ENVIRONMENT FOR DOING BUSINESS

The new "rules of the game" for the business community are effective since January 1, 2017 in Azerbaijan: 201 changes to the Tax Code have been approved, including 115 new clauses, 83 amendments and the elimination of three clauses. These changes cover 123 clauses on the improvement of tax administration, accounting, registration. 34 clauses are aimed at strengthening the rights of taxpayers, 8 - to reduce the tax burden and increase benefits. The purpose of these changes, according to tax authorities, is to promote in 2017 the development of entrepreneurship, to protect the population from the negative effects of devaluation of the national currency and to ensure the flow of funds in the state budget.

Restraining the prices

A significant package of amendments to the Tax Code is intended to restrain consumer prices, which in the past year continued to increase as a result of the devaluation of the manat. Thus, according to the State Committee on Statistics of Azerbaijan, in the first 11 months of this year prices went up by 12.1% compared to the same period of 2015, and in the food market - by 14.1%, non-food products - by 16.8% and services - by 5.6%. Starting from 2017, the production and sales of flour and bread in Azerbaijan, as well as the sale of poultry meat are exempted from VAT for three years. The flour and poultry should be the anchors to restrain prices that will allow disadvantaged groups to solve the food problem. In addition, the retention of the prices of these products should help avoid sharp rise of other groups of foodstuffs.

Another relief concerns the banking sector. Last year was difficult for the national economy but the worst of all things were in the banking segment, where every fourth bank in the country has been declared bankrupt.

In this regard, the sale of assets of insolvent banks and non-bank credit organizations (FINCA) shall be exempt from VAT for three years starting from January 1, 2017.

To return the interest of population to banking system, it was decided to extend the five-year tax holiday on dividend incomes from bank deposits and securities.

The fight against the shadow economy

The adoption of bill "On cashless payments" will not only manifest the fight against the shadow economy but will also help to revive the banking operations. In accordance with the law, objects of trade and public catering registered as VAT payers with an annual turnover in excess of 200K manats can conduct cash transactions in the amount of 30K manats per month, the rest of taxpayers – only 15K manats per month.

The new bill provides for the salaries of employees of large enterprises in non-cash form. The exceptions are those operating in the fields of trade and catering, whose monthly turnover for 12 months was less than 200 thousand manats.

The development of non-cash payments would be a powerful argument to help get real business turnover from the shadows and a barrier to "gray" wages. Azerbaijan has a very low level of non-cash payments, not only compared to developed countries. In particular, in Belarus this figure reaches 36%, in Georgia - 25%, in Azerbaijan - only 11%. In addition, the expansion of non-cash payments will revive the banking sector, lead to the expansion of infrastructure, credit facilities, increase in the number of payment cards, the number of ATMs and POS-terminals for cashless payment for purchased goods in the retail and payment services.

And in the end the theme of cashless payments: with the new year lending institutions and postal operators will keep simplified tax of 1% for cash withdrawals from bank accounts of legal entities and individuals engaged in entrepreneurial activities.

New taxes

A new area in the tax system will be inflow from Funds Transfer Pricing to be used for transaction volumes of more than 500K Manats per year.

The transfer pricing is a common international scheme to minimize taxes paid. Within the framework of the application of transfer pricing the company sells goods and services to its offices for intra-company prices different from market, which allows to distribute profits and pay less tax.

Many countries around the world have adopted a special tax legislation for the control of transfer pricing, which is aimed at additional charge taxes on such transactions.

In addition, transactions between local and offshore companies will also be taxed at a rate of 10% of the volume of payments.

The reaction of experts on this innovation has been quite supportive, which is not true as far as the fiscal services concerned, which made the first attempt to introduce these innovative services to e-taxation.

According to the amendments to the Tax Code and the law "On electronic commerce", online shopping conducted abroad will be subject to VAT in Azerbaijan. At the same time, as the tax authorities have repeatedly stressed, this applies only to services and works, as well as the rates in the foreign online betting, rather than the purchase of goods.

However, according to some experts, today it is required to introduce tax incentives in respect of electronic commerce since domestic turnover does not exceed $10-15 million (for comparison, in Kazakhstan this amounts to $1 billion).

However, the Tax Ministry is looking for ways to establish proper accounting for "digital" trade. The volume of trades and services in different programs can run into the millions of dollars, according to tax authorities. They argue that there are reports of unfair competition on the part of service providers on the Internet (through a variety of resources and applications), and for this reason decided to set 18% VAT on the transaction.

Filling up the state treasury

It is known that one of the main tasks of the Ministry of Taxes is to replenish the state treasury, and part of the amendment is aimed at the execution of budget revenues. Accordingly, instead of the retired tax revenues, new opportunities should be sought.

To do this, it is envisaged to increase excise duties on a variety of imported goods.

By the way, the introduction of higher excise duties affect the rich strata of the population: the amendments touched on the so-called luxury goods. It was decided to increase the excise tax on imported cars to engine capacity of more than 2,000 cc, import of precious metals and stones, as well as for the first time introduced the excise rate of 10% customs duty on the import of fur and leather products.

The tax department also intends to bring to the taxation personal chauffeurs, gardeners, cooks, ashugs, dancers, and other persons engaged in individual activities. This category offers a simplified fixed monthly tax for individuals, which will range from 5 to 30 manat with coefficients depending on the place of business.

For example, the tax for the presenters, dancers, ashugs, parodists performing at the celebrations, photographers and videographers determined in the amount of 30 manats; masters of painting - 20; masters on televisions, refrigerators and other household appliances, as well as housekeepers, babysitters, gardeners, cooks, drivers - 10, the shoemakers and craftsmen - 5 AZN.

Of course, the amount of simplified tax for individuals on the above services will depend on the location. Accordingly, in Baku (including towns and villages), the monthly payments will be twice higher than this standard; Ganja, Sumgayit and Khirdalan - a half times higher; in the villages of Absheron region, in the cities of Shirvan, Mingachevir, Nakhchivan, Lankaran, Yevlakh, Sheki and Naftalan - remain at the level of the norm, and in other cities and areas - half the size.

According to Deputy Minister of Taxes Sahib Alekperov, the forecast on tax revenues in the state budget is approved at the level of 7.51 billion manats in 2017, which is 500 million manats more than in 2016. Thus, only the release for a period of three years (since the beginning of 2017) from VAT of production and sale of flour and bread in Azerbaijan will reduce tax revenues by 50 million manats.

At the same time, another tool for taxpayers will be a partial tax amnesty.

According to the law "On regulation of tax debts accumulated as of 1 January 2017" adopted by the Parliament in 2016, it is assumed to completely write-off interest charged for late payment of tax by 1 January 2017, as well as the gradual write-off of financial sanctions.

According to the law, in 2017 the tax authority deducts from the taxpayer if it repaid 30% of the debt on financial sanctions in January, 70% debt, 50% in January and February - 50% and 30% in January-March - 30% of the debt.

It is expected that 624 million manats of tax debts will be written-off according to this law. The law will affect 44.704 thousand taxpayers, of which 1,037 thousand and 43,667 thousand represent public and private sectors, respectively.

Referring to the tax amnesty, Alakbarov emphasized that the cancellation of the principal amount to the budget would come into conflict with the tax philosophy.

Meanwhile, the changes in the Tax Code of Azerbaijan will continue. Incidentally, the country only recently celebrated the 25th anniversary of its independence. With the development of the country's economic potential, the changes in tax legislation are inevitable. And the new amendments will be a reflection of changes in the national economy.