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Experts State the Government Complicates the Tax Code

June 22, 2010
Gela Mtivlishvili

Press Association of Georgia and publishers of magazines and newspapers protest the new tax code. The code of magazines-newspapers is removed from the list of entities which are free from VAT from the new tax code. The article which discharged the printed media from VAT for advertisements is also removed from the Code. Chairman of the Press Association Lasha Tughushi said the newspapers will not cope with similar tax oppression and they will stop working.

According to the current Tax Code, books and magazines-newspapers are free from VAT; they do not pay tax for the advertisements either. In the new draft tax code of Georgia, only definitions are left in two places where issues on discharging the entities from VAT are discussed. It states that together with the books and notes, it deals with the magazines-newspapers. However, the code of the magazines and newspapers -4902- is removed from the list of the goods free from the VAT in the Article 169 of the Code. Tax institutions act in accordance to the Code and experts claim that absence of the code in the Code means that newspapers will also be taxed by VAT. The article which discharged the newspapers and magazines from the VAT for the advertisements was also withdrawn from the Code.

“The government states that the aim of the new tax code is to reduce taxes. And why it does not work for the printed media? If newspapers are taxed with VAT, then the prices will increase and it will relatively reduce the circulation which is already very meager. The price of the paper was raised by 25% lately and it already complicated the situation. And now imposing the VAT to the printed media, will result into complete collapse of the field,” said the chairman of the Press Association of Georgia, editor-in-chief of the newspaper Resonance Lasha Tughushi.

Minister of finances Kakha Baindurashvili stated that the new draft tax code discharges the printed media from the VAT. He said traditional allowances are maintained in certain fields like printed media, agriculture, etc.

As for the absence of the printed media on the list of the goods free from VAT, deputy minister of finances Irakli Siradze said it was technical shortcoming.

“I would like to point out in regard with the newspapers that there might be some technical shortcoming, problem of copy-paste in the document and it can be improved. We have published the working version of the draft-code. If there were any shortcomings there, it will be improved in the final version for sure. We did not aim to tax the magazines and newspapers,” said Siradze.

How did it happen that the technical mistake was made in two places particularly in regard with the media only? Parliamentary secretary of the government Gia Khuroshvili said: “If you are interested whether there is similar political will to introduce similar changes into the code, we once more clarify that it is not correct. The priority of the government is to have improved broadcasting throughout Georgia and it supports to release information by various media sources. Thus, I want to confirm that no taxes will be imposed on the printed media in the new Tax Code.”

According to the clarifications of the deputy minister Irakli Siradze, the draft tax code is a working version though before its public discussion the government has already submitted it to the parliament.

It is not the only remark about the new code. Private high schools are inserted in the list of the entities who will pay the VAT. Minister of Finances Kakha Baindurashvili stated that private high schools have huge income and they should be taxed.

“Imposing the VAT on the high schools will increase the tuition fees. The government took these steps to increase the revenues. Access to the education will be somehow limited,” said the founder of the Free University Kakha Bendukidze.

Bendukidze said that in accordance to the draft-code, the music and sport schools will also be taxed.

There is similar note in the draft-code – other fines. The expert said that the ministry claims they are lazy to list every violation for what the tax institution might impose fine on an enterprise. Tax-payer is responsible for everything; they can be fined, criminally persecuted, etc.

According to the new tax code, if the tax-payer is obliged to pay tax, the corresponding institution can enter the entity without court decision and even withdraw cash from the cash-desk. “This article regulates the admitted debt and it works in every country,” said the deputy minister of finances.

Expert Irakli Shavishvili said that “when the tax institution, within the admitted debt, takes the money from the account without the permission of the entrepreneur, or sequesters his property, the state becomes a privileged creditor.”

According to the same draft-code, the government estimates the amount of taxes, while the Constitution of Georgia states that taxes shall be paid in accordance to the law. Expert Davit Narmania said it contradicts the European Charter on Local Authority which is verified by Georgia. More precisely, according to the Charter, local authorities estimate the taxes according to the limits in the tax code.

A council of arguments shall be established within the ministry of finances according to the new draft-code; it will have authority to clarify the law. Irakli Shavishvili said that decisions of the council will have normative character and consequently, the court shall take them into consideration. “However, nobody is entitled to interpret the law but the court,” said the expert.

In the draft tax code, the certain part of fines will be reduced; however, some of them are increased. For example, for the lack of payment receipts or for the mistakes in them, a person will be fined with the quintuple amount of the price. In the current code only 100 % of the price is envisaged in the Code.

The notion of micro-business was also introduced into the draft-code. According to it, the people, whose annual income is less than 30 000 GEL, will not pay taxes. Annual 30 000 GEL circulation means 2 500 GEL circulation per month. If we calculate the 10% benefit from it, it becomes clear that only those people are discharged from the tax, who earn 250 GEL per month. Experts cannot understand how tax agency can calculate when the entrepreneur exceeded the 30 000 GEL circulation per year because they are not obliged to have cash-machines or other documents.

Experts said, the Code creates the problem for macro and micro business because a businessman will not be able to register the product purchased on the market in the expenses. It will create problem particularly for the owners of restaurants and cafes; they mostly buy products in agricultural markets.

The new tax code will be put in force in 2011.

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