Azerbaijan significantly improves its position in 'Paying Taxes 2019' rating
By Leman Mammadova
Azerbaijan ranked 28th in the Paying Taxes 2019 tax rating, Trend reports citing the research conducted by specialists of PwC, in cooperation with the World Bank.
According to the analysis, the total tax rate of Azerbaijan is 40.8 percent; this is the share of taxes and contributions in the company's profits.
At the same time, Russia is on the 53rd place, Kazakhstan is on the 56th place, Uzbekistan - on the 64th, Armenia - on the 82nd, Tajikistan - on the 136th, Kyrgyzstan - on the 150th.
The study takes into account a number of indicators in the tax sphere - the number of payments per year, the time required to comply with tax laws, the application of the VAT system.
Last year Azerbaijan ranked 35th.
Azerbaijan's tax legislation in undergoing major changes. Starting from January 1, 2019, new amendments to the Tax Code will come into force in Azerbaijan.
Amendments cover five directions: ensuring transparency of taxation, expansion of the taxation base, modernization of tax administration, supporting entrepreneurship development which is important for both economic development and taxpayers' rights, the application of tax incentives to increase economic efficiency.
New amendments mainly aimed at entrepreneurship development in Azerbaijan, and envisage not to increase the burden of the taxation base, but to increase the taxation of those operating in the "shadow".
According to the amendments to tax legislation, startups in Azerbaijan will be exempt from profit tax and income tax for three years starting from January 1, 2019. The amendments affect startups operating in the micro and small business segment and possessing a special certificate that confirms their innovative activities.
Startups registered as legal entities will be exempt from profit tax (now the rate on this tax is 20 percent), and individual entrepreneurs will be exempt from income tax.
In addition, employees in Azerbaijan’s private sector who are not involved in the oil and gas sector will be exempt from income tax for a period of seven years, according to the amendments. This applies to salaries worth up to 8,000 manats ($ 4 707). If the salary exceeds 8,000 manats ($ 4 707), the income tax rate will be 14 percent.
Presently, the income tax rate is 14 percent from income of up to 2,500 manats ($ 1 471) per month. Above this amount, the tax rate is 25 percent plus 350 manats ($ 205).
If an employee has two or more jobs, the income tax from each job will be calculated separately.
Moreover, microbusiness entities in Azerbaijan will pay profit tax and income tax after deducting benefits. 75 percent of monthly income and profits of microbusiness entities will be exempt from the payment of the profit tax and income tax.
In addition, micro-entrepreneurs (startups) who received a special document confirming their innovative activities will be exempt from profit tax and income tax for a period of three years.
In Azerbaijan, microbusiness entities are companies with an annual income of up to 200,000 manats ($ 1 471) and a staff of up to ten people.
The draft amendments to the Tax Code also envisage the expansion of the list of individuals engaged in entrepreneurship - fixed taxpayers individually, including hairdressers, tailors and waiters.
This is one of the privileges for small businesses. In addition, they will also be released from submitting a quarterly declaration to the tax authority.
It should be noted that the number of mobile tax inspections in Azerbaijan in 2018 has dropped three times compared to last year. A moratorium on business inspections is in effect in Azerbaijan until January 2021, but they do not apply to tax audits of companies with annual turnover exceeding 120,000 manats ($ 70 609).
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.
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