During his press briefing on 29 March 2016, the member of the United National Movement, Mikheil Machavariani, stated: "The Government of Georgia has been implementing the state budgets for the past three years at the expense of increasing taxes. Life has become more expensive for the population, excise tax has become higher and other taxes have not been lowered."

According to the Tax Code of Georgia, five general state taxes (income tax, profit tax, VAT, import tax and excise tax) and one local tax (property tax) are levied by the government. None of the tax rates, except for the excise tax, has undergone any serious changes since 2013. It should also be noted that in the case of income tax, the rate for those receiving income from accommodation rentals has dropped from 20% to 5%.

After the government changed, the very first review of the excise tax happened on 30 July 2013 when the tax on filtered and non-filtered cigarettes increased by 15 tetri and 5 tetri, respectively. Another change to the excise tax was made on 11 December 2014. At that time, the excise tax on mobile-communication services decreased from 10% to 8%. In terms of these changes, the rate for international telephone calls changed from the traditional 10% to 15 tetri, for mobile communications, and 8 tetri,

for fixed network communications. The excise tax on tobacco products and alcoholic beverages increased in two stages from 2014. These included the 12 December 2014 and 11 December 2015 changes to the Tax Code of Georgia. In this article, it is quite impossible to assess the effect of these changes upon the incomes of the state budget; however, the changes in the income from excise tax are presented in Table 1.

Table 1:

 Changes in Income from Excise Tax from 2010 to 2015

Year 2010 2011 2012 2013 2014 2015
Excise Tax (GEL Million) Plan 574 621 644 663 739 860
Actual 561 615 660 722 810 871
Difference -13 -6 16 59 71 11
Tax Incomes (GEL Million) Plan 4,552 5,775 6,300 6,920 6,820 7,520
Actual 4,592 5,802 6,311 6,288 6,847 7,550
Difference 40 27 11 -632 27 30
Share of the Excise Tax in Tax Incomes Plan 12.61% 10.75% 10.22% 9.58% 10.84% 11.44%
Actual 12.21% 10.60% 10.45% 11.49% 11.83% 11.53%
Source: Ministry of Finance of Georgia

As we can see, incomes from excise tax tended to increase from 2010 to 2015. The volume of the tax incomes in general is also growing. Parallel to the increase in absolute terms, the share of the excise tax in overall incomes is quite stable, varying from 10.45% (2012) to 12.21% (2010). The immediate aftermath of the increase in excise tax rates is not characterised by an increase in the share of the excise tax in overall tax incomes. At the same time, the income of the budget from excise tax increased by just GEL 61 million in 2015 and by GEL 62 million and GEL 88 million in 2013-2014, respectively. This increase, on the one hand, cannot completely be explained by the changes in the tax rate whilst, on the other hand, it is a very small amount as compared to the overall state budget incomes. It should also be noted that the depreciation of the national currency from the end of 2014 positively influenced the income part of the state budget. This manifested itself in the increase of import tax and VAT given the increase in the prices of imported goods in GEL.

As for the rising costs of living, a very much accepted tool for assessing the price level is the Consumer Price Index. Chart 1 reflects the changes in the Consumer Price Index.

Chart 1:

 Consumer Price Index (Inflation) from 2007 to 2015

image001 Source: National Statistics Office of Georgia

As the chart makes clear, the Consumer Price Index has definitely not reached alarming levels for the past three years. It should also be noted that the inflation target level set out by the National Bank of Georgia is 5%. However, these are the results of official statistics. The survey conducted by the National Democratic Institute in March 2016 showed that the second greatest worry for the Georgian population, after unemployment, is rising prices and inflation. For those surveyed, inflation appeared to be a greater problem than the issues of territorial integrity or poverty.

Inflation also has a positive influence upon the implementation of budget incomes as the nominal price of manufacture turnover increases. See FactCheck’s article on this topic here.

Conclusion

Due to the changes to the Tax Code of Georgia from 2013 to date, the income tax rate for those receiving income from accommodation rentals has dropped from 20% to 5%. The excise tax on mobile-communication services has also decreased from 10% to 8%. The excise tax on tobacco products and alcoholic beverages increased in three stages.

As for the budget implementation data, the incomes from excise tax as well as the incomes in general have a trend of increase. The share of excise tax in overall tax incomes is stable for the whole reporting period whilst the growth in absolute numbers is very small as compared to the overall incomes of the state budget.

According to official statistics, inflation grew to 5% in 2015 whilst the population is of the opinion that rising prices are the second greatest problem after unemployment. The rising inflation and the depreciation of GEL have played a positive role in the implementation of the budget incomes.

FactCheck concludes that Mikheil Machavariani’s statement is HALF TRUE.

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