On 19 March 2014, Member of the Parliamentary Majority, Zurab Tkemaladze, presented a draft bill of the amendments of the Tax Code to the Parliament of Georgia to be discussed at the first hearing. He explained the necessity of the aforementioned amendments:  “The present special rule exempts importers from paying the budget VAT of more than GEL 200,000 annually from customs duties; this means an extension of taxes for them. The norm contradicts the Constitution, the Tax Code of Georgia and the Law of Georgia on Free Trade and Competition.” According to Tkemaladze, the abovementioned rule creates a non-competitive, discriminatory environment for small, medium and large businesses.

The amendments to the Tax Code foresaw the abolition of a special rule about VAT taxes added to imported goods. FactCheck took interest in the MP’s statement and verified the abovementioned special rule. FactCheck

also inquired whether or not the current rule contradicts the Constitution of Georgia, the Tax Code and the Law of Georgia on Free Trade and Competition.

Based upon Article 162 of the Tax Code of Georgia, a person whose VAT amount declared according to taxable transactions during a prior 12 consecutive calendar months and paid to the budget exceeds GEL 200,000 is authorised to move to a special rule of VAT taxation of import.

According to the aforementioned special rule, the Minister of Finance of Georgia is authorised to extend the deadlines for the submission of a tax return/calculation as well as extend the payment of ongoing charges for specific taxes. However, the current rule does not envisage the exemption of taxes. The abovementioned norm allows certain taxpayers to postpone the payment of the relevant taxes based upon Article 162 of the Tax Code of Georgia.

The aforementioned special rule does not contradict the Tax Code of Georgia. According to Article 60 of the Tax Code, a tax concession (or privilege) is preferentially granted to a specific category of taxpayers. Additionally, tax concession (or privilege) for the payment of a local tax is established by way of entering a modification into a relevant statutory act. Of note is the fact that the Tax Code prohibits the establishment of a tax concession (or privilege) of an individual nature and the exemption of a specific person from taxes. Nevertheless, the current case of the importer being privileged provided the amount paid to the state budget for one year exceeds GEL 200,000 does not privilege individual taxpayers and can be exercised by anyone meeting the requirements/prerequisites encompassed by Article 162 of the Tax Code of Georgia.

The abovementioned special rule also does not contradict the Constitution of Georgia. According to Article 94 of Chapter 6 of the Constitution, the structure of taxes and duties are determined by the respective law (Tax Code) only.

On 21 March 2014, the Parliament of Georgia adopted the amendment to the Law of Georgia on Free Trade and Competition. The title of the law was also altered and changed to the Law of Georgia on Competition. The abovementioned draft bill was supplemented by the amendment of the Tax Code. The Parliament of Georgia has already adopted the changes and, thus, importers whose VAT amount declared according to taxable transactions during a prior 12 consecutive calendar months and paid to the budget exceeds GEL 200,000 are no longer authorised to move to a special rule of VAT taxation of import from 1 June 2014.

According to Article 10 of the Law of Georgia on Competition, any state or local authorities are prohibited from imposing such taxes or other privileges for economic agents (a person engaged in business activities) which can appear more advantageous than those for their rivals (potential competitors) and may lead accordingly to the restriction of competition.

Article 12 of the abovementioned law prohibits any form of state assistance which affects competition or creates risks of such interference. The state assistance is allowed in the following cases only:

• If issued to an individual as a social support and does not discriminate against producers of respective goods/services
• Is aimed at eliminating the damage caused by natural disasters and force majeure circumstances
• Is aimed at taking environmental measures
• Is aimed at the fulfilment of commitments stipulated by international agreements or the Georgian legislation
• Is issued upon an individual basis as an assistance of a small amount

In addition, the Competition Agency allows the state assistance for:

• Economic development of certain regions
• Preservation of cultural heritage

Thus, the special rule of the Tax Code of Georgia that privileges a certain group of importers contradicts the newly adopted Law of Georgia on Competition. It also does not correspond to the list of the state assistance envisaged by the new law.

Zurab Tkemaladze admits that the aforementioned special rule puts small, medium and large businesses in a non-competitive environment. In fact, large and small businesses paying to the state budget more than GEL 200,000 of VAT for 12 consecutive calendar months exercise more flexibility under the special rule and, thus, a non-competitive environment is to some extent actually formed. Of note is the fact that at the discussion of the abovementioned draft bill, Members of the Parliamentary Minority proposed decreasing the GEL 200,000 boundary instead of abolishing the special rule; the proposition, however, was not considered.

Conclusion

According to Article 162 of the Tax Code of Georgia, importers benefit from a special rule provided the VAT paid to the state budget exceeds GEL 200,000 for 12 consecutive calendar months. The abovementioned special rule envisages the extension of the payment of the respective duties.

Based upon the Constitution of Georgia, the structure and form of taxes are defined by the respective law (Tax Code). The Tax Code allows a tax concession for a certain category. Therefore, the aforementioned special rule does not oppose any articles of the Constitution or the Tax Code of Georgia.

The tax concession benefiting importers contradicted the draft bill of the Law of Georgia on Competition that was submitted to the Parliament for discussion. On 21 March 2014 the amendments to the Law of Georgia on Free Trade and Competition (currently the Law of Georgia on Competition) was adopted by the Parliament of Georgia. The aforementioned draft bill was supplemented by the draft bill about the amendments to the Tax Code of Georgia that would abolish the privileges for importers envisaged by the special rule. Based upon the Law of Georgia on Competition any state or local authorities are prohibited from imposing such taxes or other privileges for economic agents (a person engaged in business activities) which can appear more advantageous than those for their rivals (potential competitors) and may lead accordingly to the restriction of competition. Additionally, the special rule does not correspond to the categories of the state assistance define by the Law on Competition.

Therefore, FactCheck concludes that Zurab Tkemaladze’s statement:  “The present special rule contradicts the Constitution, the Tax Code of Georgia and the Law of Georgia on Free Trade and Competition,” is HALF TRUE.