them until the next year. Given that increasing the volume of non-cash payments is one of the main sources of significant expansion in the tax base, Azerbaijan is going to reach the level of advanced countries of Europe in this direction in the near future. The proposals also provide for the partial exemption of the non-cash turnover of businesses from taxation. It is also proposed to impose restrictions on purchase and sale operations in a single transaction or for a specified period of time.

Another way to prevent tax evasion is the legalization of wages. As a result of intervention by the Ministry of Taxes, approximately 55,100 employers had concluded 180,100 labour contracts with their employees by 11 January 2013. Thus, the total number of employees in Azerbaijan reached about 1.5 million people.According to Mammadov, the presidential decree on the application of amendments to the Tax Code put a significant emphasis on the above two issues. "We are currently developing separate bills for these two areas, which will cover the signing of contracts between employers and employees, the preparation of new reporting forms, translating registration into an electronic format, as well as increased non-cash payments, which will be carried out mainly through stimulating methods," the minister said.

However, even despite the existing gaps in these areas, due to the favourable investment climate in Azerbaijan, the number of taxpayers in 2000-2012 increased three times. In 2012 alone, the increase totalled 72,000, and almost completely covered the non-oil sector of the economy. By 2021, the government plans to triple the amount of tax revenues collected from the non-oil sector as compared to 2012.

According to government estimates, within the framework of the concept "Azerbaijan-2020: A Look into the Future", the annual growth in the non-oil sector of Azerbaijan must be at least 7 per cent. According to Deputy Minister of Economic Development Sevinc Hasanova, to perform this task, it is necessary to stimulate the non-oil sector, including through the promotion of an active fiscal policy and optimization of tax rates. At the same time, in order to increase tax revenues from the oil sector it will be necessary to broaden the tax base. "This is one of the main problems, as in the following years, the state budget revenues of Azerbaijan will have to be formed mainly by non-oil revenues," she said, adding that the government of Azerbaijan is actively using tax incentives for business development, including for the agricultural complex, which employs 40 per cent of the population.

The chairman of the parliamentary committee on economic policy, Ziyad Samadzada, says that if today the provision of such benefits is one of the components of the country's economic policy, their coverage will be narrower over time. "Today we are creating free economic zones and technology parks. For example, agriculture is exempt from virtually all taxes. But over time, when the agricultural sector gets stronger, we will eliminate the tax exemptions. But today, these benefits are necessary," Samadzada said.

However, international organizations also recommend that the government of Azerbaijan should pay attention to tax incentives. For example, the World Bank (WB) believes that it is necessary to develop a strategy for privileges and preferences, as well as tax exemptions. The WB country manager Larisa Leshchenko said that "at some point, tax benefits and exemptions are necessary, but they cannot be provided forever. Over time it is necessary to abandon them."

Looking from the outside

As already mentioned, the balance of achievements and problems in the tax field is currently in favour of the former, and therefore, the international auditing company PricewaterhouseCoopers (PwC), according to its partner in Azerbaijan Movlan Pasayev, expects Azerbaijan's position to improve in the Paying Taxes ranking. Paying Taxes is prepared (PwC) and used for compiling the annual Doing Business ranking of the World Bank and the International Finance Corporation (IFC). Azerbaijan, according to Pasayev, has been enhancing its position in the Paying Taxes ranking since 2009. In Paying Taxes 2013, which was prepared on the basis of data for 2011, Azerbaijan took 76th place.

It is appropriate to cite the statement of the head of the EU's Baku office, Ambassador Roland Kobia, that the Azerbaijani Ministry of Taxes is characterized as one of the transparent departments in the country. "We appreciate the Tax Ministry's transparency and fight against corruption. The ministry can be described as open to innovation and rapidly modernizing," Kobia said.

The diplomat believes that "the Electronic Government programme played a big part in the issue of transparency". "In addition, President Ilham Aliyev is paying great attention to this, which increased the efficiency of the programme. Currently, the work carried out by the Ministry of Taxes in this sphere meets international standards," he added.

In other words, continuing reforms in line with modern trends of the world economy, the fiscal sector of Azerbaijan will solidify its position among the fastest growing areas in the country.