CC BY
14MECANISMES OF TAXATION OPTIMISATION IN TRANSIT ECONOMY
Tabatadze Marina
Professor of economics at Ivane Javakhishvili Tbilisi State University, Faculty of Economics and Business, Tbilisi, Georgia
Abstract. The dissolution of the Soviet Union made its former states to find their way to the market economy. Even if the transition period (transition economy) is not over, most of the trends have already been identified: passage to the liberal taxation system being one of them. Some significant tax reforms were undertaken in Georgia in 2005-2012. The reforms involved adaptation of a new tax codes, reducing the number of taxes from 26 to 6 and reorganizing the tax administration, with a foreign investment being defined as the priority of the economy. Globalisation processes influenced the taxation reforms and numerous international treaties have been signed. Even though Georgia has achieved important improvement in taxation system, there are, however, some major limitations. The objective of our research is to analyse the reforms of Georgia and elaborate some recommendations based on the macroeconomic theories and experience of other countries.
Keywords. Taxation systems, transition economy, tax reform, liberal taxation, optimization, investment, administration.
Historical background - transition economy. The dissolution of the Soviet Union is a result of a significant economic stagnation. Most of the former states of the Union started transition to the market economy in 1990-1991 with particular efforts to rebuild and restructure their economy. The transition methods, as well as results, were different in different states. The transition process showed important declines in many aspects, like dropping the GDP by 40% in average between 1990 and 1995 for example. After some reforms, most of the states began to recover its economies and by 2007 10 of them even reached the GDP higher than they had in 1991. Only Moldovan Ukraine, Georgia, Kyrgyzstan and Tajikistan had the GDP significantly below the level they had in 1991.
Country 1991* 1996 2001 2006 2011 Turnaround year"
Eastern European states
Russia 100 63.1 74.5 103.3 118.3 1997
Ukraine 100 47.2 51.8 73.7 75.9 2000
Belarus 100 67.9 94.0 141.5 192.5 1996
Moldova 100 45.2 45.0 52.5 74.5 1997
Baltic states
Estonia 100 •} ? 7 7 7
Latvia 100 67.8 92.9 143.1 130.1 1993
Lithuania 100 64.6. 81.5 119.8 123.9 1995
Central Asta
Kazakhstan 100 69.3: 88.5 141 4 185.7 1996
Kyrgyzstan 100 58.9 76.1 89.6 114.4 1996
Tajikistan 100 34.1 45.2 56.0 98.1 1997
Turkmenistan 100 GE.4 107.7 215.5 351.8 1998
Uzbekistan 100 82.9 102.6 137.5 208.4 1996
Transcaucasus
Armenia 100 63.3 84.2 154.7 172.5 1994
Azerbaijan 100 42.7 G5.2 150.2 241.1 1996
Georgia 100 39.8 49.8 74.1 93.2 1995
Fig. 1. Change in Gross Domestic Product in constantprices,1991-2011
Some research suggests that the very fast rhythm of the "shock therapy" had particularly negative impact (example, death rate in Russia). However some countries, like Poland, are considered as an example of more successful application of the "shock therapy". In terms of taxation system, the reforms followed different pace and methods in the 15 states. Georgia went through different phases of reforms in economy. Taxation reforms have been limited till 2005 and are still going on.
Tax reforms in Georgia. Since 2003, the government of Georgia has undertaken large reform initiatives in the area of fiscal policy. These efforts have focused on taxation, tax administration, and the budget process, including cash and debt management. Fiscal performance in 2004 was impressive. Tax revenue grew from 14.1% of GDP to 18.3% GDP in one year. This was mainly due to a strong drive to curb tax evasion and to improve tax and customs administration. However, there has also been non-tax revenue, getting from clearance of arrears in fee collection and monies collected from former government officials suspected of corruption. Fiscal performance has continued to be strong in 2005. Tax collection increased by 21.9% (nominally) compared to 2004 (from 18.2% of GDP to 19% of GDP). This was due to continuing strong economic growth (8.2 % in real GDP 2005), further improvements of tax and customs administration, a comprehensive tax reform implemented as of January 2005, and large privatisation receipts. The tax collection is made by the central government but tax is the main revenue source for sub-governments5.
