FROM CONTROL TO MANAGEMENT

In light of mounting geopolitical risks, the volatility of energy markets, the instability of financial flows and the accelerating pace of technological transformations, it is imperative for states to adopt new approaches to economic management. In such circumstances, a key factor in a country's competitiveness is its ability to build flexible and sustainable institutional models, in which the tax system plays the role not only of a fiscal mechanism but also of a strategic tool for development.

In recent years, Azerbaijan has been consistently developing a model based on macroeconomic stability, economic diversification, the digitalisation of public administration, and the development of partnerships between the state and business.

Discussions on the future of the country's tax system became one of the central themes of the forum 'A Look into the Future of the Tax System: A New Governance Model and Data-Driven Solutions'.

A policy of sustainability

Growing global economic uncertainty urgently dictates the need to move away from reactive measures towards building sustainable models of public administration.

“In such conditions, the main task lies not in short-term reactions, but in building a sustainable and adaptive model of economic management. “Azerbaijan favours precisely this approach,” said Samir Sharifov, Deputy Prime Minister of Azerbaijan, speaking at the forum.

It is precisely a well-calibrated macroeconomic strategy and a prudent fiscal policy that have enabled the country to maintain stability even against the backdrop of major global upheavals. While many countries are struggling with growing budget deficits, mounting debt and inflationary pressures, Azerbaijan is among the few nations that have effectively maintained a balanced fiscal policy. To summarise, the country's economic stability can be attributed to a number of key factors, including consistent government policy, well-considered institutional decisions and the systematic modernisation of the governance system.

Concurrently, a fundamental rethinking of the nature of the relationship between the state and the business community is becoming one of the cornerstones of economic transformation. "The government's aim is not to completely abandon the function of oversight or reduce it to a minimum, but to transform it into a more sensible, more effective format that fits organically into the logic of modern economic processes. Predictable policy, transparent rules of the game and a consistent approach are the true indicators of a favourable business environment," explained Mr. Sharifov.

The Deputy Prime Minister also emphasised that, at this stage, it is crucial to define fiscal policy priorities, increase the return on public expenditure, and strengthen non-oil revenue sources in a targeted manner.

In the updated economic model, the tax system has dual characteristics. It serves as a reliable source of revenue for the state treasury, as well as a subtle instrument capable of steering economic incentives and shaping the business environment.

According to Samir Sharifov, tax policy is designed to have a direct impact on investment decisions, encouraging market participants to engage in more active economic activity. "It is vital that taxes and compulsory social contributions do not act as a brake on economic activity. Instead, their role is to provide the necessary momentum while also establishing a robust resource foundation to support the state's social commitments," he added.

The country's economic policy has been consistently implemented, and one of the tangible outcomes of this has been a significant strengthening of the financial and institutional framework. This, in turn, ensures high-quality economic growth and resilience to external shocks.

At the same time, the modern reality presents new and complex challenges. The current economic climate is marked by the fragmentation of the global economy, the rise of trade protectionism, and the rapid acceleration of technological and energy transformation. This necessitates a further refinement of the economic course.

An updated model

The Minister for the Economy, Mikayil Jabbarov, noted that reforms to the tax system are central to the economic diversification strategy. The active phase of the reform was launched at the end of 2017 and has already yielded significant results: “Thanks to the measures taken, the quality of tax administration has improved significantly, and significant steps have been taken towards improving the business environment and legalising economic activity.”

One of the key elements of the reforms has been tax policy in the area of remuneration, which has been systematically implemented since 2019 in the non-oil private sector. This reform has enabled labour relations to reach a qualitatively new level of transparency and has significantly reduced the scale of informal employment. Thus, the proportion of formally registered employment contracts in the private non-oil and gas sector rose from 38.5% in 2019 to 54.4% in 2025. The total number of employment contracts in this segment increased 1.9-fold, surpassing the 1 million mark, and continues to exceed the corresponding figure for the public sector.

According to the data presented, between 2021 and 2025, the average annual growth rate of real GDP in the non-oil and gas sector reached 5.9%, whilst its share in the national economy rose from 58.3% (2018) to 71.5% (2025).

The Minister particularly highlighted the key role of the private sector in this process. Last year, it accounted for 76% of total tax revenues in the non-oil and gas sector. During this period, investment in fixed capital in the private non-oil and gas sector increased by 11.1%, whilst foreign investment inflows grew by 24%.

The development of the innovation sector, encompassing information technology and the creation of a fully-fledged start-up ecosystem, occupies a special place in the country’s economic strategy. As Mr. Jabbarov emphasised, the formation of more favourable and competitive tax conditions for technology companies is envisaged in the foreseeable future. Among the key priorities identified was the expansion of tax incentives aimed at the introduction and practical application of artificial intelligence (AI) technologies.

The head of the ministry noted that the measures being taken are aimed at the gradual transformation of Azerbaijan towards an economic model founded on advanced technologies and intellectual capital. The growth in tax revenues has become a significant indicator of the effectiveness of the ongoing reforms.

According to the data announced by the minister, tax revenue reached ₼16.4 billion in 2025—the highest figure in recent years. Compared to 2018, total tax revenue increased 2.2-fold; in the non-oil and gas sector, this growth was even more impressive—2.4-fold. Tax revenue accounted for 12.7% of GDP, and 13% of the corresponding GDP in the non-oil and gas sector. In 2025, the share of tax contributions from the private sector of the non-oil and gas economy in GDP increased by 2.2% compared to 2018 and stabilised at 9.9%.

Digital transformation

Orkhan Nazarli, Head of the State Tax Service, stated that the field of tax administration is undergoing a period of large-scale technological modernisation, affecting the very philosophy of the agency’s work. Fundamentally new departments have been established within its structure, including strategic planning, internal audit and data analytics.

The ultimate goal of these transformations is to build a comprehensive digital ecosystem capable of supporting management decisions based on reliable and up-to-date data.

“Today, the key issue is no longer about understanding what has happened, but about the ability to foresee what will happen,” said Mr. Nazarli.

In addition, he announced the launch of an ambitious project to fully automate the VAT refund procedure for citizens, which is being carried out in partnership with two of the country’s leading banks. The essence of the project is as follows: when making purchases using bank cards via new-generation cash registers, details of the receipt will be automatically reflected in the taxpayer’s electronic account, and the VAT refund application will be generated without any involvement from the user.

Fariz Jafarov, Executive Director of the Centre for Analysis and Coordination of the Fourth Industrial Revolution, noted that AI technologies could radically transform the architecture of the modern economy. According to the speaker, the cumulative global economic impact of the large-scale application of AI is forecast to reach $22 trillion by 2040.

According to expert estimates, such a trend could generate additional added value of around ₼70 billion for Azerbaijan.

Discussions at the forum demonstrated that Azerbaijan views the tax system as one of the fundamental tools for long-term economic transformation. It is precisely this model—built on the principles of transparency, underpinned by digital technologies and based on a strategic vision of the future—that has the potential to become the supporting framework enabling the country not only to maintain macroeconomic stability, but also to significantly strengthen the competitiveness of the national economy in an era of global turbulence and growing uncertainty.