Tax reforms to positively affect national economy

By Azernews

By Nigar Abbasova

Azerbaijan’s Taxes Ministry is sure that the tax reforms approved by the president will allow to make radical changes and reforms in the country’s tax system.

President Ilham Aliyev signed a decree in early August to approve directions of reforms, which will be held in the tax sphere in 2016, and on improvement of tax management. The approved reforms will make it possible to apply more favorable VAT rates for the socially vulnerable layers of the population, reduce the tax burden on small and medium-sized business, resolve problems during taxation of trade operations and etc.

The Ministry clarified that the decision aims to boost the development of small and medium entrepreneurship, as well as ensure competitive environment in the sphere of retail trade and optimize tax burden, oxu.az reported citing the ministry.

The changes envisage application of differentiated VAT rates in the country, while single VAT rate of 18 percent is currently applied in Azerbaijan.

Producers of agricultural goods are exempt of all kinds of taxes (excluding land tax) since 1999.

A special attention is attributed to the taxation during trade operations, as the VAT calculation will be made on the basis of trade relations, while currently the VAT in the retail trade sphere is calculated on the basis of annual turnover.

Criteria that clearly differentiate the concept of wholesale and retail trade will also be defined in accordance with the changes.

 “Today, in the retail trade, VAT is imposed on the production cost in accordance with the standard procedure.  Moreover, goods, acquired from non-VAT taxpayers, are being sold by distribution networks with the application of 18 percent VAT. As a result, we face the artificial rise in prices, which can be seen in the market of agricultural goods. This, in turn, negatively influences the trade turnover of the goods. New reforms will regulate the sphere in favor of the population and entrepreneurs,” the ministry said.

Consumption tax, which is imposed on final consumer, and application of VAT charge on trade margin is expected to lead to the reduction of prices in the market.

“This will positively influence the increase of turnover and markup of profits of entrepreneurs. Therefore, individuals engaged in the retail trade should keep separate records of goods, which are exempted from VAT and those acquired with the VAT payment. In case of failure, VAT charge will be imposed on the total turnover,” the Ministry explained.

The changes also envisage the application of Advance Tax Ruling system, which stands for clarifying and conforming particular taxation arrangements with the tax authorities prior to the appearance of legal consequences, as well as prohibition of office tax audits implemented by tax authorities after expiration of 30 days since the submission of tax declarations by tax payers.

The changes also include introduction of the Voluntary Tax Disclosure system, which allows taxpayer to disclose the information not previously reported to a tax agency on a voluntary basis and thereby avoid liability to penalty or prosecution normally associated with prior non-disclosure.

Overall, the changes are extremely important for the further improvement of business climate in the country and are expected to stipulate business doing in the country, lead to the creation of favorable business environment and increase the number of entrepreneurs.

Azerbaijan currently ranks 63 out of 189 countries in the World Bank’s ease of doing business index.