The bases of the value-added and profit taxes were broadened by eliminating certain exemptions and special regimes. To encourage the legalisation of the informal economy, a one-off tax write-off was established for undeclared tax obligations incurred by the end of 2003, and regularisation of undeclared property was authorised against payment of a one-time levy of 1 % of the value of the property. Under the terms of Georgia's accession to the World Trade Organisation, the number of import tariff bands has been reduced from 21 to 16 as of January 2005. Draft legislation leading to further reduction of the number of tariff bands and reducing the maximum import tariff rate (currently 30%) is under preparation and will become effective in early 2006. In 2004 and 2005 the government completely reformed the tax and customs administration, securing impressive gains. Measures included: a) establishing an excise tax inspectorate, to strengthen collections, and a financial police; b) reducing the number of inland tax and regional offices, accompanied by staff retrenchments; c) integrating the road tax administration and the tax organs of the Adjara region into the national tax department; and d) reregistering taxpayers (by March 2005, 60 000 taxpayers had been registered). In January 2011 New Tax Code of Georgia entered into force. Purpose of the New Tax Code is to harmonize the Georgian law with the best international tax practices and EU directives. The new Tax Code foresees simplified provisions, clearly established rules and double interpretation possibilities are significantly minimized. New Tax Code of Georgia unifies the former tax and customs codes and contains number of important novelties. The novelties included creation of Business Ombudsman who is responsible for the protection of the rights and legal interests of tax-payers and enhances relationship between state and private sector.
In 2005 the government undertook radical tax reforms in Georgia. The reforms involved the adaptation of a new tax codes, reducing the number of taxes from 26 to 6 (5 state tax and one - local). These reforms cut down the value-added tax rate from 20% to 18% and the payroll tax (for social security and health care) from 33% to 20%, and set a flat 12% personal income tax, replacing marginal rates between 12% and 20%. The Ministry of economic development of Georgia described these reforms as "Special taxation systems adopted for the different regimes, aimed at establishing new international financial institutions in the country, encouraging economic growth, support sustainable development and the trade-transit function of Georgia". After the reforms some important taxes in Georgia are:
• 20% flat personal income tax
• 18% VAT
• 15% corporate income tax
• 5% interest income and dividend tax rates
• 1% property tax on the self-assessed value of property
• 0% dividend income tax on dividends
• 0% tax on interest income from bank deposits
5 Taxation plays an important role in the management of local governments. Taxes finance between 50% and 100% of sub-national activities, reflecting significant horizontal imbalances in own resources between subnational government units. The rest is mainly made up by grants from the central government.
Type of tax An international financial company Free industrial zone Free warehouse company
Corporate Income Та* (from financial services) 0% (forinternational Companies) 0% (from re-exporting of foreign goods) 0%
Value Added Tax 0% 0% 0%
Customs Так 0%, 5% or 12% 0% 0%
Property Так up to 1% 0% up to 1%
Personal Income Так 20% 20% 20%
Net Operating Losses (years)J
■ Carry back 0 0 0
■ Carry forvvand 0 0 0
Fig. 2. Special Taxation Regimes Source Report of the Ministry of Economy and Sustainable Development of Georgia 2006p.20
Reform chronology. In 2007 tax and customs administrations were merged to found a Revenue Service of Georgia. In 2011 new tax code replaced tax and customs codes. Today taxes are managed by three departments and the customs - by two departments. The priority of the agency is establishing relationship with the taxpayers.
According to the tax legislation of Georgia taxpayer has rights to receive any information needed about the taxes, to defend his rights, to benefit from the tax concessions and to demand execution of low to tax authorities. These basic social rights were achieved only after realisation of numerous reforms and creation of new institutions, among them:
• Personal Tax Consultant - Provision of information to the taxpayer regarding legislative changes and reasoning and position of the tax authority in regard to relevant issue, Promotion of timely tax reporting and cooperation with tax authority, Rendering of assistance in obtaining of public information, Visits to the taxpayer, etc.
