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Amendments to the Tax Code will cause Further Difficulties to Businesspersons, Experts Think

August 6, 2009

Gela Mtivlishvili

The Parliament of Georgia introduced amendments to the Tax Code to avoid  businesspersons hiding income from taxes. The amended Tax Code will grant the right to a tax inspector to demand  a hotel or a an eating establishment to pay the taxes from previous year according to the income they had this year. According to another amendment if the property confiscated by the state is not sold at a second auction, the head of the Income Department may have the right to declare the property to be owned by the state.

According to the Budget and Finance Committee of the Parliament of Georgia, the Minister of Finance must issue an order that will start the amended Tax Code to function in practice. Zurab Melikishvili, the Chairperson of the Budget and Finance Committee stated that the order will define in which cases a tax inspector should suspect that a businessperson is hiding income from taxes.

“Everyone knows that  hiding income from taxes occurs often in this country. The normative act that the Minister of Finance issues will strictly define the conditions and instances when an establishment could be suspected of artificially decreasing its income,” notes the Budget and Finance Committee.

Irakli Ghvaladze, the Deputy Minister of Finance states that the broadened authority of the Tax Inspection based on the amendments will enter into force on August 10, 2009.

“The taxes are rather low in Georgia. A businessperson has to pay only 6 types of taxes. These taxes should be administered as well as possible,” noted the Deputy Minister of Finance.

Experts on economics claim that the amendments will cause an increase of sanctions on hotels and eating establishments. They also claim that the amendments to Tax Code will give to tax inspection offices a possibilty to further oppress businesspersons.

This is how the experst justify their allegation: the amended law gives a tax inspector the authority to observe the entrance of constumers of a hotel or an eating establishment, then compare the figures with the results of the previous year , then mark the difference between years and demand that the hotel or the eating establishment pays the last year taxes according to the present year income alleging that the establishment is hiding income from the taxes.

“This amendment will destroy the business. We proudly claim that the income doumentation is in order; there is no “shadow”sector in business and so on. This decision (amendments to the Tax Code) is unacceptable. The tax inspection had the right and moreover, the obligation to take action t on the hiding of income from taxes if an inspector presented  evidence that aparticular business was hiding income from taxes. I think it is unacceptable that the last year tax should be paid according to the income of the present year,” says Nodar Khaduri, the expert on economic issues.

Shota Gvenetadze, a former MP, states that  making  income administration more strit has its particular purpose and it should cover all kinds of businesses.” This article deals with only  hotels and eating establishments. The situation  of income administration in this country is not bad in. Therefore, it is obscure why the law was made more strick in this regard,” aid Gvenetadze.

Amendments also were introduced into  Part 13 of Article 88 of the Tax Code . The amended Part 13 of Article 88  states that if after the second the auction winner does not pay the money according to the rule prescribed or if the bidders do not offer enough money at an auction, the head of the Income Department is authorized to declare the property to be owned by the state. This means that the head of the Income Department may have the legal right to declare the company of, for instance, businessperson Kibar Khalvashi, to be owned by the state because  the company was twice  put up for for  auction and was not sold.

Nodar Khaduri: “If the court wereindependent in Georgia and did not follow the order of the state it could have been so but we know that there are serious problems in our country in this regard (court independence). However, the purchasers of such property might lose it there is a case filed atthe European Court of Human Rights or another body. This will have a negative effect on business and investors.”

The Parliament of Georgia discussed the amendments to the Tax Code and to the Law on Manifestation and Assembly at the same time. Public attention was drawn fully to amendments to the Law on Manifestation and Assembly since the amendments imposed restrictions on  freedom of assembly but no one except several experts paid attention to the amendments to the Tax Code.

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