If earlier the role of Azerbaijan's Ministry of Taxes was important as an organization ensuring revenue part of the Public budget, after implementation of the 'single window' principle the Ministry's activity assumed further significance. Last week the Ministry held presentation of the 'single window' principle in Baku for the representatives of the diplomatic missions of Azerbaijan. In addition to the advantages of the new registration system of entrepreneurs, the successes in the tax collection were also highlighted. Undoubtedly, the role of the taxes is great in increasing economic potential of the country, strengthening its defence capacity and raising welfare of population. The key goal of the tax policy in Azerbaijan has always been to strengthen economic development of the country, create favorable investment environment and stimulate development of entrepreneurship.
About huge taxes
As a result of 2007, the list of the taxpayers in the Department of Tax Service with Special Regime of Azerbaijan's Ministry of Taxes (earlier Department for Work with Large Taxpayers and Enterprises with Special Regime) increased up to 600.
Thus, the Department serves nearly 210 enterprises owned by State, 250 enterprises with special regime, as well as industrial and construction enterprises and foreign diplomatic representations. The large state taxpayers in Azerbaijan are the State Oil Company of Azerbaijan (SOCAR), Ministry of Communications & Information Technologies, Azerkimya State Company, Hava Yollari State Concern, Azerigaz JSC, Azerbaijan State Railway Department, Azerbaijan Caspian State Shipping Company, Azersu JSC and others.
This year the Department registered 37 taxpayers and liquidated registration of 18 enterprises and organizations. According to the Head pf the Department, Sahir Mammadkhanov, it is permanently changing system due to the completion of the contracts with PSA. "The foreign companies which function within contracts come to Azerbaijan and after completion of the contract, leave the country," he said.
Annually the list of the large taxpayers is refreshed according to the criteria established by Azerbaijan's Cabinet of Ministers. Those who are not referred as to these criteria are registered by the local tax departments.
In addition, last year the Department registered 14-15 structures of Baku Metro. The companies which are working within oil contracts are being automatically registered by the Department for Work with Large Taxpayers, even if they do not meet the criteria.
As a result of 2007 Azerbaijan's Ministry of Taxes expects over-fulfillment of the transfers on income tax from Azerbaijan International Operating Company (AIOC - operator for development of Azeri-Chirag-Guneshli fields). In 2007 the tax transfers from the AIOC amounted to AZN 1.5bln, considering the oil price at $50 per barrel, but the transfers are expected to exceed AZN 2.8bln due to the double increase of the oil prices during the year. Up to now, AZN 1.965bln has been transferred to the Public budget in their line.
In addition, the Ministry expects increase of the tax transfers from the banks. "Compared to previous years their profits have increased by the minimum of three to four times," Mammadkhanov said. If in 2006 profit tax payments by the International Bank of Azerbaijan (IBA) made up AZN 12mln, in 2007 they are expected to comprise AZN 30-35mln. A similar situation is observed on an increase of profits and respectively, tax payments are made by Kapital Bank, Azerigazbank, Texnikabank, Azerdemiryolbank, AtaBank, Bank of Baku, etc. The Department will continue work with banks on execution of payment of taxes from debtors' bank accounts.
Measures on increase of tax collection
The Azerbaijani tax bodies are going to continue monitoring and checks in enterprises, which evade from tax paying and violate tax rules in order to struggle against shadow economy and illegal entrepreneurship in 2008.
Over 4,000 persons, engaged in illegal entrepreneurship, were revealed in 2007. Criminal cases have been filed over the facts and those persons were fined. About 180 cases have been brought to court. Thirty-eight people were detained.
"The illegal entrepreneurship has been increasing in the country, and I believe that tax bodies would strengthen their struggle to prevent such cases," Fazil Mammadov, the Azerbaijani Tax Minister, said.
In 2007, the Special Regime Tax Service at the Azerbaijani Taxes Ministry included an additional AZN 74mln to the public budget as a result of exit tax inspections (some AZN 40mln from oil consortiums), the head of the Department Sahir Mammadkhanov said.
According to oil contracts, not financial sanctions, but libor+4% interest rate is applied to the consortiums, though each PSA has its own terms.
Some 250 of 600 large tax payers which are registered at the Special Regime Tax Service are enterprises with a special tax system.