• District Tax Officer - consults taxpayers about rules set by tax legislation;
• Write Off of Commodity Goods;
• A duty free - A duty free shops available in the custom territories and other sales points;
• Advance Ruling - is adopted on the basis of operations to be implemented or implemented in regard to rules of tax reporting and/or tax liabilities to be fulfilled in some sectors, Construction, Telecommunications, Banking, Transport, Advertising Medical, Charity related activities, Energy production, Persons employed in agricultural, among them;
• New cash register- Persons having the status of a small business shall be given new cash registers free of charge;
• Alternative audit;
• Tax Agreements - To reduce tax and/or sanctions, To define and/or decrease undeclared tax liabilities of a taxpayer within the indicated tax period(s) and types of tax(es)in by a taxpayer, To postpone the deadlines of fulfilling tax declaration liabilities in future tax periods;
• Special tax regimes for small and micro businesses - reduced tax rate at 3% and 5%;
Globalisation of economic systems made it necessary to regulate taxation relations between
different countries. This means including taxation in international low, adopting bilateral tax treaties, harmonisation of fiscal policies with international economic relations and unification of national tax legislations. The question of regulation is particularly important for double taxation. For this purpose Georgia has signed treaties with 35 countries6 based on the model tax convention of The Organisation for Economic Co-Operation and development (OECD). Also Georgia defined its priorities for international treaties which aim to a) establish unified mechanism of indirect taxes; b) harmonize the rates and basis of direct taxes. These principals are especial important for the transition economies. Improvement of taxation system and its liberalisation has a positive impact on national economies as
6 Compared to 8 countries as of 2000. The 35 countries are Austria, Belgium, Bulgaria, Germany, Denmark, the Great Britain, Spain, Estonia, Ireland, Italy, Latvia, Lithuania, Czech Republic, The Netherlands, Poland, Rumania, France, Greece, Finland, Switzerland, Azerbaijan, the UAE, Turkey, Turkmenistan, Iran, Israel, Qatar, Singapore, Armenia, Uzbekistan, Ukraine, China, Kazakhstan.
they improve the environment for investments.
In 2011 Georgia became a member of the Global Forum on Transparency and Exchange of Information for tax Purposes and signed an agreement with 37 countries. Also in 2011, Georgia became a member of the convention of OECD and the Council of Europe on Mutual Administration in Tax Matters.
Theoretical reflections on taxation. Taxation is an active tool for a government to have control on business. It guarantees regulated and balanced development of countries economy, as far as it deals with the division of the important part of the wealth created inside the country. Because of this, taxation appears as one of the main subject of controversy between a state and its taxpayers. They have radically different opinion about taxation. That is why elaboration of a fully justified taxation policy is vital for a country's economy.
At the same time, taxation plays a major role in the social-economic conditions of the society and in the development of country's international economic relations. Taxation model of each country depends on a) type of government, on b) the administrative responsibilities of each level of the government, c) on the level of interaction of governmental organisation in the economy and on d) the nature of economic policies. Even though a tax is a product of the market relationship between the state and the taxpayer, we still observe an archaic approach to its economic essence. By archaic approach we mean considering taxation as an act of violence to the independent business or as a non-democratic way of taking produced goods into possession. Of course the mandatory nature of it's also increases a negative opinion about taxes from the point of view of taxpayer.
Naturally, the priority of taxation policy is harmonization of taxation process and taking into account the points of views of both sides (state and taxpayer). Even though a state has legal responsibility to decide the percentage of different taxes, it should take into account the strictly defined dependence between fiscal burden and budget revenue. According to this dependence once the critical level achieved, increasing the fiscal burden will only decrease productivity, which will, on its turn, decrease the budget revenue. On the other hand, the investors are particularly interested in liberal fiscal environments. This gives taxation another function, of a tool of international competition. Taking all this into account, the main goal of taxation seems to be sharing the revenues between the state and a taxpayer the way that assures the fluent execution of the State's function and, at the same time, doesn't limit economic motivation of investors and other taxpayers. Reforming taxation system may cause significant profess in country's economy because of interdependent nature of different macroeconomic processes.
