Issue 6, 2011. December-January



The Georgian Revenue Service (RS) is betting on two new programs to eradicate a lingering "mentality" problem about paying taxes. spoke with the RS about how the new policies are working.

The Georgian Revenue Service is enlisting paid informants to combat tax evasion.

The new Private Tax Inspector program empowers civilian recruits to report on stores for not issuing receipts.

Around 150 trained inspectors work around the country, purchasing things at stores and restaurants - and reporting on proprietors who don't use the cash register.

But the program, which rewards trained recruits for finding wayward tax payers 100 lari per fine, could hamper confidence building between the Georgian Revenue Service (RS) and the business community.

The Revenue Service maintains the initiative is just one more cost effective innovation to combat tax evasion, a new chapter in Tbilisi's fight to erase decades of bad habits and low tax returns.

"We were aware that nobody would like these kinds of inspectors because they are bothering businesses, they are pushing businesses to bring themselves into compliance to the tax legislation ... It means that the tax inspectors would not be loved by any of the tax payers - there is absolutely nothing strange about this," noted the RS's Lily Begiashvili.

"It is not so easy to change the mentality of tax payers in Georgia."

Begiashvili, the deputy head of the service's tax and customs administration, said the program is a "clever" way to change the lingering "mentality" that taxes are optional.

"At large, it serves to increase the culture of increasing voluntary compliance, changing the mentality of every shop - large businesses, small businesses. Just to bring them closer to compliance with the tax legislation," she said. "Everybody should know throughout Georgia that those kinds of people are among them and anybody can enter into the shops."

The program seeks to resolve a common problem for tax inspectors: exposure.

The new inspectors' anonymity is their greatest strength, noted Begiashvili, adding that since the inspectors are paid based on the number of violations they find, they are less susceptible to bribes and corruption.

The service, she stressed, includes an internal mechanism to follow up on the inspectors' reports and insure they are valid.

A second program to build relations with tax payers, Begiashvili added, is being unrolled in parallel to the secret tax inspectors.

District tax inspectors are being trained to work neighborhoods, visiting businesses and stores and educating proprietors and clerks about changes to the tax code - and their responsibilities as tax payers.

The focus is on education, not penalties, she stressed: district tax inspectors are going through four weeks of training so they will be service providers, not tax police.

Unlike the secret tax inspectors, the district unit cannot fine a business. Currently based in Tbilisi, Kutaisi and Batumi, district tax inspectors will be consulting tax payers in every major city in the country by the end of the year.

"Those two projects work together. payers should understand that they should obey tax legislation and also they should get the feeling from us that we really are partners and friends for them," Begiashvili said.

"That is the first reason the district tax officer was created and, as you know, the district tax officers are not allowed to fine. They only go to the business and advise them."