Liberalisation of the economy?
By Messenger Staff
Friday, September 25
The Georgian Government has announced that it has begun working on the liberalisation of the economy. New rules, laws and regulations are being prepared which will make it even easier for entrepreneurs to operate. The Government promises to submit the appropriate legislative changes to Parliament and implement them by the end of this year. This would be a challenge, but some analysts suggest that there is a difference between the words and the actions of the administration.
Newly appointed Minister of Economy Zurab Pololikashvili has announced that Georgia should not only comply with European standards politically but economically. According to the current Government economic team the best way to achieve this is to make changes in the tax code.
It is suggested that major changes will be made to VAT regulations. today VAT is 18% and 40% of tax revenue accrues from VAT. Professor Iasha Meskhia thinks that most probably VAT will be decreased by 1-2%, although not by as much as 3 %. He also suggests that the Government should decrease the number of goods it taxes and lift the income tax burden to a certain extent so that taxation pressure is minimised as much as possible. He points out that VAT is charged at a flat rate in Georgia, whereas in some countries different goods are taxed differently.
Other issues are highlighted by other analysts sceptical of the Government’s intentions. Gia Khukhashvili suggests that the problem lies not in the quantity of taxation but the high political risks which prevent an investor from undertaking long term projects. Furthermore, an investor in Georgia does not have the appropriate guarantees that a healthy court system would provide. Therefore the administration of taxes is the biggest problem.
According to Khukhashvili politics should not hinder business. He criticises the abolition of the anti-monopoly service as this has enabled monopolies to be created and competition stifled. There is no arbitration court system and what safeguards do exist are not worthy of the name. Entrepreneurs deal not with the relevant bodies as such but individuals, which is a very serious problem. If it is not resolved a healthy economic environment cannot be created in this country.
If serious and radical systemic changes are not made in the country liberalisation will remain a paper exercise only, as any measures taken will have no beneficial effect. ‘Liberalisation’ is a banner people tend to flock to, and the Government has staked much of its credibility on its willingness to liberalise things. It would be sad to see liberalisation become synonymous with running away from a real problem.
Newly appointed Minister of Economy Zurab Pololikashvili has announced that Georgia should not only comply with European standards politically but economically. According to the current Government economic team the best way to achieve this is to make changes in the tax code.
It is suggested that major changes will be made to VAT regulations. today VAT is 18% and 40% of tax revenue accrues from VAT. Professor Iasha Meskhia thinks that most probably VAT will be decreased by 1-2%, although not by as much as 3 %. He also suggests that the Government should decrease the number of goods it taxes and lift the income tax burden to a certain extent so that taxation pressure is minimised as much as possible. He points out that VAT is charged at a flat rate in Georgia, whereas in some countries different goods are taxed differently.
Other issues are highlighted by other analysts sceptical of the Government’s intentions. Gia Khukhashvili suggests that the problem lies not in the quantity of taxation but the high political risks which prevent an investor from undertaking long term projects. Furthermore, an investor in Georgia does not have the appropriate guarantees that a healthy court system would provide. Therefore the administration of taxes is the biggest problem.
According to Khukhashvili politics should not hinder business. He criticises the abolition of the anti-monopoly service as this has enabled monopolies to be created and competition stifled. There is no arbitration court system and what safeguards do exist are not worthy of the name. Entrepreneurs deal not with the relevant bodies as such but individuals, which is a very serious problem. If it is not resolved a healthy economic environment cannot be created in this country.
If serious and radical systemic changes are not made in the country liberalisation will remain a paper exercise only, as any measures taken will have no beneficial effect. ‘Liberalisation’ is a banner people tend to flock to, and the Government has staked much of its credibility on its willingness to liberalise things. It would be sad to see liberalisation become synonymous with running away from a real problem.