UPTREND

For many years Azerbaijani government agencies have been trying to somehow deal with traffic jams in the capital and on adjacent highways, which has now become a traditional phenomenon in modern Baku. The struggle involves different methods, ranging from the expansion of roads to the development of programmes for recycling old cars and the introduction of limits on imports of cars, depending on their compliance with the Euro-4 standard. Of course, all these measures simultaneously solve other important problems of environmental, infrastructure and other nature. But... there are still enough traffic jams in Baku, and moreover, the problem is exacerbated by the annual increase in the volume of the car market. On the one hand, this is one of the most striking indicators of growth in people's welfare and on the other, an additional burden on the city's infrastructure.

Whether the government's new decision to increase the excise tax rates on imported cars will help make Azerbaijanis less willing to buy cars is also doubtful. In any case, changes to the Tax Code governing the issue have been adopted and entered into force in January this year.

"Primary" market at gunpoint

Late last year, the Milli Maclis (parliament) of Azerbaijan adopted amendments to the Tax Code, providing for increased excise taxes on imported cars, yachts for recreation and sports and other floating means of transport. The excise duty for the importation of yachts and other vessels designed for this purpose will be 3 manats for each cubic centimetre of the engine. Import excise taxes on cars have also increased depending on engine size (Table).

It was the second major decision in the past year, which directly affected the interests of car market participants. For example, from 1 April 2014, the Euro-4 environmental standard was enforced for the importation and manufacturing of vehicles. Following that decision, the importation of vehicles into the country fell quite noticeably. If in January-November 2014, Azerbaijan imported 56,804 vehicles, in the same period of the previous year, the figure was 93,686, i.e. 39.4 per cent less. This decline is the most apparent from the statistics on the importation into Azerbaijan of cars from Georgia - this is the most popular route for the importation of used cars. In January-November 2014, 16,800 cars worth 252.3m dollars were exported from Georgia to Azerbaijan. According to Gruzstat (National Statistical Service of Georgia), compared to the same period of the previous year, the export of passenger cars into Azerbaijan declined by 31.8 per cent in terms of value and 24,400 units in terms of quantity (59.2 per cent).

According to experts, the recent changes to the Tax Code will affect the prices of expensive cars most of all. Economist Vuqar Bayramov believes that, for instance, the rise in the prices of cars with an engine capacity of more than 5,000 cubic centimetres will exceed 10,000 manats. "In particular, a serious rise in prices is expected for new cars. The price for cars with an engine capacity of 4,000 or 5,000 cubic centimetres will increase to 6,600 manats. On average, the price for these brands of cars is expected to increase by about 5,000 manats. The rise in prices for cars with an engine capacity of up to 2,000 cubic centimetres will be small - about 100 manats. And if there is a price increase, then we can talk about an artificial hike," the expert says.

According to Bayramov, the sales of expensive cars may see stagnation.

The experts predict that the increase in the amount of excise tax on cars imported into the country will not only reduce automobile imports, but also change their structure in favour of cars with a small engine capacity. "This means that the price increase will lead to a decrease in demand for cars with a large engine capacity. On the contrary, the sales of cars with a small engine capacity are expected to increase," Bayramov says.

That is to say, logically, the number of large-sized cars, which are one of the causes of traffic jams, should stop growing on the narrow roads of Baku. This is the ideal. But given the nature of the car market of Azerbaijan, this decision is likely to fulfill a second task - to bring additional funds into the state budget amid falling oil prices.

Road tax to "dissolve" in petrol

However, along with this, let's say, unfavourable decision for motorists and those who strive to replenish their ranks, at the end of last year, the parliament passed another important change to the Tax Code - to exempt domestic car owners from the road tax. That's to say from this year the list of road tax payers includes non-residents who own vehicles entering the territory of Azerbaijan and using the territory for the transportation of passengers and cargo, as well as persons engaged in the production or import of petrol, diesel and liquefied gas in Azerbaijan. Until then, the payers of the road tax for the use of roads in the country were owners of cars, buses and other vehicles.

According to the document, the road tax will be calculated by adding 0.02 manats to the wholesale price (including VAT and excise tax) for every litre of petrol, diesel and liquefied gas produced in Azerbaijan for domestic consumption. The road tax on imported petrol, diesel fuel and liquefied gas is determined according to the Customs Code of Azerbaijan, but is calculated by adding 0.02 manats to the customs value (including VAT and excise tax) per litre. The calculation and payment of the road tax on oil products made in Azerbaijan will be supervised by the tax authorities and the calculation of the tax on imported products - by the customs authorities.

On the one hand, the decision is favourable for car owners, as it allows them to get rid of paying the road tax calculated based on the volume of the engine when passing the technical examination. However, almost immediately after the adoption of the amendments the question arose: will they not lead to an increase in petrol prices in the country? According to experts, even if there is a rise, it will be insignificant. And since the price of AI-92 petrol is regulated by the Tariff Council, an appropriate decision is likely to follow.

Meanwhile, amid falling oil prices, car owners expected domestic fuel prices to become cheaper. However, in late December, SOCAR Vice-President for Economic Affairs Suleyman Qasimov said that this should not be expected, at least for AI-92 petrol produced by SOCAR, because then "it would be logical to change the cost of petrol when oil prices are high". According to him, SOCAR revenues from the sale of petrol are insignificant. In addition, some of this income is used to pay taxes. Now the cost of A-92 petrol is 0.70 manats.

Concerning the possible reduction of prices for other types of petrol (Premium Euro-95 and Super Euro-98) imported into the country, the vice-president of SOCAR said that their value is not regulated by the state, but in this issue it is necessary to take into account the cost of transporting fuel into the country. We should note that AI-95 and AI-98 petrol accounts for approximately 10 per cent of total consumption in the country and is almost never used in the field of production and delivery of services.

We should say that in neighbouring Georgia, SOCAR Georgia Petroleum continues to reduce the prices of petroleum products due to low oil prices.