Tax system needs to be further upgraded - UPDATE
By Nigar Orujova
Further development of Azerbaijan’s tax system and new initiatives were mulled in Baku, as the fifth annual tax conference focusing on development and performance of the tax system took place on January 18.
Addressing the event, the head of the Tax Policy and Strategic Research Administration of the Taxes Ministry, Natig Shirinov, informed the participants about the changes that have recently been made to the Tax Code.
These changes are primarily aimed at reducing tax rates and simplifying tax administration, he said, adding that no changes or growth of tax payments on excisable goods imported to Azerbaijan is expected in the Tax Code.
“We have switched from interest rates to fixed rates in the taxation of excise goods since January 2015. Thus, despite the rise in prices for these goods due the manat devaluation, the amount of tax payments remains the same,” Shirinov noted.
For example, if earlier tax for the tobacco sale was in the amount of 12.5 percent of revenue, now the tax rate does not depend on the size of the income received by the taxpayer.
The participants also spoke about possible incentives to increase the volume of non-cash payments in Azerbaijan.
There should be a difference between cash and cashless payments, said Nuran Karimov, a partner of Deloitte, a multinational professional services firm, in Azerbaijan.
“In addition, there are restrictions on cash transactions in many countries. For instance, it is impossible to buy a car for cash in many countries. We need to establish specific transaction where a mandatory payment will be made only in non-cash,” he noted.
Karimov went on to add that there is also a need to impose restrictions on withdrawals from the bank account. “It is also possible to set a limit on withdrawals from the account of one person during the day.”
Taking into account that non-cash payments are first beneficial to banks, they have to accommodate and reduce the size of the commission.
Noting the relevance of non-cash payments in Azerbaijan, Karimov stressed the need to address a number of issues at the same time.
“As long as people will not be confident in the security of non-cash payments, this form of payment will not be widespread because cybercrime is a problem all over the world, and Azerbaijan is no exception,” he noted.
The conference also heard offers of audit companies, including International Audit Company PwC that suggested creating an offshore zone in Azerbaijan.
“We offer to create in Azerbaijan or in a part of its territory an offshore zone that is completely exempt from tax for those persons who registered in the country but carrying out activities abroad. The current legislation allows doing it,” representative of PwC Azerbaijan Rizvan Gubiyev said at the conference.
The company's research showed that the most successful tax concept that will give impetus to economic development is to transfer the tax burden from business to consumers.
“The structure of tax revenues in 2014 has shown that the main tax burden has fallen on business. We offer a lower rate of VAT, income tax and property tax, and at the same time to increase the tax rate in the consumer sector,” the company representative noted.
Regarding the taxation of consumers, Gubiyev said, the rate of VAT on alcoholic drinks and tobacco products should be raised.
“At the same time, the rate of VAT should be increased in case the value of imported jewelry is more than $10,000. The rate of property tax should be increased in case its area exceeding a certain limit. For instance, if the area of real estate is 300-400 square meters, the rate should be increased,” he explained.
He went on to add that this will stimulate the flow of domestic and foreign investments and expand export activities and so on.
“We believe that the tax reforms in Azerbaijan should be held on the following areas: administrative reforms, reforms in the application of different tax rates depending on the region and economic activity. Each region has its own economic capacity, so, differentiated VAT should introduce depending on the region. In addition, it is necessary to release or apply exemptions on dividends of enterprises working in the regions to increase investment in the regions,” he stressed.
Furthermore, it is necessary to apply exemptions in the agricultural sector and the food industry or exempt them from VAT, he added.
PwC is also offering to exempt from taxation the dividends from deposits of the population in banks operating in the regions of the country.
In addition, given that the production requires large capital investments that pay off in five to six years, PwC proposes an accelerated amortization, which will make faster to return the investment to the turnover, the representative said.
“We also provide incentives for companies which foreign operations make more than 50 percent of the turnover,” he added.
PwC also proposes to introduce a higher rate for income tax, if the monthly income exceeds $20,000, and to apply higher rates to the owners of helicopters, yachts, etc.
In its turn, KPMG Azerbaijan offers the zero VAT rate for a number of spheres in the country.
Head of tax and legal department of the auditing company Mushfig Aliyev said a zero rate of VAT can be applied in tourism sector, and also in food sector.
Aliyev also said that enterprises operating in the regions can be temporarily provided with tax incentives.
Other changes proposed by KPMG include simplification of the process of return of overpaid taxes, the introduction of pre-tax agreements, etc.
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Nigar Orujova is AzerNews’ staff journalist. Follow her on Twitter: @o_nigar
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