Possible Reducing of the Salaries with 25 Percent

The Georgian government presented amendments to “Tax Code” to the Parliament. According to the new amendments, two taxes – income and social taxes will be combined. If the employee was paying only an income tax of 12 percent from his/her salary and the employer was paying a social tax of 20 percent to the government, with the amendments, the employee will pay both taxes entirely The new amount of the tax will be 25 percent. 

The above-mentioned initiative caused great indignation among parliamentary opposition, economic experts and employees. The possible reduction of salaries by 25 percent is unacceptable for them.

167 article of draft law reads: “Income of physical person taxed at 25 percent.”

According to the existing legislation, the representatives of government believe, that by the amendments neither employee nor employer will be harmed. According to Giorgi Godabrelidze, the deputy finance minister, “This initiative is absolutely acceptable. Neither sides – neither employers nor employees – would be harmed. If your salary is 100 lari, this means that in reality your salary is 120 lari. 20 lari is the social tax, which the employer was paying before. According to the amendments, the employee will take away 90 lari out of 120, and before the employee was taking 88 lari. Earlier, the combined taxes equated 32 percent and now it will be 25 percent. So the tax burden will be lightened as concerning employers and employees.”

Such explanation is not clear to opposition and experts. The opposition offers an alternative proposal to the majority, though nobody cooperates with them. The parliamentary opposition declares that they read and understand the above-mentioned legislation as written. Zurab Tkemaladze, says that the fantasies of the majority are unclear: “Before the employer and employee social and income tax amounted to 27.67 percent. However with the amendments it will be 25 percent. So, the advantage will be 1.67 percent for the employer, and for the employee, who was paying only 12 percent to the governments, will have 25 percent taken out. Who insists that the tax does not increase for the employee - this is pointless. In the end, the amendments will harm the employee. For example, if you have a 100 lari salary, and you were paying 12 lari to the government, in the future you will have to pay 25 lari. The sum will be taken from our salary…” 

The alternative proposal of the opposition is such: Two taxes will be combined and the sum will be 25 percent, though, the payer of the tax must be not only the employer but also the employee; 15 percent will be paid by employer and 10 percent by employee.

To find out which side to believe, Human Rights Centre contacted Gia Khukhashvili, an expert in economic issues. According to him, for understanding tax policy, people need much more education then simply 2 classes.

Gia Khukhashvili: “In this instance, the opposition uses professional language. It is too bad that high-ranking officials are unprofessional -- for example, Giga Bokeria (Deputy of the parliamentary legal committee department). It would be better, if he stopped talking about economics. It is not necessary that everybody comments on every issue. In reality, we understand that the amount of taxes does not increase. But as result, the only payer of the tax is the employee, and it is natural that he/she would be harmed. In the other case, the employer has to express his/her good will and raise the salary. There is a law and there is literacy and everybody can read the law and understand it as it is. But people need much more education to be more professionals.”

Opposition is not going to support the legislation, though according to their numbers they don’t have enough votes to block the legislation.  

Last week, the parliament held the debate on that issue. The opposition requested the consideration of their alternative legislation, but the majority insisted that this is unacceptable and they were explaining that the employees would not be harmed. The parliament will continue the discussions next week. The parliament should pass the amendments with three hearings.

Eka Gulua