According to Mammadkhanov, some 8-10 inspections are held in a month and 110- 120 in a year. 2008 is expected to result in a more timely payment of taxes.
"The introduction of the 'single window' system will attract more tax payers who are still not registered at the Taxes Ministry," Mammadkhanov said.
In 2007 100% growth was registered in the tax transfers from the sphere of housing construction.
Within the authorities delegated to the tax organizations, this year control will be strengthened on the cash registers and application of POS-terminals.
Possible changes in taxation
Azerbaijan's Ministry of Taxes intends to return to the issue of changing the taxation system for the facilities of foodstuff in the country. From 2008 they will be attracted in the taxation through simplified system with 10% rate.
"Due to numerous appeals of the entrepreneurs, we abandoned this proposal this year, but we will be continuing the work with the National Confederation of Entrepreneurs in order to re-establish discussions over this issue in the coming years," Azerbaijan's Deputy Minister of Taxes, Natig Amirov, said.
He stated that each measure does not envisage only increasing the amount of the tax collection, but also should stimulate development of entrepreneurship. According to the investigations, implementing single tariffs of taxation for these facilities would enable to decrease tax loads by 40%. The key goal in changing the taxation system for these facilities is to increase transparency, expand taxable bases because it will give an opportunity to the entrepreneurs not to hide their turnover.
According to amendments and additions to the Tax Code, the higher scale of the transfer of the profit tax in 14% was determined at AZN 2,000 compared to previous AZN 1,000. According to the Deputy Minister, changing the scale of the transfers of the profit tax in Azerbaijan will decrease collections on this kind of tax by AZN 25-30mln. In addition, due to the implementation of the 'single window' for the registration of the entrepreneurs, the base of the tax payers will expand and it will significantly increase tax collections from other types of taxes and will compensate losses resulted from change of the scale of the profit tax. .
In addition, the VAT can also be decreased in Azerbaijan. However, most probably it will take place from 2009. "Since the beginning of January 2008, deposit system of VAT payment has been implemented in Azerbaijan. If the system functions efficiently, the VAT tariff may be decreased," the Deputy Minister said. He stressed that the Ministry will begin monitoring on system's efficiency. "Based on the results of the monitoring, we will devise proposals on VAT decrease," the Deputy Minister added. Currently the VAT tariff in Azerbaijan makes up 18%.
System of 'single window'
A presentation of a 'unified window' system for business registration was held for representatives of the diplomatic corps in Azerbaijan on 15 January. This system was applied by the Taxes Ministry from 1 January.
Fazil Mammadov, the Azerbaijani Taxes Minister stated to the presentation ceremony that the application of the new system reduces the number of procedures three times and the registration period was cut by 20 times. In the past, 15 procedures and 33 documents were required for business registration, and the registration term was 72 days. Now the registration takes three days to complete, after the registration at the Taxes Ministry and the full presentation of five necessary documents.
"The multi-step system sometimes led to bureaucratic impediments, these will be removed through the simplification of the business registration procedure," the minister said.
Following the application of advanced technology, the technical opportunities for offering available terms for doing business increased considerably. In this respect experience of many European countries has been studied and practice in the application of a 'unified window' in Latvia has been explored totally. The most advanced experience has been borrowed.
The new registration system also saves on human resources, the minister said. Earlier the registration process involved over 500 state employees, now a total of 85 employees of the Taxes Ministry carry out this work. The Ministry has received over 500 applications from entrepreneurs for registration and ten of them were issued the necessary certificate.
The minister said that the International Finance Corporation assisted the Azerbaijani Government in the application of the 'unified window' system.
According to Dina Nicolas, the IFC coordinator of projects on business assessment in CIS countries, the application of the business registration will have considerable influence on the simplification of business and it will be an important step for intensifying the beginning of small and medium size businesses, which has gained speedy development in the country. He considers it will improve the business climate of the country.
In accordance with legislation, state duties for limited organizations comprise AZN 11, foreign legal persons, representation of and branches - AZN 220.
A total of AZN4mln has been allocated out of the President's reserve fund for the establishment of the 'unified window', including AZN 1.85mln directed at the purchase of a license from ORACLE. The rest of the funds were allocated for the purchase of servers, technical equipment, necessary furniture, building of fibro-optic communication, establishment of relations with other ministries, administrations, as well as Nakhchivan Autonomous Republic of Azerbaijan in an online regime.