The taxation system of developed countries is oriented to the maximum fiscal effectiveness, according to which each taxpayer contributes in economic development of the country. At the same time, taxation is predefined and oriented to protecting legal basis and contributing in generation of the public wealth. Last, taxation is often flexible and differentiated per sector and region. Optimizing the taxation system, first of all means defining a taxation policy. This requires building the process according to general tendencies of economic development and macroeconomic priorities.
For developing countries, were foreign investments play crucial role, taxation takes another function. Liberal taxation policy attracts investors in all size of businesses. That is why, most of the ex-soviet countries adapted the liberal taxation system once going to market economics. (Russia, Poland, Georgia, etc). However the methods deployed had been different. Right after the independence Poland followed the plan proposed by Balcerowic and adapted Sache's Shock Therapy. Out of 6 programs of Balcerowic's plan, 3 were dedicating to taxation and investments.
Some critics on the actual taxation system. Even though Georgia has achieved important improvement in taxation system, there are, however, some major limitations. The biggest issue concerns the tax administration, which is still less than efficient, and crucially has failed to apply risk analysis or other auditing mechanisms in selecting businesses for tax audits. Some international economics point out to a waste of administrative resources, which has allowed for the re-emergence of some disturbing practices. The excesses of the Financial Police, particularly evident since 2003-2005, are not too favorable for many businesses in Georgia. The main problem touches micro and small business for which all these tax reforms have not been of particular benefits.
In 2009 the investment agency of Georgia declared one of the reasons to invest in Georgia being Simplified export and import procedures with no VAT on export and reduced tax rates. The agency invited the foreign investors invest in Georgia without indicating the advantages per size of the company. Obviously the small companies had not been involved in these reforms. The World Bank described the above stated reforms as "Bold reforms but high compliance burden and little compliance among micro and small businesses ". The World Bank also pointed out that the
reforms "missed small firms" - "1st Reforms missed 80% of Georgian entrepreneurs. Significant improvements in 2005, but not for small firms".
14%
12%
S 10%
u a
'S
i B%
5 |
5 4%
2%
0%
Annual Tax Compliance Costs as Percent of Gross Annual Revenue, Average by Revenue Group
12.2%
8.2%
4.5%
2.1 % 2.6% 2.3%
200K-500K Overall Average
Fig. 3. Annual Tax Compliance cost Source: The World Bank
Some recommendations. It is important to differentiate the taxes according to the income scale and company mission. Precisely, taxes can be increase on the part of income that is not dedicated to investment and social progress. Also, salaries and budget funds should be indexed per the inflation rhythm. Reforms in taxation should aim not to only increase of state's revenue, but to also increase of its share of DGP for more metronomic stability.
Stimulating fiscal policy is used during economic recession and aims to decrease taxes and increase budget expenses. As a result, demand is increased, different production factors are fully loaded and economy is more developed. It is noteworthy, that using the opposite method (decrease budget expense and increase tax) during opposite situation (economic development) doesn't bring the same result. On the contrary, it decreases the demand and inflation processes. Moreover, keeping it for a long-term may even worsen the process of crisis if there is one going. That is why, each taxation policy should be adapted to particular economic conditions during strictly defined period of time. And for the compete result, taxation policy should be combined with a monetary policy.
Conclusion. The taxation system in Georgia is based on the idea of full entrepreneurial freedom. Each sector of the economy and all size of businesses benefit the same taxation conditions. Unfortunately there are no priorities established which excludes the possibility of applying some protectionism policies to strategic sectors. Experience shows (Poland 1990, Georgia 2003) that full market freedom on limited period of time necessarily initiates economic development. However, keeping it for a long-term perspective inevitably provokes significant recession and possible economic crisis. Increasing taxes during economic decline, as a tool to balance a budget, necessarily declines the demand. This, on its turn, even worsens the crisis. On the other hand, decreasing taxes during economic growth increases the revenue, increases inflation processes and accelerates economic development but, as a result, also provokes economic decline. In both scenarios, constantly balanced budget acts as a reason of stagnation. In this situation, taxation should take a function of regulator. Of course, this will artificially cause budget deficit but will also provoke a quick revive of the economy. In some of the former soviet countries, we observed increase of taxes and decrease of state's expenses during economic growth that created profit budgets. The positive balance of these profit budgets had been used to pay back the debts raised during economic recessions. This kind of fiscal policy decreases economic fluctuation and thus, decreases the weight of crisis.
