A WINDOW TO THE BUSINESS WORLD

Despite rapid econo-mic growth in Azerbaijan, until recently international financial institutions did not see Azerbaijan as a country safe for business. For example, in its Doing Business Report, the International Finance Corporation (IFC, a unit of the World Bank) describes Azerbaijan as the worst country for business in the South Caucasus. Previously, the main negative aspect was the presence of numerous procedures to start a business in the country and the complicated system of permits which often required a long time and created bureaucratic obstacles and red tape.

For the sake of fairness, we have to say that Azerbaijan's position slightly improved in the 2008 report and the country moved from the 99th to the 96th position. The rating improved due to the easing of the procedure of starting a new business. On 1 January, a "one-window" mechanism of registering businesses was introduced in the country. If all of its principles are observed, it may lead to a real business revolution in Azerbaijan.

Instead of bureaucracy and corruption

The "one-window" principle of registering businesses was introduced by the decree "On some measures to develop business in the Azerbaijan Republic" issued by President Ilham Aliyev in April. Then, the head of state signed two more decrees which identified the Tax Ministry as the only government agency authorized to register businesses on the basis of the "one-window" principle. The president also allocated four million manats from his reserve fund to create this system.

In principle, international organizations were right - the situation surrounding the opening of new businesses in Azerbaijan left something to be desired. Open corruption which accompanied visits to every government agency where you had to get a permit and register and the extremely long time to collect documents for registration discouraged businessmen from legalizing their businesses.

For this reason, if in 2000 there were 81,600 legal entities and 86,000 private individuals registered in Azerbaijan, according to information available at the end of 2007, only 70,000 of the 350,000 taxpayers were legal entities, according to the president of the National Confederation of Entrepreneurs of Azerbaijan (ASK), Alakbar Mammadov. "In order to set up a company, you had to visit so many places and meet so many officials that it was much easier for a businessman to register as a private individual with the Tax Ministry," Mammadov said.

He said that an average of 4,000-5,000 legal entities and 20,000-30,000 private individuals are registered in Azerbaijan every year. There are 60-65 business entities per every 10,000 people capable of setting up a business, though in developed countries this correlation should be at least 10 per cent. "The situation was menacing and things could have even reached the point when no small and medium-sized businesses would be registered in Azerbaijan in the next few years," Mammadov believes.

Of course, at a time when we have to develop the non-oil sector of the economy amid rapidly growing oil revenues, such a state of affairs caused concern. One of the main methods of preventing symptoms of "Dutch disease" in the country is to expand production. Today businessmen very much hope that all these difficulties will become a thing of the past and that the "one-window" system will boost the establishment of new businesses not just in theory, but also in practice.

Register in three days

Tax Minister Fazil Mammadov says that the period of registering businesses has now decreased by 20 times and the number of procedures by three times. Before this principle of registering businesses was introduced, it was required to carry out 15 procedures and submit 33 documents, which took 72 days. But now it is necessary to submit five documents, while the time required for registration is just three days. "Initially, we thought of five days, but then, having analyzed the situation once again, we decided to carry out all procedures in three days. I think there should be no problems," the minister said. He said that businessmen have already filed more than 500 applications since the system was introduced.

The main convenience of this system is that you can go through the first stages of registering your business sitting at your computer - the website of the Tax Ministry contains the electronic forms of all the necessary documents, and it is enough to collect them and pay just one visit to the office where this "window" is located. "This system will operate throughout the country at the same level. In order to prevent corruption in pre-registration procedures, the tax authorities can provide assistance within the framework of the law," Mammadov pointed out.

It must be noted that more than 500 public servants were involved in creating this system, while 85 employees are operating it. Incidentally, most of the four million manats allocated from the president's reserve fund - 1.85 million manats - have been paid to the Oracle Corporation as a licence fee for software. The rest of the money was spent on the server, technical equipment, salaries and so on. International financial institutions, specifically, the International Finance Corporation, also helped create the system. The experience of European countries, especially, that of Latvia, was studied as well.

This is just the start of it…

At the same time, the introduction of the "one-window" system is another important step towards simplifying the work of businesses in Azerbaijan, Mammadov said. It is expected that by 2010, the number of small businesses in Azerbaijan will increase by at least 20 per cent compared with 2007.

If we take into account that every new enterprise will pay taxes into the state budget, there is no doubt about serious economic benefits from this step. Using this system, the Tax Ministry is planning to cover losses from the change in the amount of income tax in Azerbaijan, Mammadov said. It must be remembered that beginning from 2008, the upper limit of the 14 per cent income tax is set at 2,000 manats, whereas it was 1,000 manats previously. According to experts' calculations, this will reduce tax incomings by 30 million manats.

Moreover, the new mechanism of registering businesses will make it possible to solve social problems more effectively since it will help create new jobs and secure competition on the market of salaries, which will certainly affect the overall welfare of the population.

At the same time, in order to catch up with our South Caucasus neighbours in the Doing Business rating - Georgia (18th place) and Armenia (39th place), we still have to do a lot of work.

According to Mammadov, a decision will probably be made in May to reduce the value added tax (VAT) beginning from 2009. This decision is very important to businessmen, and both ASK and foreign businessmen working in Azerbaijan have been trying to secure it for a long time. "On 1 January 2008, a VAT deposit system was introduced in Azerbaijan. We said previously that if this system proves effective, VAT may be reduced. The initial results of the VAT deposit system are quite pleasing. For this reason, VAT rates may change beginning from 2009," Fazil Mammadov said.

VAT is set at 18 per cent in Azerbaijan at the moment. Deputy Tax Minister Natiq Amirov was quoted as saying earlier that the Tax Ministry may reduce VAT stage by stage to 15 per cent, increasing control over those who pay this tax. To this end, the Tax Ministry has introduced a VAT deposit system where all operations concerning this tax will be carried out through a single treasury account.

But this is not everything. Apart from the tax sector, businessmen also demand benefits and improvements in the customs sphere. It was announced recently that the government is actively discussing a customs project similar to the "one-window" tax system. While crossing the border, apart from the State Customs Committee and the State Border Service, cargos are also controlled by the State Phytosanitary Service, the State Veterinary Service, the sanitary department of the Health Ministry, the Ministry of Transport and the Ministry of Internal Affairs. The main purpose of the project is to authorize a single government agency to clear all cargos. While implementing the project to simplify the registration of businesses on the border, Azerbaijan will receive help from UNESCAP (a special programme for Asia and the Pacific) and UNECO (European Organization for Economic Cooperation).

So businessmen are likely to get many more pleasant surprises from the government in the near future.