Parliament approved on September 17 new tax code with its third and final reading, which will go into force starting from 2011.
This is a second major revamp of the tax code in last decade, changing current rules which have been in force since 2005.
The new tax code keeps unchanged rates of most taxes, although broadens tax base.
The new tax code increases some of the excise tax and, unlike major part of the code, this amendment is already in force starting from August 1, 2010.
Excise duties doubled starting from August 1 on ethyl spirit (reaching GEL 2.6 per liter), vodka (GEL 3 per liter), whisky (GEL 5 per liter) and beer (GEL 0.4 per liter). Excise duties on export of ferrous and non-ferrous metals went up from previous GEL 80 per ton to GEL 120. Also from August 1 an excise tax was introduced for telephone communication services.
Also from August 1 increased fines for various violations of tax regulations went into force.
Since June 29, when the draft of new tax code was passed by the Parliament with its first reading, the document has been amended in several important areas.
One such amendment reflects government’s decision to drop plans to increase threshold of annual turnover for applying 18% value added tax (VAT).
During the first reading, the draft envisaged that VAT would have applied to those companies having more than GEL 200,000 (about USD 108,700) annual turnover. But eventually the government decided to keep the current threshold of GEL 100,000 (about USD 54,300) in the new tax code.
Another change was applied to the provisions regulating category of “small business.” This category, according to the code, will include businesses with annual turnover of no more than GEL 100,000 – in the draft passed with the first hearing the threshold was set at GEL 200,000.
Income of “small businesses” will be taxed either with 3% or 5% and will be exempt of VAT. 3% taxation will apply in case if “a small business” provides standard accounting documentation for at least 60% of their turnover (not counting staff salaries). 3% taxation will also apply to those “small businesses,” which operate in “special trade zones”, for example in outdoor markets.
The new tax code introduces a category of “micro business”, which covers those individual businessmen, whose annual turnover does not exceed GEL 30,000 (about USD 16,300) and who do not use hired labor. “Micro businessmen” will be fully exempt of income tax. The tax code, however, gives right to the government to further define, in agreement with the Parliament, businesses which may not fall under the category of “micro business”.
The new tax code reflects the government’s earlier decision to rescheduled cutting of the income tax. The rate would remain 20% till end of 2012; it will go down to 18% starting from 2013 and the rate will be kept till January, 2014. It is not yet clear what the government’s plans will be about income tax rate starting from 2014. Before rescheduling, it was planned to cut income tax to 15% starting from 2013.
The new tax code, starting from 2011, will integrate provisions of customs code, which currently is in force as a separate legislation. Rates of customs tariffs remain between 5% to 12%, but zero percent customs duty, applied to some category of goods since September, 2006, is no longer envisaged.
According to the new code, a position of tax ombudsman will be created. PM will appoint ombudsman in agreement with Chairperson of the Parliament. Ombudsman will have to present an annual report on taxpayers’ rights to the parliamentary committee for finances and budget.
In cases, when tax disputes between a taxpayer and authorities are caused by possible ambiguous provision of the code, the Finance Ministry’s council for adjudication of tax disputes will be authorized to take decision in favor of a taxpayer, according to the new tax code.
The document also introduces principle of "good faith", wherein if proved that taxpayer acted in good faith and a wrongdoing is caused by an unintentional mistake rather than by intended attempt to evade taxes, a taxpayer will not be fined by the Finance Ministry’s council for adjudication of tax disputes.
The parliamentary minority refused to support the new tax code, saying that it was not introducing any “revolutionary” changes in favor of business, as claimed by the authorities.