EUROPEAN INTEGRATION IN TAX?

Azerbaijan is one of the few former Soviet states that can really claim to have a modern tax legislation, considerable human resources and a degree of assimilation of information technology in the sphere of tax administration. A regular session of the Executive Council of the Intra-European Organization of Tax Administrations, which was held in Baku recently, discussed aspects of improving administrative mechanisms.

Thanks to the introduction eight years ago of the automated tax information system (AVIS) and the transfer of departmental paperwork and all the processes of clerical correspondence between the tax bodies and taxpayers to electronic format, the ministry was able to substantially cut down on financial expenditure and man-hours spent on tax administration. In Azerbaijan today over 90 per cent of tax returns are presented electronically. And the overall number of electronic services provided to taxpayers has been increased to about 60.  Through the broad use of electronic services, in particular the electronic registration of private individuals and legal entities, contacts between officials and taxpayers have been reduced to a minimum, and this plays an important part in the fight against corruption. Lastly, the automation of all processes has enabled spending on tax administration to be reduced to just 0.35 per cent of overall tax revenues. In this aspect, the Azerbaijani service is one of the most advanced in Europe. According to last year’s Doing Business-2013 report, the annual time index for the completion of tax returns and the payment of taxes in Azerbaijan was 214 hours, which was 4.7 times lower than the 2007 figure. And the number of annual tax payments in this period was also halved – to 18. In all the listed aspects the Azerbaijani tax service was recognized as one of the most advanced in Europe.

 It is not surprising that the efforts of the Azerbaijani Ministry of Taxes in legislative and administrative reform have more than once merited the high appraisal of the tax administrations of the EU countries. Moreover, experts of such a prestigious structure of the Old World as the Intra-European Organization of Tax Administrations (IOTA) have often quoted Azerbaijan as an example for the Eastern European region of a state with a streamlined national legislation in the tax sphere.

Azerbaijan acquired full-fledged membership of the IOTA in September 2002, and since then the fiscal department has been applying maximum efforts to unify national tax legislation with European. Azerbaijan has under its belt the signing of agreements on avoiding dual taxation with about twenty countries of the European Union. With the support of the IOTA and other national profile structures of the EU, the advanced administrative experience of the states of the Old World is being actively introduced into the republic, and pilot projects are also being implemented in the tax sphere. The formation of an electronic audit (e-audit) system within the context of a twinning project funded by the EU could be regarded as a successful example of such cooperation. An e-audit project that was implemented in 2011 with the support of the Dutch tax and customs administration made it possible to set up an effective computerized system to monitor taxpayers in the country. In the context of this project a number of acts of legislation were prepared, a strong staff potential and methodological base were formed, specialists were trained and a series of measures to unify the administrative mechanisms of the audit system in Azerbaijan with international standards were carried out.

The successful implementation of this project opened up new possibilities and preparations began last year for a new twinning project based on the principles of an EU directive – Fiscal Blueprint – on the steady development of human resources.

The effectiveness of European cooperation is illustrated by the fact that in July 2013 the Azerbaijani Ministry of Taxes was the first among such organizations in the CIS to be elected a member of the Executive Council of the IOTA for one year.

“Azerbaijan has a vested interest in the future application of the most successful international practices in the sphere of tax administration. We have been working successfully in this area for a long time with a number of international organizations. They include the IOTA, which is the most productive platform for exchanging experience with European countries,” Azerbaijan’s Deputy Minister of Taxes Sahib Alakbarov said at a session of the IOTA Executive Council in Baku. He said that in the last decade Azerbaijan’s GDP has more than trebled and in the course of the next ten years the volumes of gross product should be doubled. Of course, the tax service needs foreign know-how to ensure effective tax administration commensurate with such economic growth. 

In Paris the other day Azerbaijani Minister of Taxes Fazil Mammadov and the Secretary-General of the Organization of Economic Cooperation and Development (OECD) Angel Gurria signed a document whereby the country signed up to amendments to the European Convention “On mutual administrative assistance in tax matters”. The signing ceremony was timed to coincide with the working visit of a delegation led by the Azerbaijani minister of taxes to France. According to Angel Gurria, Azerbaijan’s signing up to this document is an important event, because it demonstrates the transparency of the country’s tax system. 

The county is systematically improving its tax legislation based on European practice and the principles of administration. In this context we may hope that the IOTA forum in Baku will make its contribution to the formation of a modern system of tax administration in Azerbaijan adapted to the best world standards.

OUR NOTE

IOTA was created in 1996 in Warsaw at the third conference of tax administrations of Central and Eastern Europe and the Baltic states. The tax departments of 46 countries of Europe and the CIS are now members of this organization. The IOTA’s main objectives are the development of cooperation between the fiscal departments of the member-countries, as well as technical and information support to states with a transitional economy which are taking part in the modernization of tax administration systems based on European standards.