Another outstanding major issue in the Georgian taxation system is its administration. While the authorities have recognized that low taxes contribute to economic growth, they have failed to apply fiscal instruments to various policy areas. Reflecting an extreme liberal economic outlook, taxation has not been used as a lever to promote job creation in specific sectors or regions. Neither has it, like it
is in other countries, been used to advance a whole array of public issues, such as poverty alleviation, urban renewal or decentralization.
REFERENCES
1. Bakhtadze L., Kakulia R., Chikviladze M. (2007): Taxation. Tbilisi, 171p.
2. Bodie Z., Merthon Robert. C. (1999): Finance. Prentice Hall;
3. Gamsakhurdia T. (2003): The issues of taxation-budget systems of Georgia in modern stage, TSU publishing, Tbilisi, 143p.
4. Meskhia I., Chiotashvili D. (2012): Public Finance, Taxes and Budget, Tbilisi, 24p.
5. Pearson Education Australia. 3rd edition;
6. Rosen Harvey S. (2001): Public Finance. McGraw Hill Higher Education;
7. Sloman John, Norris Keith, Garrath Dean. (2010): Principles of Economics.
8. Tabatadze M. (2016): Investment environment and country's international rating. TSU 2016 international conference proceedings "Innovation economy and problems of its formation in Post-Communist countries", p.312-315
9. Revenue service of Georgia - www.rs.ge
10. The Ministry of Finance of Georgia - http://mof.ge
11. The Ministry of Economy and Sustainable Development - http://economy.ge
12. The World Bank - http://www. worldbank. org
13. National Investment Agency - www. investingeorgia. org
14. OECD - http://www. oecd. org
ANALYSIS OF EFFECIENCY OF SOWING AND SOWN
AREAS STRUCTURE
Doctor of economic science, professor Moiseev V. V.
Candidate of economic science, associate professor Moiseev A. V.
Russian Federation, Krasnodar, Kuban State Agrarian University
Abstract. Nowadays it is topical to enhance efficiency of crop production management. This branch is a leading industry in the region because its level of development has a great impact on meeting food demands and cattle breeding. Analysis is an important element in the system of industrial management. By economic analysis one can compare the achieved results with the previous data, estimate drawbacks, mistakes and unused possibilities. Hence, analysis can be considered as activity to prepare the data which is necessary for research and optimization of managerial decisions. Analysis focuses on determining reserves to enhance efficiency of production, rationalization, economic use of reserves, determining and introducing innovative experience and scientific labor organization. Thus, analysis is the most important element in the system of industry management, a vial means to use inner reserves, and basis of developing scientifically justified plans and managerial decisions. The focus of analysis is on determining possibilities of gross crop production growth and ways to use hidden reserves.
Keywords: analysis, crops, crop production, harvest, crop, sown areas.
Analysis starts from studying of production plan and programs achieving. Where the indices are compared with the previous plan and average indices level in the region, and also dynamics of changes for the last 3 - 5 years is determined.
Analyzing the sown areas they estimate how crop rotation plan is achieved, consider the structure of sown areas that has to correspond to the major industrial branch of the studied organization and consequently enhance efficiency of crop production in general.
That is why it is necessary to chose high yielders which give the biggest gross croppage [4, 599].
Increasing sown area of some crops and reducing sown area of other crops causes changes of the sown areas structure: specific weight of some crop grows while specific weight of other crop drops in comparison with the plan or the previous year. By analysis it is necessary to estimate changes in the
