Issue 1, 2012. February-March



Parliament is considering several new measures for small businesses designed to ease the burden of tax compliance.

Maia Edilashvili

Under the package of amendments under consideration in parliament, there will be a prototype of "alternative taxation" models for two types of small entrepreneurs.

The first type of businesses - those providing services like beauty salons, car repair or small bakeries - will be able to pay a flat tax every month - or every quarter - as defined by the government "in accordance with the specifics of each business."

Service providers eligible for the flat tax rate will be exempted from the Revenue Service's other new initiative, GPRS- model cash registers: Entrepreneurs engaged in trade that earn over 30 thousand lari (approximately $18,000) are required to utilize new GPRS cash registers and to pay three percent of their turnover, based on their receipts, to the Revenue Service in lieu of VAT (an 18 % tax). The reforms dovetail with the government's efforts to streamline tax legislation. Georgia was ranked 42 out of 183 countries in the World Bank's Paying Taxes 2012 survey - a marked improvement on its rank (62 out of 183) last year because of efforts to streamline procedures for reporting value added tax and introducing electronic filing and tax payment systems.

Nearly 95 percent of the businesses registered in Georgia are small or medium sized, according to the official definition. While taxes are relatively low in the country, the burden of detailed accounting was creating unnecessary expenses and stress for small businesses, noted Jaba Ebanoidze, head of the Revenue Service.

"When going for the flat tax, owners of small stores [as well as small service providers] will not be obligated to keep accounting materials and therefore will be exempted from having to pay out for an accountant," explained Ebanoidze at a press conference on December 12.

Davit Narmania, the executive director of the Caucasian Institute for Economic and Social Research (CIESR), a local think tank, said the initiative could help shop owners avoid fines. He noted there were "many violations" among tax payers because small businesses simply did not understand their obligations.

"There have been many violations because the system has been too complicated for small businesses; and the number of the fined people who became critical of the government has been high. So the reform will be useful for both the businesses and the government," Narmania said.

There is another "relief" for those entrepreneurs that opt for the fixed tax rate, noted Ebanoidze. Even if the store's annual income later exceeds 100,000 lari, the owner will be allowed to keep paying a flat rate and not become a VAT payer."

The government now hopes that the "alternative taxation" will make relations between small businesses and the Revenue Service even simpler and further ease the administrative burden.

One tax payer, however, believes more information is needed. At a small store in Saburtalo, one of Tbilisi's central shopping districts, a shop owner bemoaned the lack of information about which taxes she needs to pay.

"We need information [on] how we will be taxed," she said, refusing to give her name.

More documentation and brochures, she noted, would be very "helpful."