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Georgia Urged To Fix Tardy VAT Refund Process

by Tatiana Smolenskaya,, Moscow

14 December 2017

Georgia needs to improve the administration of value-added tax refunds to prevent the further accumulation of claims in the system, the International Monetary Fund has said.

In its latest annual report on the economy of Georgia, the IMF observed that, despite efforts to increase the repayment of VAT claims, "more needs to be done to reduce the existing stock and prevent accumulation of further claims in the future."

Flaws in the design and operation of the VAT refund system, with consequent accumulation of unpaid credits, were among the weaknesses identified in the 2016 Tax Administration Diagnostic Assessment, the IMF said.

According to the report, VAT claims amounted to 4.8 percent of GDP in 2016, and the level of unpaid claims has been increasing with only 11 percent of the refundable claims processed each year.

The IMF noted that the build-up of VAT claims is due to a number of factors, including the fact that refunds are only made by the tax authority on request by the taxpayer, which means that outstanding VAT claims are not categorized as arrears. Also, taxpayers reportedly believe that maintaining outstanding balances in their tax accounts with the authority makes them less likely to be audited, the report said. Another factor delaying the payment of VAT refunds is that the tax authority has strict criteria for the processing of automatic refunds.

The Georgian revenue service is, however, in the process of digitalizing its VAT refund system, which the IMF hopes will help streamline the processing of VAT claims.

TAGS: tax | value added tax (VAT) | law | audit | tax authority | Georgia | VAT refunds | Tax

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