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Qabil Ashirov

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Starting in 2024, some taxes on the interest incomes of bank savings will be exempted in Azerbaijan. The concessions apply to deposit accounts whose monthly interest payment will be below AZN 200 and to deposit accounts that will be kept over 18 months.

It is worth noting that income tax on the interest of deposits was exempted in 2016 for seven years. In 2023, the grace period was over and the income tax was re-imposed. At that time, many economists criticised the decision and noted that it would affect the banking sector in Azerbaijan. One of these economists is Eldeniz Amirov, and speaking to Azernews, he once again confirmed his insights.

Amirov said that, ambiguously, the taxation of deposit interest had a negative impact on the banking sector in Azerbaijan. He noted that today, many people will deny this negative effect. When the concessions were cancelled, it was said that it was wrong. At that time, some experts denied it and said that there would be no negative consequences.

“Then such a question arises: if this did not cause negative consequences for the banking sector, then why were the concessions partially restored? If the concessions were restored again, then it means that something went wrong and did not work as expected. The partial restoration of concessions is logical proof that the taxation of deposit interest has had a negative impact on the deposit portfolio,” the economist said.

Eldaniz Amirov pointed out that the taxation of interests made profits less than inflation. So, people commenced to invest in real estate, which caused prices to skyrocket. Of course, given all these above-mentioned reasons, the officials stepped back and partially restored the cancellations.

“The deposit rates offered by the banks, figuratively speaking, are eaten by the interest rates of inflation. In addition, the taxation of interest unambiguously diverts the depositor away from the banking sector and towards the property sector. Therefore, today, the prices of real estate in the capital city are increasing. Taxation of interest increases both activity in the construction sector and activity in the real estate market. It was another reason that the concessions were partially restored, and the fact that people in the deposit portfolio of the banking sector withdrew their deposits due to the cancellation of the concessions played a role here,” he said.

The economist emphasised that the current concessions have been chosen very sophisticatedly, and the majority of depositors are expected to benefit from them. It will impact only a small number of depositors. However, he thinks that soon or late, all taxation will be eliminated.

“The question is why the concession was restored partially, not completely. Since most depositors have low amounts in banks and monthly payments will not pass AZN200, this will not affect the interest payments. In other words, the limit of 200 manats allowed the income received for deposits to be exempted from tax. As for the exemption interests from taxes for depositors who keep more than 18 months, it may encourage the population to put in deposits for longer. I think that in the future we will witness the complete elimination of taxes. Because some people making deposits of big amounts will turn away from banks. Surely, some people will make deposits at banks for a long period of time. However, the same tendency will not be observed, and therefore, likely, this cancellation will be increased in the future and the taxation will be eliminated totally,” the economist underlined.

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Qabil Ashirov is AzerNews’ staff journalist, follow him on Twitter: @g_Ashirov

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