IFC Launches Georgian Tax Simplification Project

by Tatiana Smolenskaya, Tax-news.com, Moscow

30 May 2011

The IFC is to help the Georgian government roll out its new tax system for micro and small businesses, training entrepreneurs on the new regime, with a view to further reinforcing the administrative and financial benefits expected from the measures.

The IFC, a member of the World Bank Group, and a global development institution focused on the private sector in developing countries, has signed a cooperation agreement with the Georgian Finance Ministry to work together on the implementation of the new Tax Code introduced in January.

The agreement will see the launch of an IFC Georgia Tax Simplification Project, the vehicle through which such work will be carried out. The IFC expects the new regulations to reduce administrative burden and compliance costs, and improve company operations.

In addition, the IFC will advise the Finance Ministry and the Revenue Service on streamlining audit procedures, and train auditors to help ensure transparent treatment of companies. On the Georgian side, the government will provide technical support for the project.

Commenting on the initiative, Thomas Lubeck, IFC Regional Head for the Caucasus, said: “Georgia has made important progress in streamlining taxation to benefit micro and small businesses that are the key engine of employment and growth. We welcome the government’s commitment to further progress in this area. We will support the Ministry of Finance by implementing training and raising awareness among entrepreneurs to enable them to fully benefit from these reforms.”

Under the overhauled Tax Code, small businesses with annual turnover of less than GEL200,000 are taxed on gross income at either 3% or 5%, depending on whether the business can verify that at least 60% of its turnover is balanced by expenses (excluding wages), in which case the lower rate will apply. The 3% rate also applies to those small businesses which operate in “special trade zones,” for example, in outdoor markets. The Code also exempts from income tax "micro businesses", namely sole traders with no employees and an annual turnover not exceeding GEL30,000.

The IFC Georgia Tax Simplification Project is being implemented with financial support from the governments of the Netherlands, Luxembourg, and Austria.

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