NOT FOR PERSONAL GAIN...

Against the background of substantial reduction in budget revenues, the principle "a penny saved is a penny gained" is of particular relevance for tax authorities. While in previous years it was possible to show leniency towards some tax collection items, it is clear that next year, the fiscal services will stick to the letter of the law as much as possible, since it depends on their zeal whether or not the state coffers will be filled with enough money to fund urgent government spending. But for all that, the fiscal services are tasked to operate in such a way so as not to harm the activities of local entrepreneurs, about which they have repeatedly and quite bluntly been warned by President Ilham Aliyev.

Simplify and facilitate

Apparently, new amendments to the Tax Code, which have recently been adopted by the Milli Maclis [parliament] and approved by the head of state, are based on the desire to strike the right balance between these two necessities. According to taxmen, the amendments are intended to improve the mechanism of tax administration and reduce the tax burden in order to encourage businesses to voluntarily effect due tax payments.

Thus, according to the Tax Ministry, more than 500,000 people working in both the public and private sectors will be able to save at least 120m manats in 2016 owing to the changes in the Tax Code concerning the extension of income tax benefits. As pointed out by Minister of Taxes Fazil Mammadov, the benefit application mechanism used by tax legislation to date was such that any increase in the salary of individuals, whose monthly income was below 250 manats, resulted in a situation where it was necessary to go beyond the benefits set for them. Consequently, an employee preferred not to accept such an increase. The new mechanism provides for a tax relief, ranging from the one-fold to 12-fold amount of the minimum subsistence level in the country, to be applied to income tax in accordance with the income of individuals whose monthly income at the main workplace reaches 2,500 manats, while annual income totals 30,000 manats, as a result of which the employee will make full use of the salary increase.

Another amendment positive for taxpayers is the expansion of the coverage of simplified tax payers. Thus, while earlier it was necessary to get registered as a VAT payer if, in any given month during the year, the volume of taxable transactions exceeded 120,000 manats, starting from the next year, this ceiling will be increased to 200,000 manats. Accordingly, the possibility to use the simplified taxation system providing for payment of a 4-per cent tax, if the turnover is in Baku (outside the capital, the rate is as low as 2 per cent), will be available to a considerably greater number of business entities. Furthermore, persons engaged in trade and public catering will also be able to pay taxes pursuant to this system, regardless of the volume of turnover, with the sole proviso that, in the event the sales turnover exceeds 200,000 manats, the simplified tax rate will increase to 6 per cent for sales outlets and to 8 per cent for food courts.

The right to choose

There is one more important aspect. "Some argue that we have raised the tax burden by doing so. But they forget that the law has been amended, and now it provides that entrepreneurs with a turnover in excess of 200,000 manats have the right to choose: if they consider the payment of taxes under the simplified system to be unprofitable, let them get registered as VAT payers. Our goal is to create the most favourable environment in which it will be profitable for businessmen to pay all taxes," First Deputy Minister of Taxes Natiq Amirov said at a press conference.

This will change the procedure of cancellation of VAT payer registration. This will be possible if the total amount of a taxpayer's taxable operations within 12 calendar months exceeds 100,000 manats (currently, 60,000 manats).

Entrepreneurs engaged in the construction sector are offered the same alternative. Thus, if those engaged in construction of buildings decide to exercise the right to pay a simplified tax of 45 manats per each square meter of the building area in the quarter, when construction and installation work was started, there should be assessed a simplified tax with the application of the coefficients, as approved by a Cabinet Decree, taking into account zones of the cities and districts of the country. Moreover, the tax so assessed shall be payable to the state budget in equal instalments over 10 quarters. Besides, legal entities shall be exempt from the payment of VAT, profit tax and property tax, while individuals - from the payment of VAT and income tax. According to Minister Mammadov, these amendments can revive the construction sector.

What is more, a mechanism for taxation of income derived from the sale of real estate is also simplified. Namely, the mechanism provides that notaries certifying property provision (sale) agreements are entitled to charge the simplified tax from the source of payment. This eliminates the need for persons, who have received income from the sale of real estate, to get registered with and submit an appropriate declaration to the tax authority.

Persons involved in the sale of residential and non-residential plots owned by them shall pay 15 manats per each square metre. That is, in the event of the sale or donation of residential and non-residential plots, such persons will have to pay a tax. The tax will be assessed on the total area of residential and non-residential plots, at which point zone coefficients set forth in the Tax Code will be applied to the assessed amount.

