What changes await Azerbaijani taxpayers in 2019?
Azerbaijan’s tax legislation may undergo serious changes in 2019.
This is reflected in the budget package for the next year, which has been submitted to Azerbaijan’s parliament.
The priority areas will include implementation of reforms related to the incomes of employees. These reforms will comprise benefits for employees of the private sector, but those who don’t work in the oil and gas sector, as well as regulating the ratio of payments for state social insurance between an employee and an employer.
The Azerbaijani government expects that the planned reforms will help reduce the tax burden, the burden of deductions for compulsory social insurance and reduce informal employment.
New benefits for the private sector
One of the most significant changes will be related to the income tax payment system - the government plans to exempt from this tax employees in the private sector who are not involved in the oil and gas sector.
Thus, starting from January 1, 2019, for a period of seven years, it is planned to provide 100 percent benefits (in other words, to exempt from paying tax) regarding income tax from an employee’s salary. This applies to salaries worth up to 8,000 manats. If the salary exceeds 8,000 manats, the income tax exemption will be 44 percent.
Presently, the income tax rate is 14 percent from income of up to 2,500 manats per month. If the income is above this amount, the income tax rate is 25 percent.
The non-taxable amount also increases from 173 to 200 manats. Unlike the previous amendment, this will apply to all sectors, including the oil and gas.
In 2018, the government predicts income tax revenues of the state budget at 1.196 billion manats, which is about 15.1 percent of all tax revenues. The new changes, according to government estimates, may lead to a certain reduction in income tax revenues. Thus, in the draft state budget for 2019, revenues of this type are expected at 880 million manats. Nevertheless, the government believes that in future budget revenues from income tax will increase thanks to a reduction in the share of the "shadow economy", transparency in issuance of salaries, stimulation of the economic activity and modernization of tax administration.
Differentiation of social insurance rates
According to the draft, another very significant change in the legislation concerns compulsory social insurance contributions. Thus, if the employee’s salary is 200 manats, the social insurance contributions will remain at the current level: the employee pays 3 percent of the salary, and the employer pays 22 percent.
If the employee’s salary exceeds 200 manats, it is proposed to apply another deduction principle: the employee pays 6 manats and 10 percent of the amount exceeding 200 manats, and the employer pays 44 manats and 15 percent of the amount exceeding 200 manats.
These changes also affect those working in the private sector and not engaged in the oil and gas sector. At the same time, the Ministry of Taxes will control social security payments and unemployment insurance. The Law on Compulsory Insurance against Unemployment in Azerbaijan entered into force on January 1, 2018.
Benefits stimulating non-cash payments
The government intends to provide entrepreneurs with temporary benefits to increase the share of non-cash payments (through POS terminals). At the same time, individuals are planned to be provided with certain benefits, in particular, while making cashless payments, a part of the value added tax will be returned to consumers.
Unification of simplified tax and extension of benefits for farmers
The benefits for agricultural producers are planned to be extended for five more years for the development of the non-oil sector and business support.
Along with this, differentiation in the simplified system of taxation will be eliminated. The simplified tax, which currently amounts to 4 percent for taxpayers operating in Baku, and 2 percent for taxpayers in the regions, is planned to be unified and a single rate of 2 percent will be established throughout the country.
Naturally, this will affect the revenues coming in the state budget under the simplified taxation system. Thus, the revenues from this type of tax have been projected at 322 million manats for 2019, which is 15.3 percent less than the revenue forecast for 2018.
Expansion of taxable base
The government also intends to gradually expand the share of turnover burdened with value added tax, and to reduce tax incentives for VAT payers.
At the same time, it is planned to tighten control over the production, import and sale of excisable goods. In particular, the new generation cash registers will be installed in this sector, and in general, it is planned to introduce a unified automated information system that will help control all processes related to excisable goods.
As a result, the revenues coming in the state budget from excise tax have been projected at 602 million manats in 2019, which is 8.7 percent more than the figure forecast for the current year.
Also, introduction of changes in the taxes imposed on vehicles of legal entities has been scheduled for the next year. Thus, it is expected that the legal entities will pay tax for motor vehicles being on their balance sheets. Currently, this tax applies only to vehicles of individuals.