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Arrests of Businessmen and Violation of Property Rights Tarnish Georgia’s Image

November 3, 2010
Shorena Latatia

Georgia’s business environment is analyzed by numerous international or local organizations every year. Georgia’s business environment achieved 11th place in World Bank’s Doing Business 2010 Survey when it held 18th place in 2008. But despite these developments, some experts note several negative tendencies in the area of business development.

On October 5th of 2010, the Finance Ministry investigative department detained 55 small businessmen. The compulsory measures were discussed for 37 detainees, the rest were freed.

Giorgi Tsintia, a lawyer from the Georgian Young Lawyer’s Association was defending some of the businessmen. According to Tsintia, in order to detain an individual, a well-founded assumption should exist that he/she committed a crime; the envisaged penalty of which is restriction of liberty. Also, there should be a well-founded assumption that he/she will flee, destroy the documentation or commit a new crime.

“You can’t say that every one of the people detained posed a threat that necessitated their arrest. They were all initially summoned as witnesses, meaning there was no need for arrests en masse. This all indicated that disproportionate force was used to detain them and that their right to liberty was violated,” – states Giorgi Tsintia.

“The conviction imposed on the businessmen was forging tax documentations, particularly the fact that for a certain time they signed a document arranged illegally. This document was created in the Turkish language and many people did not even know what they were signing. Tax policy towards small businessmen should be loyal. The men arrested on October 5 were made to put up bail of 5000 GEL. I’m sure most of them won’t want or be able to continue their business activity. The Georgian government will suffer as a result,” – states Merab Janiashvili, head of the Association of Young Financers and Economists.

The government thinks differently. While talking with the Institute of War and Peace Reporting, the representative of parliament majority, Mikheil Tskitishvili stated that these kinds of measures are taken in order to fulfill the budget: “Among the post Soviet countries, Georgia holds one of the leading places regarding the improvement of its business environment. It is very easy to start and conduct business in Georgia. The main thing is that the corruption level is very low. It almost does not exist. As for October 5th and generally the arrest of businessmen, I think that this is a very natural process. In order to fulfill the budget, it is necessary to administer taxes. Someone who hides even a single GEL from the authorities is a criminal and must be punished.”

“The Georgian budget receives more money through the procedural agreements than through the land taxes that excludes the freedom of the business environment in the country. The market economy is practically under crisis,” – thinks the President of Club of Independent Experts, Soso Tsiskarishvili.

According to Giorgi Tsintaia, for the last 5 years, the lowest flow of investments was noted in 2010 and can be explained by the economic crisis and the unstable situation in the country: “The most important positive change of the current year is the new tax code that will be enforced starting from January 1 of 2011. Some of the provisions of the current tax code can be given different interpretations. Big businessmen have resources to hire professional lawyers and trust them with solving the tax issues. Small and average businessmen do not have this luxury. This is why often the tax code is accidentally, or unintentionally violated. Many law provisions can have two or more interpretations. According to the new code, these difficulties are maximally overcome and it is more fitting for small and average businessmen.”
 
Merab Janiashvili considers the new tax code a step backwards: “New code fits the big businesses and it sharply increases the number of fines that makes it more impossible for small and average businesses to exist. One more important issue linked to the business environment in the country is the right of property. The market economy and business environment starts with the right of property. And today property rights are often violated in Georgia.”

According to the official of Transparency International Georgia consultation center, Eka Bokuchava, existing property rights violations have increased a lot in the recent period: “At this phase the fate of property owners in Anaklia, the resort zone, is very important. They suddenly found that the property registered under their name in the public registry for years has been transferred to the state balance. The solution to this problem is made more difficult by the fact that the public registry does not have a relevant base where the comparison of old and new owners can be conducted. But is this a problem of the property owner?! In these kinds of cases, the guilt of the state is clear. Also, there are circumstances when the citizens can’t legalize their property. The reason for this- as a rule- is obscure.”

“The number of people implicated in corruption has decreased, but the money gained from corruption has not. Besides, there is no regulated legislation on privatization. There is no transparency in this process,” – states Soso Tsiskarishvili.

“The rating of the Georgian business environment is rather high. The procedures for making business, issuing licenses and allowances are rather simple. For example,  when starting a new business only 3 days are required, that is welcome. But, there are many additional difficulties. For example, there is no cheap credit system and conducting proceedings with tax organs is often a very difficult and protracted process. Average and small businessmen are in an especially hard situation. The number of their arrests and fines, as a rule, increase when the time of fulfilling the budget comes,” – states Irakli Lekvinadze, expert of economics, lecturer at Ilia State University.

“In order to start a successful business in Georgia, the good will of state organs is necessary. Without their help and collaboration, there will be no successful business. I can’t tell you that this is a merit of current government. This tradition existed earlier as well. Governments change, but the taste that controls the incomes, does not change,” – states Soso Tsiskarishvili.

Thus, some experts link the problems and difficulties of the Georgian business environment mostly to practice and not the legislation. But this fact remains: the grave violations of property rights for the purpose of fulfilling government and the unjust raids of businessmen still tarnishes the image of Georgia.

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