We shall drink less

The above amendments are really positive and, hopefully, will produce the effect as close to the expected one as possible. However, there are points that caused a mixed reaction from the public. They concern the imposition of a 100-manat fine for the sale for cash of excise goods (except for retail sale of tobacco products) in a small amount (worth up to 50 manats), as well as for the purchase of such goods in small quantities for the purpose of resale. Broadly speaking, as from 1 January, none of the stores - regardless of its turnover and location (whether in the centre of the capital or on the outskirts of a mountain village) - will have the right to sell even one bottle of an alcoholic beverage for ready money. The ban does not apply to public catering facilities because there, according to Natiq Sirinov, head of the Chief Directorate of Tax Policy and Strategic Research under the Ministry of Taxes, the sale is carried out by way of pouring the liquid into glasses and wineglasses, and this is part of the menu.

What is the reason for this ban? The tax authorities have long been making efforts to develop and extend the system of non-cash payments. In so doing, they use the carrot and the stick approach, ranging from a variety of sweepstakes and promotional activities to forced installation of POS terminals at all retail facilities. Appar-ently, the practice shows that the stick is more effective. However, as admitted by Amirov himself, though fiscal authorities have for several years been making various suggestions to impose additional sanctions, these have not been accepted at higher levels because of possible social impacts. "Hence, we decided to start with alcohol. It is not an essential commodity; its consumption has brought nothing good to anyone. On the contrary, lovers of alcohol are among those who are regularly mentioned in crime reports. So this prohibition should not bring any particular inconvenience to the population. Especially now that many people have credit cards, and if they have not, credit cards can easily be obtained at any bank," he said.

As for the lack of POS terminals at retail facilities, Amirov said that now a list of such facilities is being prepared and all the problems will be solved before the end of the year.

Meanwhile, such a ban cannot be imposed on cigarettes in view of the mass market for this product. "However, this applies only to retailers. Again, if someone is buying goods from wholesalers for resale, such a person must do so by means of transfer," said the deputy minister, stressing that the ultimate goal of these amendments consists not so much in additional replenishment of the budget and identification of defaulters as in encouraging further extension of non-cash payments in the country.

In the meantime, winnings of persons participating in sports betting will be a new object of taxation, which is expected to replenish the state budget by 25m manats in 2016.

The Ministry of Taxes is also developing mechanisms for taxation of individuals providing private services - nannies, tutors, and other masters. "These can include, in particular, patents, simplified tax returns and others. The main thing is to encourage people to pay taxes, but at the same time not to offend them," Amirov said, adding that international experience in this field is currently being studied.

Tax evasion and punishment

In general, tax authorities believe that a strict fiscal discipline will help them fulfil the projected revenue part of the budget next year without any problems, despite the bleak prospects for oil prices. According to Amirov, the state treasury is not going to suffer from this in the current year, either, as the non-oil sector accounts for more than 70 per cent of revenues coming into the state budget through the Ministry of Taxes.

However, the fiscal authority has reiterated that there is no talking about any increase in the tax burden, on the contrary, there have been created all conditions so that payment of taxes would be beneficial. "Our only requirement of taxpayers is that they follow the letter of the law and make all due payments in a timely manner and voluntarily. Then they will have no problems," Amirov assured.

Otherwise, there will be problems, of course, and quite tangible at that, given the new amendments. As of next year, a fine for entrepreneurs' violation of the cash calculation rules in the areas of trade and catering committed for the first time in a calendar year will be 2,000 manats (currently, 400 manats); when such a violation is committed for the second time in a calendar year, the fine will be 4,000 manats (currently, 800 manats). Meanwhile, when committing such a violation for a third time within the same time period, the size of the fine will amount to 6,000 manats. Minister Mammadov said, however, that such severe sanctions will only be applied to those individuals who have a sales turnover in excess of 200,000 manats and exercised the right to pay a simplified tax.

As regards simplified tax payers with a turnover below 200,000 manats and persons with a turnover in excess of 200,000 manats who have not exercised the right to pay a simplified tax, financial sanctions applied to them for tax violations will stay the same and will be equal to 400, 800 and 1200 manats.

Another innovation in the field of sanctions, which is applied already this year, is a ban to leave the country imposed on tax debtors on the basis of relevant court decisions. According to Mammadov, now about 160 individuals have their right to leave the country abridged because of tax debts, and "it is not excluded that in future, such actions against undisciplined taxpayers will be applied more widely". But again, this does not mean that taxmen can unnecessarily put pressure on entrepreneurs. The management of the ministry says that every complaint about the immorality of a tax employee is being thoroughly reviewed and measures are being taken up to the person's dismissal.

In short, the Ministry of Taxes has once again assured that the principle "pay taxes and live peacefully" will work more effectively.