On 23 September 2013, presidential candidate Giorgi Targamadze stated on the Second Channel of the Georgian Public Broadcaster: “There are no benefits for small and medium businesses. They are taxed equally as the big banks, the big oil distribution companies and so forth. Lamentably, the new government, as well as the old one, serves as a lobbyist for the interests of big businesses which are virtually not manufacturing anything in Georgia and the only thing they do is sell foreign products. They do not produce anything new on their own... This policy is not changing. We have an explicit strategy and a plan which envisages support for individuals conducting small businesses. Today, a part of the population knows that micro-businesses are not taxed but as soon as it employs one person or starts a resale, it will become subject to regular rates of taxation.” FactCheck inquired whether or not the small and so-called big businesses are indeed taxed equally. Based on the amendments introduced into the Tax Code of Georgia on 20 December 2011, the new legislative regulation – the Special Tax Regime came into force. This change brought in the new terms of “micro-” and “small” businesses and implanted the new Special Tax Regime which was in effect alongside the old one. Micro-business was exempted from taxes while tax rates of 3-5% were defined for small businesses. As stated in the Code, the status of a micro-business can be granted to a natural person who does not use hired labour, carries out economic activities independently and whose gross yearly income does not exceed GEL 30,000 (GEL 82 a day). Small business status may be granted to an entrepreneurial natural person whose gross income received from economic activity during the calendar year does not exceed GEL 100,000 (GEL 273 a day). Based on this information we can assert that the Tax Code defined different regulations for small and big businesses. The law grants yet another benefit to micro-business entities according to which the threshold of GEL 30,000 is not applicable to a certain set of activities. The list of activities which are not subject to the gross yearly income threshold of GEL 30,000 as defined for entrepreneurial natural persons is as follows:

1. Cultivation of agricultural goods conducted by means of tractors and combines.
2. Manufacturing of carpets.
3. Manufacturing of pullovers and similar products.
4. Manufacturing of upper clothing, exclusive of demonstration showing on models.
5. Manufacturing of underwear.
6. Manufacturing of head veils.
7. Manufacturing of other clothing and accessories.
8. Manufacturing of different wood products.
9. Manufacturing of wooden hangers for clothing and head veils.
10. Manufacturing household wooden items.
11. Manufacturing of household porcelain and earthenware.
12. Manufacturing of household utensils and inventory.
13. Manufacturing of musical instruments.
14. Manufacturing of accordions, harmonicas and similar instruments.
15. Manufacturing of brass instruments.
16. Manufacturing of brooms and brushes.
17. Repair of household inventory and items of personal use.
18. Repair of household inventory and items of personal use in the case if the repair is carried out independently from the production and retail or wholesale trade of these items. If the repair is conducted along with the abovementioned activities, then it falls under the category of retail and wholesale trade or under the relevant category of manufacturing.
19. Repair of shoes and leather products.
20. Repair of household and electrical items.
21. Repair of clocks and jewellery.
22. Repair and alteration of clothing.
23. Repair of household inventory and the items of personal use.
24. Washing and treating of linen and other loom products.
25. Household related service.

Note: The gross yearly income threshold of GEL 30,000 as defined for entrepreneurial natural persons having the status of a micro-business is not applicable to the activities listed above in the case the natural person does not use hired labour, carries out economic activities independently as well as personally produces and delivers the goods and services listed above to the final consumer. (This is precisely the regulation to which Giorgi Targamadze was alluding and implies that if a person is utilising hired labour or engages in resale, the entity will be stripped of its micro-business status.) It is also to be taken into consideration that along with the benefits, these amendments also introduced the Georgian Government’s Resolution N415 into the legislation which defined prohibited activities for the micro- and small businesses and listed the types of incomes which would not be taxed according to the Special Tax Regime. The list of prohibited activities preventing the granting of a natural person with micro-business status is as follows:

1. Activities which require a license or a permit.
2. Activities which may bring a yearly income surpassing GEL 30,000.
3. Currency exchange operations.
4. Medical, architectural, advocatory or notary, auditing, consulting (including tax consulting) activities.
5. Gambling business.

Types of incomes which are not to be taxed with the Special Tax Regime and not to be taken into account in the calculations of the gross yearly income threshold of GEL 30,000 as defined for entrepreneurial natural persons having the status of micro-business are as follows:

1. Income received from the lease of a property.
2. Income received from issuing loans.
3. Income received from gambling business.
4. Income received in the form of a gift.
5. Surplus income earned through realisation of the following products:

a)      Real estate b)      Means of transportation c)       Securities

1. Income received in the form of an inherited property.
2. Income received in the form of dividends.
3. Income received in the form of interests.
4. Income received in the form of royalty.
5. Income received from debt relief.

The list of prohibited activities whose performance prompts the refusal of small business status to entrepreneurial natural persons is as follows:

1. Activities which require a license or a permit.
2. Activities whose performance requires significant investments (production of excise goods).
3. Currency exchange operations.
4. Medical, architectural, advocatory or notary, auditing, consulting (including tax consulting) activities.
5. Gambling business.
6. Recruitment service.
7. Production of excise goods.

Types of incomes which are not to be taxed with the Special Tax Regime and not to be counted in the gross yearly income of small businesses are as follows:

1. Incomes received from property lease.
2. Incomes received from issuing loans.
3. Incomes received from gambling business.
4. Gifts.
5. Surplus income earned through realisation of the following products:

a)      Real estate b)      Means of transportation c)       Securities

1. Income received in the form of an inherited property.
2. Income received in the form of dividends.
3. Income received in the form of interests.
4. Income received in the form of royalty.
5. Income received from debt relief.
6. Surplus received through the realisation of a partner’s share.

After having looked into these regulations we asked the Revenues Service to provide information on how many persons are profiting from the abovementioned tax benefits. The letter from the Revenues Service reads that 25,348 persons hold a micro-business status in Georgia today while 29,336 persons have a small business status (54,684 in total). It should be noted herewith that 9,756 persons were granted micro- and small business statuses throughout the year 2013 which implies an increase in the number of people profiting from the abovementioned benefits.   Conclusion The process of checking Giorgi Targamadze’s statement revealed that the legislation defines certain benefits for micro- and small businesses and they differ from the taxing regulations of big businesses. Micro-businesses are exempted from taxes while small businesses are to pay 3-5% of their revenues in tax. Today, 54,684 citizens of Georgia are profiting from these benefits. It cannot be left out of consideration, however, that certain restrictions are imposed by governmental regulations upon the procedure of granting micro- and small business statuses. If not for these restrictions, probably, many more micro- and small businesses would have profited from the benefits. Ultimately, this part of Giorgi Targamadze’s statement is mostly false as micro- and small businesses are granted some benefits and this is observed in practice as well. The Special Tax Regime utilises no such term as a ‘medium business’ and so this category is taxed equally as the big businesses. This portion of the statement is, therefore, accurate. Targamadze also justly claims that the regular tax rates will be applied to the individuals conducting micro-businesses if they hire an employee or engage in resale. Bearing in mind the circumstance discussed above, we conclude that Giorgi Targamadze’s statement:  “There are no benefits for small and medium businesses. They are taxed equally as the big banks, the big oil distribution companies and so forth,” is HALF TRUE.