SIMPLE TAXES

The good results of Azerbaijan in various international economic ratings have become almost the norm in recent years. Intensive reforms in many sectors of the economy get a fair assessment from foreign experts too, which certainly has a positive effect on the country's investment image.

It is especially significant when this happens in one of the most difficult areas - taxes. For example, Azerbaijan took 34th place among 189 countries in the survey Paying Taxes 2016 prepared by the World Bank and the international auditing company PwC, losing only one position compared with last year. This figure is the second in the CIS and the Caucasus - only the situation in Kazakhstan is better.

It must be said that throughout its existence, Paying Taxes has been the only report of its kind, which continues to cause great interest among both companies and governments, because it provides them with the opportunity to compare their tax systems with the situation in neighbouring countries and similar economic groups.

"This year's report shows, in particular, acute problems in developing countries in terms of availability of IT-infrastructure required for developing and launching a modern tax system," said a senior manager of the PwC tax transparency department, Thomas Dane.

So, according to the Paying Taxes report, during the last year the most common reform in the field of taxation in the world was the introduction of the electronic filing of declarations and payment of taxes. It is this system that continues to play an important role in simplifying tax administration and has led to the fact that in the 10-year period covered by the study, the average time spent in the world on compliance with the tax laws has dropped by 61 hours, while the number of payments has decreased 8.2 units. As a result, the process of tax payments by medium-sized companies has become easier worldwide.

According to the report, countries such as Azerbaijan, which have invested in the development of infrastructure for the electronic declaration and payment of taxes, currently re-ceive substantial benefits from the introduction of these systems.

According to the report, the overall tax rate in these countries averaged 40.8 per cent of the commercial profit, which is only 0.1 per cent lower than last year. For example, a standard company carries out 25.6 tax payments per year and takes 261 hours to fulfill the requirements of the tax legislation - 2 hours less than last year. For Azerbaijan, a standard company makes 7 tax payments per year and takes 195 hours to fulfill the requirements of the tax legislation with a total tax rate of 39.8 per cent. As you can see, the results are much better than the average indicators worldwide.

According to the managing partner of PwC Azerbaijan, Movlan Pasayev, the country has achieved impressive changes in the tax system, and the next opportunity is to reform the tax system so as to create a favourable environment for the development of small and medium-sized businesses, as well as a competitive tax regime to attract foreign investment. According to him, Azerbaijan can improve its position in the next Paying Taxes review through new reforms. "I think you need to focus on three important aspects. The first one is the use of the most appropriate methodology for the collection of taxes, which also will be useful for taxpayers. Ultimately, this will contribute to an increase in tax revenues. Another point is the creation of an effective mechanism to dispute taxes, including further improvements in the judicial system. And finally, on the agenda is the issue of improving the mechanism of calculating VAT. In the current legislation, this mechanism is somewhat controversial," Pasayev said.

In addition, for many years there have been problems in the mechanism of returning overpaid taxes. Today they can be redirected to cover other taxes, but there is no mechanism for their return in the form of cash.

According to Pasayev, another important aspect is the establishment of an effective dialogue between businesses and tax authorities. "Of course, this kind of interaction exists, but it would be more effective, including in terms of increasing tax payments to the state budget, if the dialogue was regular," he said.

As for the latest structural changes in the Ministry of Taxes and changes in the Tax Code, they will also be taken into account in the next report Paying Taxes. "I think all these innovations can be assessed only positively, and we hope that Azerbaijan's rating, as a minimum, will not get worse. But it all depends on how the methodology of assessment changes," Pasayev said.

In general, according to experts, countries investing in the reform of the tax system and legislation create a platform for the sustainable long-term development of their economy and for reducing the share of the shadow economy. Thus, according to Thomas Dane, the simpler the tax system, the more it is complied with. In addition, entrepreneurs must feel the benefits from working within the framework of the law. Pasayev also noted that the percentage of the shadow economy in Azerbaijan is significantly decreasing thanks to reforms in the tax system and especially in the increased use of non-cash payments.

With regard to the issue of increasing tax revenues from the non-oil sector, which has been an important topic in Azerbaijan in recent years, in this case the World Bank and PwC recommend that the country carry out institutional reforms. "Forecasts on low oil prices suggest that the Azerbaijani economy faces significant challenges and underline the need to continue to maximize tax revenues from the non-oil sector. To support such revenues, substantial institutional reforms are needed," the review says. According to the bank and the auditing company, the reform should be aimed at broadening the tax base and increasing transparency and confidence in the tax administration. "These changes will help the government to develop a sustainable source of income. These actions should form the central axis of the government's strategy for improving public institutions, their accountability and the fight against corruption," the review says.

"In Azerbaijan, there is a fairly efficient and stable taxation mechanism in the oil sector, and it is bearing fruit. As for the non-oil sphere, here you can also develop appropriate methods, and the instructions of President Ilham Aliyev in this area also inspire hope for a speedy solution to the existing problems," Pasayev said.

In short, quite a complicated tax system is developing in Azerbaijan, and the most important thing is that this development should satisfy not only international experts, but also local entrepreneurs, whose activities are, in principle, a good indicator of the effectiveness of reforms.